COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. THE COURT OF TAX APPEALS AND HOTEL SPECIALIST [TAGAYTAY], INC., RESPONDENTS.

Commissioner of Internal Revenue versus Hotel Specialist [Tagaytay]

The Case

This is a petition for certiorari filed by the Commissioner of Internal Revenue against the Court of Tax Appeals En Banc and Hotel Specialist [Tagaytay], Inc. The Commissioner asks the Supreme Court to strike down the tax court's directive that five percent of a court-approved compromise amount be remitted to the Office of the Solicitor General as a success fee. The case matters because it fixes the boundaries of two things every tax practitioner must know: the correct remedy for questioning a ruling of the Court of Tax Appeals En Banc, and the reach of the Solicitor General's statutory entitlement to a success fee even when the government's tax case ends not in a litigated judgment but in a compromise.

Procedural History

The Commissioner assessed Hotel Specialist [Tagaytay], Inc. for deficiency taxes for taxable year 2009. The taxpayer protested administratively and then judicially, and the case was docketed in the Court of Tax Appeals. The Special Second Division affirmed the assessment and ordered the taxpayer to pay an aggregate of 27,777,586 pesos and 5 centavos, inclusive of surcharge and interest. Both parties elevated the matter to the Court of Tax Appeals En Banc, which denied both petitions and affirmed the Division.

The taxpayer and the Bureau of Internal Revenue then executed a Judicial Compromise Agreement, which the En Banc approved in a Judgment Based on Compromise. The Office of the Solicitor General moved for partial reconsideration, claiming five percent of the compromise amount under Section 11(i) of Republic Act No. 9417. The En Banc granted the motion and directed the Bureau of Internal Revenue to remit that amount. The Commissioner's motion for reconsideration was denied. The Commissioner then came to the Supreme Court by petition for certiorari under Rule 65, and the Court dismissed the petition.

Facts

The Commissioner issued an assessment against Hotel Specialist [Tagaytay], Inc. for deficiency income tax, value-added tax, withholding tax on compensation, and expanded withholding tax for taxable year 2009. The taxpayer protested, first administratively and then before the Court of Tax Appeals. The Special Second Division upheld the assessment in an aggregate amount of 27,777,586 pesos and 5 centavos, inclusive of surcharge and interest. The En Banc affirmed.

Rather than litigate further, the taxpayer and the Bureau of Internal Revenue entered into a Judicial Compromise Agreement. The taxpayer offered 7,288,481 pesos and 52 centavos as full and final settlement, and the Bureau accepted. On the parties' joint motion, the En Banc approved the agreement in a Judgment Based on Compromise promulgated in April 2022.

The Office of the Solicitor General then moved for partial reconsideration, insisting it was entitled to five percent of the total compromise amount because it had represented the Commissioner before the tax court. The En Banc granted the motion and directed the Bureau of Internal Revenue to remit that amount. It rejected the Commissioner's theory that the success fee requires active participation in the litigation and does not attach to a compromise in which the Solicitor General had no hand. The Commissioner's motion for reconsideration was denied, prompting the present petition.

Issues

• Whether or not a petition for certiorari under Rule 65 is the proper remedy to question the Court of Tax Appeals En Banc's directive to remit a portion of the compromise amount to the Office of the Solicitor General.
• Whether or not the Commissioner's failure to implead the Office of the Solicitor General, the real party in interest, rendered the petition fatally defective.
• Whether or not the Court of Tax Appeals En Banc committed grave abuse of discretion in directing the Commissioner to remit five percent of the compromise amount to the Office of the Solicitor General.

Applicable Provisions

Section 11(i) of Republic Act No. 9417, the law strengthening the Office of the Solicitor General, provides:

The Solicitor General shall be entitled to a success fee of five percent of the total monetary award paid to the Government, whether by way of reimbursement, return, or restoration of money, or by way of actual damages, in all cases where the Office of the Solicitor General has rendered legal services to the Government or to any of its instrumentalities or agencies, including government-owned or controlled corporations.

This is the provision the Court construes as authorizing the success fee even when the monetary award arises from a court-approved compromise agreement.

Section 1 of Rule 16 of the Revised Rules of the Court of Tax Appeals provides:

A party adversely affected by a decision or ruling of the Court en banc may appeal therefrom to the Supreme Court by way of a petition for review on certiorari under Rule 45 of the Rules of Court.

This is the provision that makes Rule 65 the wrong remedy and defeats the Commissioner's petition on procedural grounds.

Ruling

On the first issue, the Court held that a Rule 65 petition is the wrong remedy. Certiorari lies only when there is no other plain, speedy, or adequate remedy. Here, the party adversely affected by a ruling of the Court of Tax Appeals En Banc may appeal by certiorari under Rule 45. The Court refused to relax the rules and treat the petition as one under Rule 45, because the Commissioner used the full sixty-day period of Rule 65 and filed well beyond the reglementary period for a Rule 45 appeal. The petition appeared to be an attempt to substitute for a lost appeal.

On the second issue, the Court held that the failure to implead the Office of the Solicitor General rendered the petition defective. The Commissioner's cause of action is against the Solicitor General, not the taxpayer, because it opposes the Solicitor General's entitlement to a portion of the compromise amount as compensation for legal services. The Solicitor General is therefore the real party in interest and an indispensable party.

On the third issue, the Court held that there was no grave abuse of discretion. The arguments raised were at best errors of judgment, which cannot be the subject of certiorari. The Court also held that the En Banc retained jurisdiction to act on the motion after the compromise judgment, because a claim for attorney's fees may be asserted in the very action in which the services were rendered, as an incident of that case. The Court further held that the Commissioner cannot deprive the Solicitor General of the fee, since the entitlement is supported by law and jurisprudence. The theory that only Bureau of Internal Revenue lawyers actively represented the Commissioner is erroneous, because their authority is derivative from the Solicitor General's mandate as principal law officer and legal defender of the Government. The deputization did not divest the Solicitor General of supervision and control.

Doctrine

First, a ruling of the Court of Tax Appeals En Banc is reviewed by a petition for review on certiorari under Rule 45, not by a petition for certiorari under Rule 65. The availability of that plain, speedy, and adequate remedy forecloses Rule 65, and a late Rule 65 petition will not be treated as a Rule 45 petition.

Second, a party who challenges the Solicitor General's entitlement to a success fee must implead the Solicitor General as the real party in interest. Failure to do so renders the petition defective.

Third, under Section 11(i) of Republic Act No. 9417, the Solicitor General is entitled to a success fee of five percent of the total monetary award paid to the Government, and this includes amounts paid under a court-approved compromise agreement. The fee is an incident of the case in which the legal services were rendered, and the tax court retains jurisdiction to award it even after judgment. Deputized lawyers of a government agency act under the Solicitor General's supervision and control, and their appearance does not strip the Solicitor General of the fee.

Disposition

The Supreme Court dismissed the petition for certiorari, leaving standing the directive that the Bureau of Internal Revenue remit five percent of the compromise amount to the Office of the Solicitor General.

Remember This

Memorize this line: a Court of Tax Appeals En Banc ruling is appealed by Rule 45, never by Rule 65, and the Solicitor General's five percent success fee under Republic Act No. 9417 attaches even to a court-approved compromise. Examiners use this case to test the correct mode of review of tax court en banc rulings and the indispensable-party status of the Solicitor General in suits over its success fee.