You are on page 1of 5

Republic of the Philippines

SUPREME COURT
Baguio City
SECOND DIVISION

G.R. No. 118794 May 8, 1996
PHILIPPINE REFINING COMPANY (no !non a" #UNILE$ER PHILIPPINES
%PRC&, INC.#', petitioner,
vs
COURT OF APPEALS, COURT OF TA( APPEALS, an) THE COMMISSIONER
OF INTERNAL RE$ENUE,respon!ents

REGALA*O, J.:p
"his is an appeal by certiorari fro# the !ecision of respon!ent Court of
$ppeals
1
affir#ing the !ecision of the Court of "a% $ppeals &hich !isallo&e!
petitioner's clai# for !e!uction as ba! !ebts of several accounts in the total su# of
P()*,(+,+-, an! i#posing a +*. surcharge an! +/. annual !elin0uency interest
on the allege! !eficiency inco#e ta% liability of petitioner
Petitioner Philippine Refining Co#pany 1PRC2 &as assesse! by respon!ent
Co##issioner of Internal Revenue 1Co##issioner2 to pay a !eficiency ta% for the
year 3)4* in the a#ount of P3,4)+,*4,//, co#pute! as follo&s5
Deficiency Income Tax
Net Inco#e per investigation P3)-,*/+,*64//
$!!5 Disallo&ances
Ba! Debts P -3(,/-/)(
Interest E%pense P +,666,*,*,)
777777 777777
P(,(-),636//
Net "a%able Inco#e +//,44+,34,//
"a% Due "hereon -/,+)4,-6,//
8ess5 "a% Pai! 6),33*,4))//
Deficiency Inco#e "a% 3,34+,46*//
$!!5 +/. Interest 16/. #a%2 -/),-3)//
777777
"otal $#ount Due an! Collectible P3,4)+,*4,//
+
"he assess#ent &as ti#ely proteste! by petitioner on $pril +6, 3)4), on the
groun! that it &as base! on the erroneous !isallo&ances of 9ba! !ebts9 an!
9interest e%pense9 although the sa#e are both allo&able an! legal !e!uctions
Respon!ent Co##issioner, ho&ever, issue! a &arrant of garnish#ent against the
!eposits of petitioner at a branch of City "rust Ban:, in ;a:ati, ;etro ;anila,
&hich action the latter consi!ere! as a !enial of its protest
Petitioner accor!ingly file! a petition for revie& &ith the Court of "a% $ppeals
1C"$2 on the sa#e assign#ent of error, that is, that the 9ba! !ebts9 an! 9interest
e%pense9 are legal an! allo&able !e!uctions In its !ecision
,
of <ebruary (, 3))(
in C"$ Case No ,,/4, the C"$ #o!ifie! the fin!ings of the Co##issioner by
re!ucing the !eficiency inco#e ta% assess#ent to P+(-,(43+6, &ith surcharge
an! interest inci!ent to !elin0uency In sai! !ecision, the "a% Court reverse! an!
set asi!e the Co##issioner's !isallo&ance of the interest e%pense of
P+,666,*,*3) but #aintaine! the !isallo&ance of the suppose! ba! !ebts of
thirteen 13(2 !ebtors in the total su# of P()*,(+,+-
Petitioner then elevate! the case to respon!ent Court of $ppeals &hich, as earlier
state!, !enie! !ue course to the petition for revie& an! !is#isse! the sa#e on
$ugust +,, 3)), in C$=>R SP No (33)/,
4
on the follo&ing ratiocination5
?e agree &ith respon!ent Court of "a% $ppeals5
Out of the si%teen 1362 accounts allege! as ba!
!ebts, ?e fin! that only three 1(2 accounts have
#et the re0uire#ents of the &orthlessness of the
accounts, hence &ere properly &ritten off as5 ba!
