MISAEL P. VERA, AS COMMISSIONER OF INTERNAL REVENUE, ET AL., PETITIONERS, VS. HON. VICENTE N. CUSI, JR., JUDGE OF THE COURT OF FIRST INSTANCE OF DAVAO AND SARMIENTO ENTERPRISES,…

In Civil Case No. 4613 of the Court of First Instance of Davao
(Branch I), entitled Sarmiento Enterprises, Inc. v. Chu Tiong alias Te Liong,
the decision was adverse to the defendant.

The execution of the judgment having been returned unsatisfied,
Chu Tiong was examined concerning his income and properties.  In the course thereof, he manifested before
the respondent judge his willingness to produce copies of his income tax
returns for the years 1964, 1965, 1966, 1967 and 1968.  But having been unable to produce said
copies, he wrote a letter addressed to the local Bureau of Internal Revenue,
upon request of the judgment creditor, in the following tenor:

The Bureau of Internal
Revenue

Davao City

Re:    Civil Case No. 4613 Sarmiento Enterprises v.
Chu Tiong alias Te Liong

S i r :

The undersigned judgment debtor in the above-entitled case hereby
requests for copies of his income tax returns for 1964, 1965, 1966, 1967 and
1968.  Same were filed in Sta. Cruz,
Davao del Sur or Davao City.

Please deliver said copies to Mr. Alfonso Atilano, Deputy Clerk of
Court, CFI, Branch I, or Atty. Leonor T. Sumcad or Atty. Roberto M. Sarenas.*

Hoping for your early action on this request, the undersigned
remains

Very respectfully,

(SGD) CHU TIONG
alias

TE LIONG”

“The above request includes a release to the above persons of
all the appendices to and other documents supporting all the above income
returns.

(SGD) CHU TIONG alias
TE LIONG”

Twice, the judgment creditor’s counsels were refused copies of
said tax returns by the local Bureau of Internal Revenue Office.  In the first attempt, though, armed with the
above-quoted letter, they were advised by the local BIR authorities that Chu
Tiong himself should personally be present to request said copies after payment
of the requisite fees.  In the second
attempt, pursuant to the advice, they brought Chu Tiong together with his
counsel to the BIR office.  But Chu
Tiong, then declared that he was compelled to sign said letter of request.

The judgment creditor, then, applied for a subpoena duces
tecum on the strength of said letter, and the same was granted by the court
in an Order dated October 31, 1969, direct­ing the local BIR office to produce
copies of the desired tax returns.

The local BIR authorities, after consultation with the BIR
Commissioner, moved to quash the subpoena duces tecum, which
however was denied by the respondent judge in his Order dated September 23,
1970.  A motion for reconsideration of
the order was also denied by an order dated October 3, 1970.

Petitioners who are the Commissioner of Internal Revenue and the
Director of Region No. 18 of the BIR, have come to this Court to assail the
validity of the orders of September 23, 1970, and October 3, 1970, issued by
the respondent judge.  They invoke
provisions of the (old) National Internal Revenue Code and the Regulations
Relating To Inspection of Income Tax Returns. 
The provisions relied upon are the following:

“Sec. 347.  Unlawful
divulgence of trade secrets.  –
Except as provided in section 81 any officer or employee of the Bureau of
Internal Revenue who divulges to any person or makes known in any other manner
than may be provided by law information regarding the business, income, or
inheritance of any taxpayer, the secrets, ope­ration, style of work, or
apparatus of any manufacturer or producer, or confidential information
regarding the business of any taxpayer, knowledge of which was acquired by him
in the discharge of his official duties, shall be fined in a sum of not more
than two thousand pesos or imprisoned for a term of not less than six months
nor more than five years, or both.” (Tax Code)

“Sec. 349.  Procuring
unlawful divulgence of trade secrets. 
– Any person who causes or procures an officer or employee of the Bureau
of Internal Revenue to divulge any confidential information regarding the
business, income, or inheritance of any taxpayer, knowledge of which was
acquired by him in the discharge of his offi­cial duties, and which it is
unlawful for him to reveal, and any person who publishes or prints in any
manner whatever, not provided by law, any income, profits, losses, or
expenditures appearing in any income tax return shall be fined in a sum of not
more than two thousand pesos or imprisoned for a term of not less than six
months nor more than five years, or both.” (Tax Code)

“Sec. 81.  Disposition
of income tax returns; publication of lists of persons filing returns and
paying taxes.  – After the assessment
shall have been made, as provided in this Title, the returns, together with any
corrections thereof which may have been made by the Commissioner, shall be
filed in the Office of the Commissioner of Internal Revenue and shall
constitute public records and be open to inspection as such upon the order of
the President of the Philippines under
rules and regulations to be prescribed by the Secretary of Finance.

