Abs CBN VS Cta
Abs CBN VS Cta
Abs CBN VS Cta
SUPREME COURT
Manila
FIRST DIVISION
MELENCIO-HERRERA, J.:
This is a Petition for Review on certiorari of the Decision of the Court of Tax Appeals in
C.T.A. Case No. 2809, dated November 29, 1979, which affirmed the assessment by
the Commissioner of Internal Revenue, dated April 16, 1971, of a deficiency withholding
income tax against petitioner, ABS-CBN Broadcasting Corporation, for the years 1965,
1966, 1967 and 1968 in the respective amounts of P75,895.24, P99,239.18,
P128,502.00 and P222, 260.64, or a total of P525,897.06.
During the period pertinent to this case, petitioner corporation was engaged in the
business of telecasting local as well as foreign films acquired from foreign corporations
not engaged in trade or business within the Philippines. for which petitioner paid rentals
after withholding income tax of 30%of one-half of the film rentals.
4. The local distributor should withhold 30% of one-half of the film rentals
paid to the non-resident foreign film distributor and pay the same to this
office in accordance with law unless the non- resident foreign film
distributor makes a prior settlement of its income tax liability. (Emphasis
ours).
Pursuant to the foregoing, petitioner dutifully withheld and turned over to the Bureau of
Internal Revenue the amount of 30% of one-half of the film rentals paid by it to foreign
corporations not engaged in trade or business within the Philippines. The last year that
petitioner withheld taxes pursuant to the foregoing Circular was in 1968.
On June 27, 1968, Republic Act No. 5431 amended Section 24 (b) of the Tax Code
increasing the tax rate from 30 % to 35 % and revising the tax basis from "such amount"
referring to rents, etc. to "gross income," as follows:
In view thereof, General Circular No. V-334, dated April 12, 1961, is
hereby revoked and henceforth, local films distributors and exhibitors shall
deduct and withhold 35% of the entire amount payable by them to non-
resident foreign corporations, as film rental or royalty, or whatever such
payment may be denominated, without any deduction whatever, pursuant
to Section 24 (b), and pay the withheld taxes in accordance with Section
54 of the Tax Code, as amended.
On the basis of this new Circular, respondent Commissioner of Internal Revenue issued
against petitioner a letter of assessment and demand dated April 15, 1971, but allegedly
released by it and received by petitioner on April 12, 1971, requiring them to pay
deficiency withholding income tax on the remitted film rentals for the years 1965 through
1968 and film royalty as of the end of 1968 in the total amount of P525,897.06
computed as follows:
1965
1966
1967
1968
For the reasons given, the Court finds the assessment issued by
respondent on April 16, 1971 against petitioner in the amounts of
P75,895.24, P 99,239.18, P128,502.00 and P222,260.64 or a total of
P525,897.06 as deficiency withholding income tax for the years 1965,
1966, 1967 and 1968, respectively, in accordance with law. As prayed for,
the petition for review filed in this case is dismissed, and petitioner ABS-
CBN Broadcasting Corporation is hereby ordered to pay the sum of
P525,897.06 to respondent Commissioner of Internal Revenue as
deficiency withholding income tax for the taxable years 1965 thru 1968,
plus the surcharge and interest which have accrued thereon incident to
delinquency pursuant to Section 51 (e) of the National Internal Revenue
Code, as amended.
In point is Sec. 338-A (now Sec. 327) of the Tax Code. As inserted by Republic Act No.
6110 on August 9, 1969, it provides:
It is clear from the foregoing that rulings or circulars promulgated by the Commissioner
of Internal Revenue have no retroactive application where to so apply them would be
prejudicial to taxpayers. The prejudice to petitioner of the retroactive application of
Memorandum Circular No. 4-71 is beyond question. It was issued only in 1971, or three
years after 1968, the last year that petitioner had withheld taxes under General Circular
No. V-334. The assessment and demand on petitioner to pay deficiency withholding
income tax was also made three years after 1968 for a period of time commencing in
1965. Petitioner was no longer in a position to withhold taxes due from foreign
corporations because it had already remitted all film rentals and no longer had any
control over them when the new Circular was issued. And in so far as the enumerated
exceptions are concerned, admittedly, petitioner does not fall under any of them.
The rationale behind General Circular No. V-334 was clearly stated therein, however: "It
ha(d) been determined that the tax is still imposed on income derived from capital, or
labor, or both combined, in accordance with the basic principle of income taxation ...and
that a mere return of capital or investment is not income ... ." "A part of the receipts of a
non-resident foreign film distributor derived from said film represents, therefore, a return
of investment." The Circular thus fixed the return of capital at 50% to simplify the
administrative chore of determining the portion of the rentals covering the return of
capital." 5
Were the "gross income" base clear from Sec. 24 (b), perhaps, the ratiocination of the
Tax Court could be upheld. It should be noted, however, that said Section was not too
plain and simple to understand. The fact that the issuance of the General Circular in
question was rendered necessary leads to no other conclusion than that it was not easy
of comprehension and could be subjected to different interpretations.
In fact, Republic Act No. 2343, dated June 20, 1959, supra, which was the basis of
General Circular No. V-334, was just one in a series of enactments regarding Sec. 24
(b) of the Tax Code. Republic Act No. 3825 came next on June 22, 1963 without
changing the basis but merely adding a proviso (in bold letters).
Republic Act No. 3841, dated likewise on June 22, 1963, followed after, omitting the
proviso and inserting some words (also in bold letters).
It was only on June 27, 1968 under Republic Act No. 5431, supra, which became the
basis of Revenue Memorandum Circular No. 4-71, that Sec. 24 (b) was amended to
refer specifically to 35% of the "gross income."
This Court is not unaware of the well-entrenched principle that the Government is never
estopped from collecting taxes because of mistakes or errors on the part of its
agents. 8 In fact, utmost caution should be taken in this regard. 9 But, like other
principles of law, this also admits of exceptions in the interest of justice and fairplay. The
insertion of Sec. 338-A into the National Internal Revenue Code, as held in the case of
Tuason, Jr. vs. Lingad, 10 is indicative of legislative intention to support the principle of
good faith. In fact, in the United States, from where Sec. 24 (b) was patterned, it has
been held that the Commissioner of Collector is precluded from adopting a position
inconsistent with one previously taken where injustice would result therefrom, 11 or
where there has been a misrepresentation to the taxpayer. 12
We have also noted that in its Decision, the Court of Tax Appeals further required the
petitioner to pay interest and surcharge as provided for in Sec. 51 (e) of the Tax Code in
addition to the deficiency withholding tax of P 525,897.06. This additional requirement is
much less called for because the petitioner relied in good faith and religiously complied
with no less than a Circular issued "to all internal revenue officials" by the highest official
of the Bureau of Internal Revenue and approved by the then Secretary of Finance. 13
With the foregoing conclusions arrived at, resolution of the issue of prescription
becomes unnecessary.
WHEREFORE, the judgment of the Court of Tax Appeals is hereby reversed, and the
questioned assessment set aside. No costs.
SO ORDERED.