!ebts, na#ely5
3 Petronila Catap P +),/)4(/
1Pet ;ini >rocery2
+ Esther >uinto +*,,(-**,
1Esther Sari=sari Store2
( ;anuel Orea (,,+-+4+
1El#an >en ;!sg2
77777
"O"$8 P (3-,-,666
%%% %%% %%%
?ith regar! to the other accounts, na#ely5
3 Re#oblas Store P 33,)63//
+ "o#as Store 36,4,+-)
( $<PCES 3(,4((6+
, C; Variety Store 3/,4)*4+
* @' Ren ;art Enterprise 3/,,4-/4
6 $boitiA Shipping Corp 4),,4(,/
- B RuiA "ruc:ing 6),6,/(,
4 Renato $leCan!ro 3(,**///
) Craig, ;ostyn Pty 8t! +(,-(4//
3/ C Itoh 3),+-+++
33 Croc:laan BV --,6)///
3+ Enriche! <oo! Corp +,,3*4//
3( 8ucito Sta ;aria 3(,--+//
77777
"O"$8 P ()*,(+,+-
?e fin! that sai! accounts have not satisfie! the re0uire#ents of
the 9&orthlessness of a !ebt9 ;ere testi#ony of the <inancial
$ccountant of the Petitioner e%plaining the &orthlessness of sai!
!ebts is seen by this Court as nothing #ore than a self=serving
e%ercise &hich lac:s probative value "here &as no iota of
!ocu#entary evi!ence 1eg, collection letters sent, report fro#
investigating fiel!#en, letter of referral to their legal !epart#ent,
police reportDaffi!avit that the o&ners &ere ban:rupt !ue to fire
that engulfe! their stores or that the o&ner has been #ur!ere!
etc2, to give support to the testi#ony of an e#ployee of the
Petitioner ;ere allegations cannot prove the &orthlessness of
such !ebts in 3)4* Eence, the clai# for !e!uction of these
thirteen 13(2 !ebts shoul! be reCecte!
-
3 "his pronounce#ent of respon!ent Court of $ppeals relie! on the ruling of this
Court in Collector vs Goodrich International Rubber Co,
6
&hich establishe! the
rule in !eter#ining the 9&orthlessness of a !ebt9 In sai! case, &e hel! that for
!ebts to be consi!ere! as 9&orthless,9 an! thereby 0ualify as 9ba! !ebts9 #a:ing
the# !e!uctible, the ta%payer shoul! sho& that 132 there is a vali! an! subsisting
!ebt 1+2 the !ebt #ust be actually ascertaine! to be &orthless an! uncollectible
!uring the ta%able yearF 1(2 the !ebt #ust be charge! off !uring the ta%able yearF
an! 1,2 the !ebt #ust arise fro# the business or tra!e of the ta%payer $!!itionally,
before a !ebt can be consi!ere! &orthless, the ta%payer #ust also sho& that it is
in!ee! uncollectible even in the future
<urther#ore, there are steps outline! to be un!erta:en by the ta%payer to prove
that he e%erte! !iligent efforts to collect the !ebts, viz5 132 sen!ing of state#ent of
accountsF 1+2 sen!ing of collection lettersF 1(2 giving the account to a la&yer for
collectionF an! 1,2 filing a collection case in court
On the foregoing consi!erations, respon!ent Court of $ppeals hel! that petitioner
!i! not satisfy the re0uire#ents of 9&orthlessness of a !ebt9 as to the thirteen 13(2
accounts !isallo&e! as !e!uctions
It appears that the only evi!entiary support given by PRC for its aforesai! clai#e!
!e!uctions &as the e%planation or Custification posite! by its financial a!viser or
accountant, >uia D ;asagana Eer allegations &ere not supporte! by any
!ocu#entary evi!ence, hence both the Court of $ppeals an! the C"$ rule! that
sai! contentions per se cannot prove that the !ebts &ere in!ee! uncollectible an!
can be consi!ere! as ba! !ebts as to #a:e the# !e!uctible "hat both lo&er
courts are correct is sho&n by petitioner's o&n sub#ission an! the !iscussion
thereof &hich &e have ta:en ti#e an! patience to cull fro# the antece!ent
procee!ings in this case, albeit bor!ering on factual settings
"he accounts of Re#oblas Store in the a#ount of P33,)63// an! C; Variety
Store in the a#ount of P3/,4)*4+ are uncollectible, accor!ing to petitioner, since
the stores &ere burne! in Nove#ber, 3)4, an! in early 3)4*, respectively, an!