Subject to the approval of the Secretary of Finance, the
Commissioner of Internal Revenue may in each year cause to be prepared and
published in any newspaper or made avail­able to public inspection in such
manner as he may determine, lists containing the names and addresses of person
who have filed income tax return and/or paid income taxes.” (Tax Code)

“Sec. 3.  Application
for permission to inspect returns.  –
Except as hereinafter speci­fically provided, the Collector of Internal Revenue
may, in his discretion upon written application setting forth fully the reasons
for the request, grant permission for the inspection of returns in accordance
with these regulations.  The application
will be considered by the Col­lector and a decision reached by him whether the
applicant has met the conditions imposed by these regulations and whether the
reasons advanced for permission to inspect are suffi­cient to permit the
inspection.  Such written application is
not required of the officers and employees of the Bureau of Internal Revenue
whose official duties require inspection of the return.” (Regulations)

“Sec. 4.  Inspection
of returns of individual.  -The
return of an individual shall be open to inspection as follows:

(a) By the officers
and employees of the Bureau of Internal Revenue whose official duties require
such inspection; (b) by the person who made the return, or by his duly
constituted attorney in fact; (c) by the administrator, executor, or trustee of
the taxpayer’s estate or by the duly constituted attorney in fact of such
administrator, executor, or trustee, where the maker of the return has died;
and (d) in the discre­tion of the Collector of Internal Revenue, by one of the
heirs of law or next of kin of such deceased person upon showing that he has a material interest which will be
affected by the information contained in the return.” (Regulations)

The position taken by the
petitioners is based on the letter of the Commissioner of Internal Revenue,
dated November 17, 1969, addressed to the Regional Director of Revenue
Region No. 18 which states in part:

“This refers to your letter dated November 5, 1969, requesting
for a ruling on the following query:

‘”May copies of the income tax returns from 1964 to 1968 of
Chu Tiong alias Te Liong be produced in Court in order that the same could be
examined by Sarmiento Enterprises in connection with his income and properties,
based on the letter which he signed, even if the taxpayer vehemently opposed
such production by the Bureau of Internal Revenue?”‘

“In reply thereto, please be informed that this Office
approved of the stand taken by your Office that the production of the original
copies of the income tax returns of Chu Tiong for the years 1964 to 1968 is con­trary
to sections 347 and 349 of the Tax Code, as stated in your Motion to Quash
Subpoena Duces Tecum.  The fact that
Chu Tiong verbally objected against the furnishing of copies of his income tax
returns for the aforesaid years, in favor of his judgment creditor, the
Sarmiento Enterprises, before internal revenue officers of the Legal Branch of
that Office on October 30, 1969, casts doubt on the validity of the letter of
the taxpayer Chu Tiong dated September 27, 1969, upon which letter a subpoena
duces tecum was issued against the Bureau of Internal Revenue.”

The issue then is whether or not, under the factual circumstances
narrated above, the income tax returns of Chu Tiong should be produced by the
Bureau of Internal Revenue before the Court of First Instance of Davao.

It is true that, as a rule, the Bureau of Internal Revenue cannot
divulge the income of a taxpayer because of its confi­dential nature.  However, the BIR itself has regulations
issued pursuant to the Tax Code indicating the instances when the income of a
taxpayer may be made public.  One such
instance is provided in Sec. 4(b) of the Regulations, supra, whereby the return of an individual shall be open to
inspection “by the person who made the return, or by his duly
constituted attorney in fact.”

In this case Chu Tiong
not only expressed his willing­ness to produce before the respondent court
copies of his income tax returns for the years 1964 to 1968 but he even wrote
the letter above-quoted asking the BIR to deliver the returns to “Mr.
Alfonso Atilano, Deputy Clerk of Court, CFI, Branch I, or Atty. Leonor T.
Sumcad or Atty. Roberto M. Sarenas” who were then his attorneys-in-fact.

It is not true that Chu
Tiong wrote his letter of September 27, 1969, because he was compelled to do
so.  As narrated by the respondent judge
in his orders dated January 24 and October 3, 1970:

“…1.  That in the course of the examination of the
judgment debtor-defendant concerning his income and properties in order that
the same may be applied to satisfy the judgment rendered in the above-entitled
case, defendant – impeded, and degraded the administration of justice and the
dignity of this Honorable Court;

“2.      That the contemptuous acts of defendant
Chu Tiong which merits his punishment for contempt pursuant to the provisions
of par. (d) sec. 3, Rule 71 of the Rules of Court consist of the following:

