PHILIPPINE NATIONAL OIL COMPANY, PETITIONER, VS. THE HON. COURT OF APPEALS, THE COMMISSIONER OF INTERNAL REVENUE AND TIRSO SAVELLANO, RESPONDENTS.

Philippine National Oil Company versus Court of Appeals

The Case

This is a consolidated petition for review on certiorari brought by the Philippine National Oil Company and the Philippine National Bank against the Court of Appeals, the Commissioner of Internal Revenue, and the informer Tirso Savellano. The petitioners assail the affirmance by the Court of Appeals of a decision of the Court of Tax Appeals which declared a tax compromise agreement without force and effect, ordered the enforcement of a deficiency withholding tax assessment against the bank, and directed the payment of an additional informer's reward to Savellano. The case matters because it fixes the boundaries between the jurisdiction of the Court of Tax Appeals and the administrative settlement of disputes under Presidential Decree Number 242, and because it teaches how an informer's reward is computed when a compromise is later struck down.

Procedural History

Savellano filed a petition for review with the Court of Tax Appeals, later amended to implead the oil company and the bank as necessary and indispensable parties. The oil company and the bank moved to dismiss on the ground of lack of jurisdiction, but the tax court denied the motions. After trial, the Court of Tax Appeals rendered judgment declaring the compromise agreement without force and effect, ordering the Commissioner to enforce the assessment against the bank, and allowing Savellano the balance of his reward. Motions for reconsideration were denied. The oil company and the bank then filed separate appeals with the Court of Appeals, which affirmed the tax court in both cases. From that affirmance, the oil company and the bank filed separate petitions for review on certiorari with the Supreme Court, which consolidated them because they involved identical parties and the same factual background.

Facts

On 24 June 1986, Savellano submitted a sworn statement to the Bureau of Internal Revenue informing it that the bank had failed to withhold the fifteen percent final tax on interest earnings from the money placements of the oil company with the bank, in violation of Presidential Decree Number 1931, which had withdrawn all tax exemptions of government-owned and controlled corporations. The Bureau then demanded payment from the oil company, which offered to compromise its liability by setting it off against a tax refund claim of the National Power Corporation. The Bureau rejected the set-off as premature and sent a demand letter to the bank as withholding agent for the final tax on the interest earnings from October 1984 to October 1986.

On 9 June 1987, the oil company offered a compromise by paying thirty percent of the basic tax under Executive Order Number 44. The Commissioner accepted the compromise on 22 June 1987, and the Bureau received a total of 93,955,479 pesos and 12 centavos. Savellano was paid an informer's reward of 14,093,321 pesos and 89 centavos, representing fifteen percent of the tax actually collected, the last installment on 1 December 1987. He then demanded the balance of his reward, computed on the full assessment rather than on the compromised amount, and questioned the legality of the compromise.

The new Commissioner, Jose Ong, later declared the compromise without legal basis and, on 16 January 1991, demanded from the bank the deficiency withholding tax of 294,958,450 pesos and 73 centavos. The bank protested and appealed to the Department of Justice under Presidential Decree Number 242, and moved to suspend the tax court proceedings. The Bureau nevertheless enforced the assessment by garnishment, and the amount was debited from the bank's deposit account and later transferred to the Bureau. The bank in turn debited the same amount from the oil company's deposit account.

Issues

• Whether or not the Court of Tax Appeals had jurisdiction over the case, the bank contending that the demand letter of 16 January 1991 was a new assessment giving rise to a dispute solely between the Bureau and the bank that should be administratively settled under Presidential Decree Number 242.
• Whether or not the compromise agreement entered into by the Commissioner under Executive Order Number 44 was valid and binding.
• Whether or not the deficiency withholding tax assessment against the bank had become final and unappealable and thus enforceable.
• Whether or not Savellano is entitled to an additional informer's reward computed on the deficiency tax collected.

Applicable Provisions

Section 7 of Republic Act Number 1125, the law creating the Court of Tax Appeals, provides:

SECTION 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein provided (1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue.

This is the provision on which the tax court anchored its jurisdiction over Savellano's petition.

Section 1 of Presidential Decree Number 242 provides:

SECTION 1. Provisions of law to the contrary notwithstanding, all disputes, claims and controversies solely between or among the departments, bureaus, offices, agencies, and instrumentalities of the National Government, including government-owned or controlled corporations, but excluding constitutional offices or agencies, arising from the interpretation and application of statutes, contracts or agreements, shall henceforth be administratively settled or adjudicated as provided hereinafter; Provided, That this shall not apply to cases already pending in court at the time of the effectivity of this decree.

This is the provision the bank invoked to claim that its dispute with the Bureau belonged to the Department of Justice, not the tax court.

Ruling

On the first issue, the Court held that the demand letter of 16 January 1991 was not a new assessment. It was merely the latest step in the Bureau's continuing effort to collect the tax assessed in 1986. The letter referred to the earlier assessment and its compromise, its computation was based on the 1986 figures, and no new audit was conducted. Since there was no new assessment, there was no new dispute solely between the Bureau and the bank. The tax court therefore correctly retained jurisdiction under Section 7 of Republic Act Number 1125, because Savellano's petition raised matters arising under the National Internal Revenue Code and other laws administered by the Bureau.

On the second issue, the Court upheld the tax court's declaration that the compromise agreement was without force and effect, since the Commissioner found it without legal basis and the assessment it purported to settle remained due.

On the third issue, the Court sustained the finding that the deficiency withholding tax assessment against the bank had become final and unappealable, and was therefore enforceable.

On the fourth issue, the Court held that Savellano was entitled to the balance of his informer's reward, computed at fifteen percent of the deficiency withholding tax actually collected, subject to existing rules and regulations governing the payment of rewards to informers.

Doctrine

First, a demand letter that merely pursues collection of an earlier assessment, referring to it and computing from its figures without a new audit, is not a new assessment and does not create a new dispute. Second, the Court of Tax Appeals has exclusive appellate jurisdiction over decisions of the Commissioner in cases involving disputed assessments and other matters arising under the National Internal Revenue Code, as provided in Section 7 of Republic Act Number 1125. Third, an informer's reward is measured by the amount of tax actually recovered or collected, so that when a compromise is struck down and the deficiency tax is collected, the informer is entitled to fifteen percent of that deficiency collection.

Disposition

The Supreme Court denied the petitions and affirmed the decisions of the Court of Appeals, which had affirmed the Court of Tax Appeals, so that Savellano prevailed and the assessment and his additional reward were sustained.

Remember This

Memorize this line: a demand letter that merely continues the collection of an earlier assessment is not a new assessment, so it does not shift the dispute to administrative settlement under Presidential Decree Number 242. Examiners use this case to test the jurisdiction of the Court of Tax Appeals against that decree, and to test how an informer's reward is computed when a compromise is later annulled.