Lim Gaw, Jr. v. CIR (Case Digest. G.R. No. 222837)

CASE DIGEST: [ G.R. No. 222837, July 23, 2018 ] MACARIO LIM GAW, JR., PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. TIJAM, J.:

FACTS: On July 11, 2008, petitioner conveyed the 10 parcels of land to Eagle I Landholdings, Inc. (Eagle I), via an Agreement to Sell.

In compliance with Revenue Memorandum Order No. 15-2003, petitioner requested the BIR-RDO to compute the tax liabilities due on the sale of the 10 parcels of land to Eagle I.

In accordance with the One Time Transactions (ONETT) Computation sheets, petitioner paid Capital Gains Tax amounting to P505,177,213.81 and Documentary Stamp Tax amounting to P330,390.00.

On July 23, 2008, the BIR-RDO No. 52 issued the corresponding Certificates Authorizing Registration and Tax Clearance Certificates.

Two years later, the CIR said petitioner is liable NOT for the 6% capital gains tax but for the 32% regular income tax and 12% value added tax, on the theory that the properties petitioner sold were ordinary assets and not capital assets. Further, respondent found petitioner to have misdeclared his income, misclassified the properties and used multiple tax identification numbers to avoid being assessed the correct amount of taxes.

CIR issued a Letter of Authority to commence investigation on petitioner's tax account.

The next day, CIR filed with the DOJ a Joint Complaint Affidavit for tax evasion against petitioner.

The DOJ then filed two criminal informations for tax evasion against petitioner in the CTA. At the time the Informations were filed, CIR had not yet issued a final decision on the deficiency assessment against petitioner.

Halfway through the trial, the respondent issued a Final Decision on Disputed Assessment (FDDA) against petitioner, assessing him of deficiency income tax and VAT covering taxable years 2007 and 2008.

With respect to the deficiency assessment against petitioner for the year 2007, petitioner filed a petition for review with the CTA, docketed as CTA Case No. 8502. The clerk of court of the CTA assessed petitioner for filing fees which the latter promptly paid.

However, with respect to the deficiency assessment against petitioner for the year 2008, the same involves the same tax liabilities being recovered in the pending criminal cases. Thus, petitioner filed before the CTA a motion to clarify as to whether petitioner has to file a separate petition to question the deficiency assessment for the year 2008.

On June 6, 2012, the CTA issued a Resolution granting petitioner's motion and held that the recovery of the civil liabilities for the taxable year 2008 was deemed instituted with the consolidated criminal cases.

However, as a caution, petitioner still filed a Petition for Review Ad Cautelam (with Motion for Consolidation with CTA Criminal Case Nos. O-206 and O-207). Upon filing of the said petition, the clerk of court of the CTA assessed petitioner with "zero filing fees."

Petitioner was acquitted in Criminal Case Nos. O-206 and O-207 and the CTA directed the litigation of the civil aspect in CTA Case No. 8503.Thereafter, CIR filed a Motion to Dismiss the Petition for Review Ad Cautelam on the ground that the CTA First Division lacks jurisdiction to resolve the case due to petitioner's non-payment of the filing fees.

CTA First Division granted the Motion to Dismiss. Petitioner elevated the case to the CTA En Banc. Dismissal affirmed.

ISSUES: [1] Is the civil action filed by petitioner to question the FDDA deemed instituted in the criminal case for tax evasion?

[2] Is the Petition for Review Ad Cautelam filed by petitioner deemed instituted in the civil action for recovery of taxes?

[3] Is the CTA correct in dismissing the petition for failure by the petitioner to pay docket fees?

[4] What tax is petitioner liable for? In other words, is petitioner liable for the assessed tax deficiency?

HELD. The petition is PARTLY GRANTED.

FIRST ISSUE: Under the Revised Rules of the Court of Tax Appeals (RRCTA), the civil action filed by the petitioner to question the FDDA is not deemed instituted with the criminal case for tax evasion. Civil liability arising from a different source of obligation, such as when the obligation is created by law, such civil liability is not deemed instituted with the criminal action.

It is well-settled that the taxpayer's obligation to pay the tax is an obligation that is created by law and does not arise from the offense of tax evasion, as such, the same is not deemed instituted in the criminal case.

Civil liability to pay taxes arises from the fact that one has engaged himself in business, and not because of any criminal act committed by him. The acquittal in the said criminal cases cannot operate to discharge the taxpayer from the duty of paying the taxes which the law requires to be paid, since that duty is imposed by statute prior to and independently of any attempts by the taxpayer to evade payment.

SECOND ISSUE: The civil action for the recovery of civil liability for taxes and penalties is deemed instituted with the criminal action, not the Petition for Review Ad Cautelam filed by petitioner.