“‘a) During the
course of the examination, Chu Tiong alias Te Liong, testifying under oath,
voluntarily and willingly offered to show to plaintiff copies of his income tax
returns for the year 1964, 1965, 1966, 1967 and 1968 in order to support his
claim that he had no money or income sufficient to satisfy the judgment
rendered in the above-entitled case (pp. 42, t.s.n., Sept. 9, 1969);

“‘b) The
succeeding hearings revealed the intention of defendant to delay the proceeding
for examination as he repeatedly failed to produce his income tax returns and
gave diverse reasons for his failure such as his inability to locate them or
his book­keeper whose name sounded like Floren Condia (pp. 64, t.s.n., Sept.
10, 1969), or after locating his bookkeeper, the latter could not find the
income tax returns (pp. 6, 7, t.s.n., Sept. 27, 1969);

‘“c) To show defendant Chu
Tiong’s clear attempt to thwart and trifle with the proceedings of this
Honorable Court, at the hearing of September 27, 1969, de­fendant Chu Tiong
voluntarily issued an authority for the court commissioner or plaintiff to
secure from the office of the Bureau of Internal Revenue copies of his income
tax returns (p. 32, t.s.n., Sept. 27, 1969) in spite of his counsel’s vigo­rous
objection (pp. 24, 25, 26, 27, 28, 29 and 30, t.s.n., Sept. 27, 1969).  Said authorization was in writing, prepared
and signed by defendant in Court in the presence of the Court Commissioner and
its other personnel as well as defendant’s counsel Atty. Regino Unson (p. 32,
t.s.n., Sept. 27, 1969);

“‘On the bases of the foregoing authorization, herein
plaintiff attempted to secure copies of defendant’s income tax returns from the
BIR but each time was unsuccessful as the office of the BIR at First required a
written court order, which was promptly secured by plaintiff on October 18,
1969, and later on, the personal presence of Chu Tiong at the Office of the
BIR.

“‘On October 30, 1969, Chu Tiong, accompanied by his counsel,
Atty. Regino Unson and Attys. Roberto A. Sarenas and Leonor Sumcad of the
plaintiff, voluntarily went to the office of the BIR with the sole purpose of
securing copies of his income tax returns.

“‘However, before the legal officer of the BIR, defendant Chu
Tiong, now in the threshold of com­plying with a promised act which he never
really intended to perform, told a lie to the legal officer that he was only
being forced to submit the written authority and does not want his income tax
returns released.  This lie of defendant
is borned by the records in the statement of Atty. Perido on the hearing of
November 20, 1969, and in the communication of the BIR to the commissioner
dated November 8, 1969.

“‘This complete and despicable turn-about made by defendant in
lying that he was forced to sign the written authority resulting in the refusal
of the BIR to release his income tax returns is a master stroke of deception designed and perpetuated by him because
he evi­dently has no respect for the law, the courts and its processes.

“‘The proceeding at hand would not have been unduly prolong
and the interest of justice fully served had defendant not misled the Honorable
Court and plaintiff that he was ready and willing to submit said documents;

“‘The court requiring of its citizens respect for it, its
processes and proceeding, and an alien, such as defendant Chu Tiong alias Te
Liong, should do no less, if not more;'”

xxx                xxx

“After hearing, judgment was rendered
on August 31, 1970, in which Chu Tiong was found to have told a lie to the
Regional Office of the Bureau of Internal Revenue when he informed said office
that he was forced to sign the letter of September 27, 1969, and guilty of
contempt of court and sentenced accordingly.

Subsequently, on September 23, 1970, the Court denied the motion of
Atty. Perido* to quash the subpoena duces
tecum requiring the production of the income tax returns of Chu Tiong for the
years 1964, 1965, 1966, 1967 and 1968, mentioned elsewhere in this order,
because of its findings in the contempt proceedings that Chu Tiong alias Te
Liong willingly and voluntarily consented to their production, because of its
findings that Chu Tiong waived his right against the disclosure of said income
tax returns.  The Court could have
directed the imprisonment or detention of Chu Tiong until he produced his
income tax returns in the contempt proceedings against him but did not and
instead gave due course to the subpoena duces tecum previously issued by
denying the motion to quash filed by Atty. Perido.”

In view of the foregoing, we are not prepared to rule that the
respondent judge exceeded his jurisdiction or committed a grave abuse of discretion
in issuing the questioned orders.

WHEREFORE, the petition is hereby dismissed and the
preliminary injunction lifted.  No costs.

SO ORDERED.

Barredo, (Acting Chairman), Concepcion, Jr., Santos, and De Castro, JJ., concur.

Aquino, J., see attached
dissent..

* Attys. Sumcad and Sarenas are
the lawyers for Sarmiento Enterprises, Inc.

* Atty. Dominador D. Perido,
Special Attorney, BIR, Davao City.

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