CIR v. The Stanley Works Sales (Phils.) Inc. (2014)

COMMISSIONER OF INTERNAL REVENUE, Petitioner, -versus – THE STANLEY WORKS SALES (PHILS.), INCORPORATED, Respondent.


G.R. No. 187589, DECEMBER 3, 2014

The period to assess and collect deficiency taxes may be extended only upon a written agreement between the CIR and the taxpayer prior to the expiration of the three-year prescribed period in accordance with Section 222 (b) of the NIRC. 

In this case, the Supreme Court upheld the ruling of the CTA Division that there were infirmities on the Waiver executed by respondent on 16 November 1993. The Court found that the following requisites were absent: 

(1) Conformity of either petitioner or a duly authorized representative; 

(2) Date of acceptance showing that both parties had agreed on the Waiver before the expiration of the prescriptive period; and 

(3) Proof that respondent was furnished a copy of the Waiver. 

FACTS 

Respondent is a domestic corporation duly organized and existing under Philippine laws and duly registered with the Securities and Exchange Commission. 

On March 19, 1993, the BIR issued to Stanley Works a Pre-Assessment Notice No. 002523 for 1989 deficiency income tax. It was received by the corporation on April 21, 1993. 

On May 19, 1993, Stanley Works through its external auditors Punongbayan & Araullo, filed a protest letter and requested reconsideration and cancellation of the assessment. 

On November 16, 1993, a certain Mr. John Ang, on behalf of the corporation, executed a "Waiver of the Defense of Prescription Under the Statute of Limitations of the National Internal Revenue Code" (Waiver). 

The Waiver was not signed by Stanley Works or any of its authorized representatives and did not state the date of acceptance as prescribed under Revenue Memorandum Order No. 20-90. 

Under the terms of the Waiver, Stanley Works waived its right to raise the defense of prescription under Section 223 of the NIRC of 1977 insofar as the assessment and collection of any deficiency taxes for the year ended December 31, 1989, but not after June 30, 1994.

On March 4, 2002, Stanley Works submitted a Supplemental Memorandum alleging that CIR’s right to collect the alleged deficiency income tax has prescribed. 

The CTA Division ruled that the request for reconsideration did not suspend the running of the prescriptive period to collect deficiency income tax. This decision was affirmed by the CTA en banc. 

CIR rendered a Decision denying respondent’s request for reconsideration and ordering respondent to pay the deficiency income tax plus interest that may have accrued. 

Stanley Works assailed the decision before the Court of Tax Appeals Division which ordered the cancellation of the assessment ruling that although the assessment was made within the prescribed period, the period within which petitioner may collect deficiency income taxes had already lapsed.

Upon appeal, the CTA En Banc affirmed the CTA First Division Decision 

ISSUE 

Whether or not petitioner’s right to collect the deficiency income tax of respondent for taxable year 1989 has prescribed. 

RULING 

YES. The statute of limitations on the right to assess and collect a tax means that once the period established by law for the assessment and collection of taxes has lapsed, the government’s corresponding right to enforce that action is barred by provision of law. 

The period to assess and collect deficiency taxes may be extended only upon a written agreement between the CIR and the taxpayer prior to the expiration of the three-year prescribed period in accordance with Section 222 (b) of the NIRC. 

Furthermore, jurisprudence is replete with requisites of a valid waiver: 

·      The waiver must be in the proper form prescribed by RMO 20-90. The phrase "but not after ______ 19 ___", which indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription, should be filled up. 

·      The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a representative, such delegation should be in writing and duly notarized. 

·      The waiver should be duly notarized. 

·      The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver, the CIR or the revenue official authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and executed by the taxpayer or his duly authorized representative. 

·      Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed. 

·      The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection of the agreement.11 

In Philippine Journalist, Inc. v. Commissioner of Internal Revenue, the Court categorically stated that a Waiver must strictly conform to RMO No. 20-90. The mandatory nature of the requirements set forth in RMO No. 20-90, as ruled upon by this Court, was recognized by the BIR itself in the latter’s subsequent issuances, namely, Revenue Memorandum Circular (RMC) Nos. 6-200513 and 29- 2012.14 Thus, the BIR cannot claim the benefits of extending the period to collect the deficiency tax as a consequence of the Waiver when, in truth it was the BIR’s inaction which is the proximate cause of the defects of the Waiver. The BIR has the burden of ensuring compliance with the requirements of RMO No. 20-90, as they have the burden of securing the right of the government to assess and collect tax deficiencies. This right would prescribe absent any showing of a valid extension of the period set by the law. 

To emphasize, the Waiver was not a unilateral act of the taxpayer; hence, the BIR must act on it, either by conforming to or by disagreeing with the extension. A waiver of the statute of limitations, whether on assessment or collection, should not be construed asa waiver of the right to invoke the defense of prescription but, rather, an agreement between the taxpayer and the BIR to extend the period to a date certain, within which the latter could still assess or collect taxes due. The waiver does not imply that the taxpayer relinquishes the right to invoke prescription unequivocally. 

Although we recognize that the power of taxation is deemed inherent in order to support the government, tax provisions are not all about raising revenue. Our legislature has provided safeguards and remedies beneficial to both the taxpayer, to protect against abuse; and the government, to promptly act for the availability and recovery of revenues. A statute of limitations on the assessment and collection of internal revenue taxes was adopted to serve a purpose that would benefit both the taxpayer and the government. 

This Court has expounded on the significance of adopting a statute of limitation on tax assessment and collection in this case:

The provision of law on prescription was adopted in our statute books upon recommendation of the tax commissioner of the Philippines which declares: 

Under the former law, the right of the Government to collect the tax does not prescribe. However, in fairness to the taxpayer, the Government should be estopped from collecting the tax where it failed to make the necessary investigation and assessment within 5 years after the filing of the return and where it failed to collect the tax within 5 years from the date of assessment thereof. Just as the government is interested in the stability of its collection, so alsoare the taxpayers entitled to an assurance that they will not be subjected to further investigation for tax purposes after the expiration of a reasonable period of time. (Vol. II, Report of the Tax Commission of the Philippines, pp. 321-322) 

The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the lapse of the period of prescription citizens would havea feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latter's real liability, but to take advantage of every opportunity to molest peaceful, law-abiding citizens. Without such legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficient purpose of affording protection to the taxpayer within the contemplation of the Commission which recommends the approval of the law.