COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. G&W ARCHITECTS, ENGINEERS AND PROJECT DEVELOPMENT CONSULTANTS CO., RESPONDENT.

G&W Architects versus Commissioner of Internal Revenue

The Case

This is a petition for review on certiorari filed by the Commissioner of Internal Revenue against G&W Architects, Engineers and Project Development Consultants Co., a partnership engaged in the general practice of architecture and construction. The Commissioner assails two amended decisions of the Court of Tax Appeals sitting en banc, which cancelled deficiency expanded withholding tax and documentary stamp tax in the total amount of 559,725,024.90 pesos. The case matters for two reasons. First, it settles the voting requirements inside the Court of Tax Appeals en banc: when is a vote of five members necessary, and when does a simple majority of those present suffice. Second, it decides whether a build-to-own scheme in condominium construction is a contract of sale subject to withholding tax and documentary stamp tax, or a contract for a piece of work that is not.

Procedural History

G&W Architects protested the formal assessment notices and filed three petitions for review before the Court of Tax Appeals. These were consolidated in the First Division. The First Division rendered a decision dated November 3, 2015, cancelling the deficiency expanded withholding tax and documentary stamp tax. The Commissioner sought reconsideration, which the First Division denied in a resolution dated April 7, 2016.

The Commissioner appealed to the Court of Tax Appeals en banc. Voting six to three, the en banc reversed the First Division in its original decision dated March 21, 2018, and ordered G&W Architects to pay the assessed taxes. G&W Architects moved for reconsideration. With one justice retired, the en banc voted four to four and, in its first amended decision dated August 29, 2018, granted the motion, set aside its original decision, and affirmed the First Division in full.

The Commissioner moved for reconsideration of that first amended decision. With another justice retired, only seven justices remained. Four voted to grant the motion and three dissented, yet the en banc denied the motion in its second amended decision dated March 14, 2019, holding that five affirmative votes were needed to reverse a division decision. The Commissioner then came to the Supreme Court by petition for review on certiorari, invoking grave abuse of discretion.

Facts

G&W Architects adopts a build-to-own scheme in its condominium projects, under which funds of unit owners are pooled together to construct the units on their behalf. It obtained several confirmatory rulings from the Bureau of Internal Revenue declaring the scheme tax-exempt, because it did not constitute a taxable sale, exchange, or disposition of real property, and so was not subject to creditable withholding tax, capital gains tax, value-added tax, and documentary stamp tax, except a fifteen-peso documentary stamp tax on the contractual agreement. Relying on these rulings, G&W Architects implemented the scheme in its projects, among them Penhurst Parkplace, Kensington Place, Grand Hamptons Tower I, and Grand Hamptons Tower II.

In September 2009, G&W Architects received letters of authority from the Bureau for the examination of its books for expanded withholding taxes and documentary stamp tax. The Regional Director later asked the Commissioner to nullify the rulings, finding the scheme to be one of pre-selling subject to those taxes. On June 28, 2010, the Commissioner issued a revenue memorandum circular declaring several of the rulings void. Preliminary assessment notices followed, then formal assessment notices dated January 25, 2011, June 10, 2011, and July 26, 2011, assessing expanded withholding tax and documentary stamp tax, with surcharges and interest, on the transfer of condominium units in the four projects.

G&W Architects protested and brought the matter to the Court of Tax Appeals. The First Division found nothing in the contracts showing a transfer of ownership of the units; all acts of G&W Architects were understood to be for and on behalf of its clients. It cancelled the assessments. The en banc first reversed, then, through the two amended decisions, restored the cancellation. The Commissioner now asks the Supreme Court to strike down those amended decisions as void for want of the required votes, and to hold that the transactions are sales subject to the assessed taxes.

Issues

• Whether or not the first amended decision of the Court of Tax Appeals en banc is void for having granted G&W Architects' motion for reconsideration on a tie vote of four to four.
• Whether or not the second amended decision is void for having denied the Commissioner's motion for reconsideration despite four affirmative votes out of seven justices present.
• Whether or not the build-to-own scheme of G&W Architects constitutes a contract of sale of condominium units, making it liable for the assessed expanded withholding tax and documentary stamp tax.