there are no assets belonging to the !ebtors that can be garnishe! by
PRC
7
Eo&ever, PRC faile! to sho& any !ocu#entary evi!ence for sai!
allegations Not a single !ocu#ent &as offere! to sho& that the stores &ere
burne!, even Cust a police report or an affi!avit attesting to such loss by fire In
fact, petitioner !i! not sen! even a single !e#an! letter to the o&ners of sai!
stores
"he account of "o#as Store in the a#ount of P36,4,+-) is uncollectible, clai#s
petitioner PRC, since the o&ner thereof &as #ur!ere! an! left no visible assets
&hich coul! satisfy the !ebt ?ithal, Cust li:e the accounts of the t&o other stores
Cust #entione!, petitioner again faile! to present proof of the efforts e%erte! to
collect the !ebt, other than the aforestate! asseverations of its financial a!viser
"he accounts of $boitiA Shipping Corporation an! B RuiA "ruc:ing in the a#ounts
of P4),,4(,/ an! P6),6,/(,, respectively, both of &hich allege!ly arose fro#
the hiCac:ing of their cargo an! for &hich they &ere given (/. rebates by PRC,
are clai#e! to be uncollectible $gain, petitioner faile! to present an iota of proof,
not even a copy of the suppose! policy regulation of PRC that it gives rebates to
clients in case of loss arising fro# fortuitous events or force majeure, &hich
rebates it no& passes off as uncollectible !ebts
$s to the account of P3(,**/// representing the balance collectible fro# Renato
$leCan!ro, a for#er e#ployee &ho faile! to pay the Cu!g#ent against hi#, it is
petitioner's theory that the sa#e can no longer be collecte! since his &hereabouts
are un:no&n an! he has no :no&n property &hich can be garnishe! or levie!
upon Once again, petitioner faile! to prove the e%istence of the sai! case against
that !ebtor or to sub#it any !ocu#entation to sho& that $leCan!ro &as in!ee!
boun! to pay any Cu!g#ent obligation
"he a#ount of P3(,--+// correspon!ing to the !ebt of 8ucito Sta ;aria is
allege!ly !ue to the loss of his stoc:s through robbery an! the account is
uncollectible !ue to his insolvency Petitioner li:e&ise faile! to sub#it !ocu#entary
evi!ence, not even the &ritten reports of the allege! investigation con!ucte! by its
agents as testifie! to by its aforena#e! financial a!viser
Regar!ing the accounts of C Itoh in the a#ount of P3),+-+++, Croc:laan BV in
the su# of P--,6)///, an! Craig, ;ostyn Pty 8t! &ith a balance of P+(,-(4//,
petitioner conten!s that these !ebtors being foreign corporations, it can sue the#
only in their country of incorporationF an! since this &ill entail e%penses #ore than
the a#ounts of the !ebts to be collecte!, petitioner !i! not file any collection suit
but opte! to &rite the# off as ba! !ebts Petitioner &as unable to sho& proof of its
efforts to collect the !ebts, even by a single !e#an! letter therefor ?hile it is not
re0uire! to file suit, it is at least e%pecte! by the la& to pro!uce reasonable proof
that the !ebts are uncollectible although !iligent efforts &ere e%erte! to collect the
sa#e
"he account of Enriche! <oo! Corporation in the a#ount of P+,,3*4// re#ains
unpai!, although petitioner clai#s that it sent several letters "his is not sufficient
to sustain its position even if true, but even s#ac:s of insouciance on its part On
top of that, it &as unable to sho& a single copy of the allege! !e#an! letters sent
to the sai! corporation or any of its corporate officers
?ith regar! to the account of $<PCES for unpai! supplies in the a#ount of
P3(,4((6+, petitioner asserts that since the !ebtor is an agency of the
govern#ent, PRC !i! not file a collection suit therefor Get, the #ere fact that
$<PCES is a govern#ent agency !oes not preclu!e PRC fro# filing suit since sai!