Under Sections 254 and 255 of the NIRC, the government can file a criminal case for tax evasion against any taxpayer who willfully attempts in any manner to evade or defeat any tax imposed in the tax code or the payment thereof. The crime of tax evasion is committed by the mere fact that the taxpayer knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the tax. It is therefore not required that a tax deficiency assessment must first be issued for a criminal prosecution for tax evasion to prosper.[51]

While the tax evasion case is pending, the BIR is not precluded from issuing a final decision on a disputed assessment, such as what happened in this case. In order to prevent the assessment from becoming final, executory and demandable, Section 9 of R.A. No. 9282 allows the taxpayer to file with the CTA, a Petition for Review within 30 days from receipt of the decision or the inaction of the respondent.

The tax evasion case filed by the government against the erring taxpayer has, for its purpose, the imposition of criminal liability on the latter. While the Petition for Review filed by the petitioner was aimed to question the FDDA and to prevent it from becoming final. The stark difference between them is glaringly apparent. As such, the Petition for Review Ad Cautelam is not deemed instituted with the criminal case for tax evasion.

What is deemed instituted with the criminal action is only the government's recovery of the taxes and penalties relative to the criminal case. The remedy of the taxpayer to appeal the disputed assessment is not deemed instituted with the criminal case. To rule otherwise would be to render nugatory the procedure in assailing the tax deficiency assessment.

THIRD ISSUE: The CTA En Banc erred in affirming the dismissal of the case for nonpayment of docket fees.

Basic is the rule that the payment of docket and other legal fees is both mandatory and jurisdictional. The court acquires jurisdiction over the case only upon the payment of the prescribed fees. However, while the court acquires jurisdiction over any case only upon the payment of the prescribed docket fees, its nonpayment at filing does not automatically cause its dismissal so long as the docket fees are paid within a reasonable period; and that the party had no intention to defraud the government.

In this case, records reveal that petitioner has no intention to defraud the government in not paying the docket fees. In fact, when he appealed the FDDA insofar as the taxable year 2007 was concerned, he promptly paid the docket fees when he filed his Petition for Review.

Confusion resulted when the FDDA also covered tax deficiencies pertaining to taxable year 2008 which was also the subject of the consolidated criminal cases for tax evasion. To guide the petitioner, he sought the advise of the CTA First Division on whether he was still required to pay the docket fees. The CTA First Division said that the civil action for recovery of the civil liabilities of petitioner for taxable year 2008 stated in the FDDA was deemed instituted with the consolidated criminal cases. Pursuant to said CTA Resolution, the Clerk of Court issued a computed "zero filing fees" when petitioner filed his Petition for Review Ad Cautelam.

Petitioner merely relied on good faith on the pronouncements of the CTA First Division that he is no longer required to pay the docket fees. As such, the CTA cannot just simply dismiss the case on the ground of nonpayment of docket fees. The CTA should have instead directed the clerk of court to assess the correct docket fees and ordered the petitioner to pay the same within a reasonable period. It should be borne in mind that technical rules of procedure must sometimes give way, in order to resolve the case on the merits and prevent a miscarriage of justice.

FOURTH ISSUE: The Supreme Court cannot rule on the merits of the CTA case.

Rule 4, Section 3(a), paragraph 1 of the RRCTA provides that the CTA First Division has exclusive appellate jurisdiction over decisions of the Commissioner of Internal Revenue on disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the NIRC or other laws administered by the BIR. This means that the CTA exercises exclusive appellate jurisdiction to resolve decisions of the commissioner of internal revenue.

The Supreme Court has no jurisdiction to review tax cases at the first instance without first letting the CTA to study and resolve the same.

Under Rule 16, Section 1 of the RRCTA, The High Court's review of the decision of the CTA En Banc is limited in determining whether there is grave abuse of discretion on the part of the CTA in resolving the case. Rule 45 petition is only limited to questions of law.

The statutory definition of capital assets is negative in nature. Thus, if the property or asset is not among the exceptions, it is a capital asset; conversely, assets falling within the exceptions are ordinary assets.

To determine as to whether the transaction between petitioner and Eagle I is an isolated transaction or whether the 10 parcels of land sold by petitioner is classified as capital assets or ordinary assets should properly be resolved by the CTA. The Supreme Court is not a trier of facts; therefore, the case should be remanded to the CTA Division.

ADDITIONAL READINGS:

[1] SEC. 254. Attempt to Evade or Defeat Tax. - Any person who willfully attempts in any manner to evade or defeat any tax imposed under this Code or the payment thereof shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine not less than Thirty thousand (P30,000) but not more than One hundred thousand pesos (P100,000) and suffer imprisonment of not less than two (2) years but not more than four (4) years: Provided, That the conviction or acquittal obtained under this Section shall not be a bar to the filing of a civil suit for the collection of taxes.

[2] SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation. - Any person required under this Code or by rules and regulations promulgated thereunder to pay any tax make a return, keep any record, or supply correct the accurate information, who willfully fails to pay such tax, make such return, keep such record, or supply correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times required by law or rules and regulations shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine of not less than Ten thousand pesos (P10,000) and suffer imprisonment of not less than one (1) year but not more than ten (10) years.