Applicable Provisions

Section 2 of Republic Act No. 1125, as amended by Republic Act No. 9503, provides:

SEC. 2. Sitting En Banc or Division; Quorum; Proceedings. — The CTA may sit en banc or in three (3) Divisions, each Division consisting of three (3) Justices. Five (5) Justices shall constitute a quorum for sessions en banc and two (2) Justices for sessions of a Division. Provided, That when the required quorum cannot be constituted due to any vacancy, disqualification, inhibition, disability, or any other lawful cause, the Presiding Justice shall designate any Justice of other Divisions of the Court to sit temporarily therein. The affirmative votes of five (5) members of the Court en banc shall be necessary to reverse a decision of a Division but a simple majority of the Justices present necessary to promulgate a resolution or decision in all other cases or two (2) members of a Division, as the case may be, shall be necessary for the rendition of a decision or resolution in the Division level.

This provision fixes the quorum and the two voting thresholds that govern every en banc action in the case.

Section 3, Rule 2 of the Revised Rules of the Court of Tax Appeals provides:

SEC. 3. Court en banc; quorum; and voting. — The presiding justice or, if absent, the most senior justice in attendance shall preside over the sessions of the Court en banc. The attendance of five (5) justices of the Court shall constitute a quorum for its session en banc. The presence at the deliberation and the affirmative vote of five (5) members of the Court en banc shall be necessary to reverse a decision of a Division but only a simple majority of the justices present to promulgate a resolution or decision in all other cases. Where the necessary majority vote cannot be had, the petition shall be dismissed; in appealed cases, the judgment or order appealed from shall stand affirmed; and on all incidental matters, the petition or motion shall be denied.

This rule supplies the consequences of a failed vote, which the Court applies to both amended decisions.

Ruling

On the first issue, the Court held that the first amended decision is void. The subject of G&W Architects' motion for reconsideration was the en banc's own original decision, not the decision of the First Division. The motion was therefore an incidental matter, requiring only a simple majority of the justices present. With eight justices, a tie of four to four produced no majority, and under the rule the motion should have been denied. Instead, the en banc granted it, in violation of the mandatory provisions.

On the second issue, the Court held that the second amended decision is likewise void. The Commissioner's motion was an incident of the first amended decision and sought reinstatement of the original decision; it made no reference to the First Division's disposition. As an incidental matter, it needed only a simple majority. Four affirmative votes out of seven justices present was a simple majority, and the en banc should have granted the motion. The Court stressed that the five-vote requirement applies only where a division decision is to be reversed, and it would be the height of injustice to require that criterion twice. The Court quoted the rule that where the necessary majority vote cannot be had, the petition shall be dismissed, in appealed cases the judgment appealed from shall stand affirmed, and on all incidental matters the motion shall be denied. Because the amended decisions violated mandatory law, they are void ab initio and never attained finality.

On the third issue, the Court did not reach the tax character of the build-to-own scheme. Having voided the amended decisions, the original decision of the en banc, which had reversed the First Division and upheld the assessments, stands. The Court thus resolved the case on procedure, without passing on whether the transactions were sales.

Doctrine

Three rules must be retained. First, in the Court of Tax Appeals en banc, the affirmative vote of five members is necessary only to reverse a decision of a division. Second, in all other cases, including motions for reconsideration of the en banc's own decision, a simple majority of the justices present suffices. Third, where the required vote is not had, the consequences are fixed by Section 3, Rule 2 of the Revised Rules: the petition is dismissed, the appealed judgment stands affirmed, and incidental motions are denied. A decision rendered in disregard of these mandatory thresholds is void ab initio and may be attacked collaterally.

Disposition

The Commissioner won. The Supreme Court granted the petition, declared both amended decisions void, and reinstated the original decision of the Court of Tax Appeals en banc, which had ordered G&W Architects to pay the assessed deficiency expanded withholding tax and documentary stamp tax.

Remember This

Memorize the line: five votes to reverse a division, a simple majority for everything else, and a tie means denial. Examiners use this case to test the voting and quorum rules of the Court of Tax Appeals en banc and the effect of a void judgment.