agency, &hile !ischarging proprietary functions, !oes not enCoy i##unity fro# suit
Such pretension of petitioner cannot pass Cu!icial #uster
No e%planation is offere! by petitioner as to &hy the unpai! account of @' Ren ;art
Enterprise in the a#ount of P3/,,4-/4 &as &ritten off as a ba! !ebt Eo&ever,
the !ecision of the C"$ inclu!es this !ebtor in its fin!ings on the lac: of
!ocu#entary evi!ence to Custify the !e!uctions clai#e!, since the &orthlessness
of the !ebts involve! are sought to be establishe! by the #ere self=serving
testi#ony of its financial consultant
"he contentions of PRC that nobo!y is in a better position to !eter#ine &hen an
obligation beco#es a ba! !ebt than the cre!itor itself, an! that its Cu!g#ent shoul!
not be substitute! by that of respon!ent court as it is PRC &hich has the facilities
in ascertaining the collectibility or uncollectibility of these !ebts, are presu#ptuous
an! uncalle! for "he Court of "a% $ppeals is a highly specialiAe! bo!y specifically
create! for the purpose of revie&ing ta% cases "hrough its e%pertise, it is
un!eniably co#petent to !eter#ine the
issue of &hether or not the !ebt is !e!uctible through the evi!ence presente!
before it
8
Because of this recogniAe! e%pertise, the fin!ings of the C"$ &ill not or!inarily be
revie&e! absent a sho&ing of gross error or abuse on its part
9
"he fin!ings of fact
of the C"$ are bin!ing on this Court an! in the absence of strong reasons for this
Court to !elve into facts, only 0uestions of la& are open for !eter#ination
1.
?ere
it not, therefore, !ue to the !esire of this Court to satisfy petitioner's calls for
clarification an! to use this case as a vehicle for e%e#plification, this appeal coul!
very &ell have been su##arily !is#isse!
"he Court vehe#ently reCects the absur! thesis of petitioner that !espite the
supervening !elay in the ta% pay#ent, nothing is lost on the part of the
>overn#ent because in the event that these !ebts are collecte!, the sa#e &ill be
returne! as ta%es to it in the year of the recovery "his is an irresponsible
state#ent &hich !eliberately ignores the fact that &hile the >overn#ent #ay
eventually recover revenues un!er that hypothesis, the !elay cause! by the non=
pay#ent of ta%es un!er such a contingency &ill obviously have a !isastrous effect
on the revenue collections necessary for govern#ental operations !uring the
perio! concerne!
+ ?e nee! not tarry at length on the secon! issue raise! by petitioner It argues
that the i#position of the +*. surcharge an! the +/. !elin0uency interest !ue to
!elay in its pay#ent of the ta% assesse! is i#proper an! un&arrante!, consi!ering
that the assess#ent of the Co##issioner &as #o!ifie! by the C"$ an! the
!ecision of sai! court has not yet beco#e final an! e%ecutory
Regar!ing the +*. surcharge penalty, Section +,4 of the "a% Co!e provi!es5
Sec +,4 Civil Penalties 7 1a2 "here shall be i#pose!, in
a!!ition to the ta% re0uire! to be pai!, a penalty e0uivalent to
t&enty=five percent 1+*.2 of the a#ount !ue, in the follo&ing
cases5
%%% %%% %%%
1(2 <ailure to pay the ta% &ithin the ti#e prescribe! for its
pay#ent
?ith respect to the penalty of +/. interest, the relevant provision is foun! in
Section +,) of the sa#e Co!e, as follo&s5
Sec +,) Interest 7 1a2 In general 7 "here shall be assesse!
an! collecte! on any unpai! a#ount of ta%, interest at the rate of
t&enty percent 1+/.2 per annu#, or such higher rate as #ay be
prescribe! by regulations, fro# the !ate prescribe! for pay#ent
until the a#ount is fully pai!
