Commissioner of Internal Revenue vs Malayan Insurance 21 SCRA 544

Facts:

Malayan Insurance Company, Inc. (hereafter referred to as MALAYAN), a domestic corporation which has reinsurance contract with Orion Insurance Company, Ltd. of London (hereafter referred to as ORION) a non-resident foreign corporation, without previous authorization, filed the latter's income tax return for 1958 and paid the tax due thereon, in the sum of P958.00. Finding later that ORION had commissioned another domestic entity, Filipinas Compañia de Seguros (to be referred hereafter as FILIPINAS) to file the income tax return on its behalf, and that the said agent paid the sum of P778.00 as corresponding income tax for the same year (1958), MALAYAN requested the Commissioner of Internal Revenue for the refund of the P958.00 it had paid. When no action was taken thereon, MALAYAN filed a petition in the Court of Tax Appeals for the same purpose.
In its answer, the Commissioner of Internal Revenue alleged, inter alia, that in 1958, MALAYAN had ceded to ORION reinsurance premiums covering risks located in the Philippines amounting to P64,327.36; that this amount is subject to withholding tax in the sum of P15,416.96; that demand for payment of the withholding tax was made upon petitioner on February 16, 1962; and that even if petitioner is to be credited with the sum of P958.00 there would still be due from the latter the sum of P14,458.96. Respondent, therefore, asked the Court that the petition be dismissed and petitioner be ordered to pay P14,458.96, with the penalties incident to late payment.
The Tax Court decided for MALAYAN and ordered the refund of the sum of P958.00 it had erroneously paid as income tax of ORION for 1958. And for the reason that FILIPINAS is the duly authorized representative of ORION, CIR's counterclaim for P15,416.96 was dismissed without prejudice.

Issue:

1. Whether or not MALAYAN should be refunded the sum of P958.00 it had erroneously paid as income tax of ORION
   
2. Whether or not, by reason of FILIPINAS being the duly authorized representative of ORION, MALAYAN is absolved of its
   legal duty over the withholding taxes
   

Ruling:

1. Yes. MALAYAN made an erroneous payment of income tax since it was FILIPINAS who was the duly authorized representative to file ORION’s income tax and to which FILIPINAS did file and pay for.
   
2. No. The cause of action of the Commissioner against MALAYAN is not for collection of income tax, but for the enforcement of the withholding provision of Section 53 of the Tax Code — the compliance with which obligation is imposed on the withholding agent, not upon the taxpayer. Whether or not the taxpayer, ORION, has a duly authorized representative in this country is, consequently, beside the point. There is no showing that any of the reinsurance premiums ceded by MALAYAN to ORION ever passed to the hands of FILIPINAS, the representative of ORION.
   There is no evidence here that MALAYAN withheld a certain percentage of the reinsurance premiums transmitted to ORION and that it (MALAYAN) had filed a return thereon, as required by Section 53 (c) of the Tax Code. What is actually material is whether that obligation of the withholding agent is affected by the payment by FILIPINAS of the income tax of ORION for 1958.
   The payment by FILIPINAS of the alleged tax on the incomes of ORION did not relieve the withholding agent of its legal duty. Firstly, the filing of the tax return and payment of the amount of P778.00 as income tax cannot be considered in this case as final. Not only is there no proof that the return made by FlLIPINAS for ORION included the reinsurance premiums ceded by MALAYAN, but the great difference between the amount paid and that which should have been withheld and transmitted to the Philippine Government, to take care of the taxes that may be due on that income (P15,416.96), is sufficient to put one in expectancy of further proceedings on that return. In fact, an investigation of the tax return filed by FILIPINAS was already conducted, and in April, 1962, the examiners recommended the assessment against the taxpayer of deficiency income tax in the sum of P6,442.00 (p. 67, B.I.R. Record).
   In the second place, this is as appropriate an instance as any for the operation of the provision of Section 53 (b). Because, in the event the taxpayer is finally found liable for deficiency tax on its incomes from the Philippines in 1958, the Government would have no way of collecting what is still due from said taxpayer, which is a foreign corporation not engaged in trade or business and without office or place of business in the Philippines. FILIPINAS cannot be considered the authorized agent through which any deficiency tax against ORION may be collectible. As specified from the letter of appointment of FILIPINAS, hereinbefore quoted, the filing of the tax return by the agent, which was therein authorized, would not even bind the principal to pay the tax based thereon. The right to appeal or claim for refund is also withheld from the agent. In the circumstances, the importance of the withholding under Section 53 is clearly underscored.