ABS-CBN BROADCASTING CORPORATION v. CTA, GR No.

L-52306,
1981-10-12

Facts:

ABS-CBN Broadcasting Corporation, engaged in telecasting local and

foreign films acquired from foreign corporations not doing business in the
Philippines, withheld 30% income tax from half of the film rentals. In 1961,
the Commissioner of Internal Revenue issued General Circular No. V-334
allowing deduction of production/exhibition costs. Petitioner followed this.

In 1968, Republic Act No. 5431 increased tax rate to 35% and based it on
"gross income." In 1971, Revenue Memorandum Circular No. 4-71 revoked
Circular No. V-334, requiring 35% withholding without deductions.
Petitioner was assessed for deficiency withholding income tax for 1965-
1968. Petitioner protested, but the Commissioner issued a warrant of
distraint and levy. The Court of Tax Appeals dismissed the assessment.

Issues:

1. Whether Revenue Memorandum Circular No. 4-71 (1971) can be

applied retroactively to issue a deficiency assessment.
2. Whether the right of the Commissioner to assess deficiency
withholding income tax for 1965 has prescribed.

Ruling:

Sec. 338-A (now Sec. 327) of the Tax Code

Any revocation of any of the rulings or circulars promulgated by the

Commissioner of Internal Revenue shall not be given retroactive
application if the revocation, modification, or reversal will be
prejudicial to the taxpayers.

The Supreme Court ruled in favor of ABS-CBN Broadcasting

Corporation. It cited Section 338-A (now Section 327) of the Tax Code
stating that rulings or circulars by the Commissioner of Internal Revenue
have no retroactive application if prejudicial to taxpayers . Since the
circular was issued three years after the last year petitioner withheld taxes
and three years after the assessment period, applying it retroactively
prejudiced the taxpayer.

Principles: This case exemplifies the principle of non-retroactivity of laws

and regulations when prejudicial to individuals. Article 4 of the Civil Code of
the Philippines embodies this principle “Laws shall have no retroactive
effect unless the contrary is provided”. The Court applied it to tax
regulations, ensuring that laws or circulars aren't retroactively applied to the
detriment of taxpayers, thereby safeguarding their vested rights.