%%% %%% %%%
1c2 Delinuency interest 7 In case of failure pay5
132 "he a#ount of the ta% !ue on any return re0uire! to be
file!, or
1+2 "he a#ount of the ta% !ue for &hich no return is re0uire!, or
1(2 $ !eficiency ta%, or any surcharge or interest thereon, on the
!ue !ate appearing in the notice an! !e#an! of the
Co##issioner,
there shall be assesse! an! collecte!, on the unpai! a#ount,
interest at the rate prescribe! in paragraph 1a2 hereof until the
a#ount is fully pai!, &hich interest shall for# part of the ta%
1e#phasis supplie!2
%%% %%% %%%
$s correctly pointe! out by the Solicitor >eneral, the !eficiency ta% assess#ent in
this case, &hich &as the subCect of the !e#an! letter of respon!ent Co##issioner
!ate! $pril 33,3)4), shoul! have been pai! &ithin thirty 1(/2 !ays fro# receipt
thereof By reason of petitioner's !efault thereon, the !elin0uency penalties of +*.
surcharge an! interest of +/. accrue! fro# $pril 33, 3)4) "he fact that petitioner
appeale! the assess#ent to the C"$ an! that the sa#e &as #o!ifie! !oes not
relieve petitioner of the penalties inci!ent to !elin0uency "he re!uce! a#ount of
P+(-,(43+* is but a part of the original assess#ent of P3,4)+,*4,//
Our attention has also been calle! to t&o of our previous rulings an! these &e set
out here for the benefit of petitioner an! &hosoever #ay be #in!e! to ta:e the
sa#e stance it has a!opte! in this case "a% la&s i#posing penalties for
!elin0uencies, so &e have long hel!, are inten!e! to hasten ta% pay#ents by
punishing evasions or neglect of !uty in respect thereof If penalties coul! be
con!one! for fli#sy reasons, the la& i#posing penalties for !elin0uencies &oul!
be ren!ere! nugatory, an! the #aintenance of the >overn#ent an! its #ultifarious
activities &ill be a!versely affecte!
11
?e have li:e&ise e%plaine! that it is #an!atory to collect penalty an! interest at
the state! rate in case of !elin0uency "he intention of the la& is to !iscourage
!elay in the pay#ent of ta%es !ue the >overn#ent an!, in this sense, the penalty
an! interest are not penal but co#pensatory for the conco#itant use of the fun!s
by the ta%payer beyon! the !ate &hen he is suppose! to have pai! the# to the
>overn#ent
1+
@n0uestionably, petitioner chose to turn a !eaf ear to these
inCunctions
$CCORDIN>8G, the petition at bar is DENIED an! the Cu!g#ent of respon!ent
Court of $ppeals is hereby $<<IR;ED, &ith treble costs against petitioner
SO ORDERED
/a) *012"
P3454664n0 R074n4n8 Co96any :. Co;<2 o7 A660a5" (1996'
<acts5
Philippine Refining Co#pany 1PRC2 &as assesse! !eficiency ta% as a result of the
!isallo&ance of ba! !ebts 1P-3(,/-/)(2 an! interest e%pense 1P+,666,*,*,)2
"he Court of "a% $ppeals, upon petition by PRC, reverse! the !isallo&ance of
interest e%pense but #aintaine! the !isallo&ance of ba! !ebts a#ounting to
P()*,(+,+- 1thereby allo&ing as !e!uction the !ifference of P(3-,-,666 only2
$ccor!ing to the C"$, #ere testi#ony of the <inancial $ccountant of PRC
e%plaining the &orthlessness of sai! !ebts is nothing #ore than a self=serving
e%ercise &hich lac:s probative value, that there &as no iota of !ocu#entary
evi!ence 1collection letters sent, report fro# investigating fiel!#en, letter of referral
to their legal !epart#ent, police reportDaffi!avit that the o&ners &ere ban:rupt !ue
to fire that engulfe! their stores or that the o&ner has been #ur!ere!, etc2 to give
support to the testi#ony of an e#ployee of PRC, that #ere allegations cannot
prove the &orthlessness of such !ebts, thus the !isallo&ance of the 3( !ebts
a#ounting to P()*,(+,+-
Issue5 ?ON the !isallo&ance of ba! !ebts &as proper
Eel!5 GES
Ratio5
Fo< )012" 2o 10 =on"4)0<0) a" >o<2350"",? an) 230<01y @;a547y a" >1a)
)012"? 9a!4n8 2309 )0);=24150, 230 2aA6ay0< "3o;5) "3o 23a2B (1' 230<0 4" a
:a54) an) ";1"4"24n8 )012C (+' 230 )012 9;"2 10 a=2;a55y a"=0<2a4n0) 2o 10
o<2350"" an) ;n=o550=24150 );<4n8 230 2aAa150 y0a<C (,' 230 )012 9;"2 10
=3a<80) o77 );<4n8 230 2aAa150 y0a<C an) (4' 230 )012 9;"2 a<4"0 7<o9 230
1;"4n0"" o< 2<a)0 o7 230 2aA6ay0<. A))424ona55y, 107o<0 a )012 =an 10
=on"4)0<0) o<2350"", 230 2aA6ay0< 9;"2 a5"o "3o 23a2 42 4" 4n)00)
;n=o550=24150 0:0n 4n 230 7;2;<0.