Any person who attempts to make it appear for any reason that he or another has in fact filed a return or statement, or actually files a return or statement and subsequently withdraws the same return or statement after securing the official receiving seal or stamp of receipt of internal revenue office wherein the same was actually filed shall, upon conviction therefor, be punished by a fine of not less than Ten thousand pesos (P10,000) but not more than Twenty thousand pesos (P20,000) and suffer imprisonment of not less than one (1) year but not more than three (3) years.

[3] Sec. 9. Section 11 of the same Act is hereby amended to read as follows:

SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely affected by a decision, ruling or inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial Courts may file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein.

Appeal shall be made by filing a petition for review under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30) days from the receipt of the decision or ruling or in the case of inaction as herein provided, from the expiration of the period fixed by law to act thereon. A Division of the CTA shall hear the appeal: Provided, however, That with respect to decisions or rulings of the Central Board of Assessment Appeals and the Regional Trial Court in the exercise of its appellate jurisdiction appeal shall be made by filing a petition for review under a procedure analogous to that provided for under rule 43 of the 1997 Rules of Civil Procedure with the CTA, which shall hear the case en banc.

All other cases involving rulings, orders or decisions filed with the CTA as provided for in Section 7 shall be raffled to its Divisions. A party adversely affected by a ruling, order or decision of a Division of the CTA may file a motion for reconsideration of new trial before the same Division of the CTA within fifteen (15) days from notice thereof: Provided, however, That in criminal cases, the general rule applicable in regular Courts on matters of prosecution and appeal shall likewise apply.

No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or the Commissioner of Customs or the Regional Trial Court, provincial, city or municipal treasurer or the Secretary of Finance, the Secretary of Trade and Industry and Secretary of Agriculture, as the case may be shall suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law: Provided, however, That when in the opinion of the Court the collection by the aforementioned government agencies may jeopardize the interest of the Government and/or the taxpayer the Court any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court.

In criminal and collection cases covered respectively by Section 7(b) and (c) of this Act, the Government may directly file the said cases with the CTA covering amounts within its exclusive and original jurisdiction.

[4] AN ACT EXPANDING THE JURISDICTION OF THE COURT OF TAX APPEALS (CTA), ELEVATING ITS RANK TO THE LEVEL OF A COLLEGIATE COURT WITH SPECIAL JURISDICTION AND ENLARGING ITS MEMBERSHIP, AMENDING FOR THE PURPOSE CERTAIN SECTIONS OR REPUBLIC ACT NO. 1125, AS AMENDED, OTHERWISE KNOWN AS THE LAW CREATING THE COURT OF TAX APPEALS, AND FOR OTHER PURPOSES. Approved on March 30, 2004.

[5] Sec. 1. Institution of criminal and civil actions. — (a) When a criminal action is instituted, the civil action for the recovery of civil liability arising from the offense charged shall be deemed instituted with the criminal action unless the offended party waives the civil action, reserves the right to institute it separately or institutes the civil action prior to the criminal action. (Emphasis ours)

[6] Casupanan v. Laroya, 436 Phil. 582, 595 (2002).

[7] Proton Pilipinas Corp. v. Republic of the Phils., 535 Phil. 521, 533 (2006).

[8] 127 Phil. 105 (1967).

[9] 535 Phil. 521 (2006).

[10] Ungab v. Judge Cusi, Jr., 186 Phil. 604, 610-611 (1980).

[11] Gipa, et al. v. Southern Luzon Institute, 736 Phil. 515, 527 (2014).

[12] G.R. No. 223290, November 7, 2016, 807 SCRA 204.

[13] Eastern Telecommunications Phils., Inc. v. Commissioner of Internal Revenue, 757 Phil. 136, 143 (2015).

[14] SEC. 1. Appeal to Supreme Court by petition for review on certiorari. – A party adversely affected by a decision or ruling of the Court en banc may appeal therefrom by filing with the Supreme Court a verified petition for review on certiorari within fifteen days from receipt of a copy of the decision or resolution, as provided in Rule 45 of the Rules of Court. If such party has filed a motion for reconsideration or for new trial, the period herein fixed shall run from the party's receipt of a copy of the resolution denying the motion for reconsideration or for new trial. (Emphasis ours)

[15] Nenita Quality Foods Corp. v. Galabo, et al., 702 Phil. 506, 515 (2013).

[16] Providing the Guidelines in Determining Whether a Particular Real Property is a Capital Asset or an Ordinary Asset Pursuant to Section 39(A)(1) of the National Internal Revenue Code of 1997 for Purposes of Imposing the Capital Gains Tax under Sections 24(D), 25(A)(3), 25(B) and 27(D)(5), or the Ordinary Income Tax under Sections 24(A), 25(A) & (B), 27(A), 28(A)(1) and 28(B)(1), or the Minimum Corporate Income Tax (MCIT) under Sections 27(E) and 28(A)(2) of the same Code.

[17] Calasanz, et al. v. Commissioner of Internal Revenue, 228 Phil. 638, 644 (1986).

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