F;<230<9o<0, 230<0 a<0 "206" o;254n0) 2o 10 ;n)0<2a!0n 1y 230 2aA6ay0< 2o
6<o:0 23a2 30 0A0<20) )45480n2 077o<2" 2o =o550=2 230 )012", :4DB (1' "0n)4n8 o7
"2a2090n2 o7 a==o;n2"C (+' "0n)4n8 o7 =o550=24on 50220<"C (,' 84:4n8 230
a==o;n2 2o a 5ay0< 7o< =o550=24onC (4' 7454n8 a =o550=24on =a"0 4n =o;<2.
PRC !i! not satisfy the re0uire#ents of H&orthlessness of a !ebtI as to the
!isallo&e! ba! !ebts It appears that the only evi!entiary support given by PRC for
its aforesai! clai#e! !ections &as the e%planation or Custification posite! by its
financial a!viser or accounte! &hich &ere not supporte! by any !ocu#entary
evi!ence
1In case, recitation calls for so#e !etail, here is the list of PRCJs !ebtors2
Remoblas !tore K stores burne!, thus, no assets can be garnishe! by PRCF PRC
faile! to sho& any !ocu#entary evi!ence to sho& that the stores &ere burne!, not
even a police report or an affi!avit attesting to such loss by fire No !e#an! letter
&as sent
Tomas !tore K o&ner &as #ur!ere! an! left no visible assetsF no proof of efforts
e%erte! to collect the !ebt
"boitiz !hipping Corporation K hiCac:ing, thus &as given (/. rebateF no proof of
policy regulation that it gives rebates
Renato "lejandro K &hereabouts are un:no&n an! no :no&n property that can be
garnishe!F no !ocu#entary evi!ence sub#itte!
#ucito !ta$ %aria K loss of stoc:s through robberyF no !ocu#entary evi!ence &as
sub#itte!, not even the &ritten reports of the allege! investigation
C$ Itoh K foreign corporation, suing the# &ill entail e%penses #ore than the
a#ount of !ebt to be collecte!F &hile it is not re0uire! to file suit, it is at least
e%pecte! by the la& to pro!uce reasonable proof that the !ebts are uncollectible
although !iligent efforts &ere e%erte! to collect the#
&nriched 'ood Corporation K re#ains unpai! although PRC sent several lettersF
not a single copy of the allege! !e#an! letter &as sho&n
"'PC&! K !ebtor is a govern#ent agency, thus, PRC !i! not file a suitF the #ere
fact that $<PCES is a govern#ent agency !oes not preclu!e PRC fro# filing suit
since sai! agency, &hile !ischarging proprietary functions, !oes not enCoy
i##unity fro# suit
@JRen ;art Enterprise K no e%planation &hy account &as &ritten offF no
!ocu#entary evi!ence to Custify !e!uction clai#e!
;oreover, PRCJs clai# that it has the facilities in ascertaining the collectability or
uncollectibility of its !ebts is presu#ptuous an! uncalle! for "he C"$ is a highly
specialiAe! bo!y specifically create! for the purpose of revie&ing ta% cases
Because of this recogniAe! e%pertise, the fin!ings of the C"$ &ill not or!inarily be
revie&e! absent a sho&ing of gross error or abuse on its part
DENIED