COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. UNION SHIPPING CORPORATION AND THE COURT OF TAX APPEALS, RESPONDENTS.

This is a petition for
review on certiorari of the December 9, 1983 decision* of the Court of Tax Appeals in CTA Case No. 2989 reversing the Commissioner of Internal
Revenue.

In a letter dated December
27, 1974 (Exhibit.
“A”), herein petitioner Commissioner of Internal Revenue assessed
against Yee Fong Hong, Ltd. and/or herein private respondent Union Shipping
Corporation, the total sum of P583,155.22 as deficiency income taxes due for
the years 1971 and 1972.  Said letter was
received on January 4,1975, and in a letter dated January
10, 1975 (Exhibit
“B”), received by petitioner
on January 13, 1975, private respondent protested the assessment.

Petitioner, without ruling on the protest, issued a Warrant of Distraint and Levy (Exhibit “C”), which was
served on private respondent’s,
counsel, Clemente Celso, on
November 25, 1976.

In a letter dated November
27, 1976 (Exhibit
“D”), received by
petitioner on November 29, 1976 (Exhibit “D-1”), private
respondent reiterated its request for
reinvestigation of the
assessment and for the reconsideration of the summary collection thru the
Warrant of Distraint and Levy.

Petitioner,
again, without acting on the
request for reinvestigation and reconsideration of the
Warrant of Distraint and Levy, filed a collection suit before
Branch XXI of the then Court of First Instance of Manila and docketed as Civil
Case No. 120459 against private respondent. 
Summons (Exhibit “E”) in the said collection
case was issued to private respondent on December 28, 1978.

On January 10, 1979,
private respondent filed with respondent
court its Petition for Review of the petitioner’s assessment of its deficiency
income taxes in a letter dated December 27, 1974, docketed therein as CTA Case No. 2989 (Rollo, pp. 44-49), wherein
it prays that after hearing, judgment be rendered holding that it is not
liable for the payment of the income tax herein
involved, or which may be due from foreign shipowner
Yee Fong Hong, Ltd.; to which petitioner filed his answer on March 29, 1979 (Rollo, pp. 50-53).

Respondent Tax Court, in
a decision dated December 9, 1983, ruled in favor of private
respondent –

“WHEREFORE, the decision of the Commissioner of Internal
Revenue appealed from, assessing against and demanding from petitioner the
payment of deficiency income tax, inclusive of 50% surcharge, interest and compromise
penalties, in the amounts of P73,958.76 and
P583,155.22 for the years 1971 and 1972, respectively, is reversed.”

Hence, the instant petition.

The Second Division of this Court, after the filing of the
required pleadings, in a resolution dated January 28, 1985, resolved to give
due course to the petition, and directed petitioner therein, to file his brief (Rollo, p. 145).  In compliance, petitioner filed his brief on
May 10, 1985 (Rollo, p. 151).  Respondents, on the other hand, filed their
brief on June 6,1985 (Rollo,
p.156).

The main issues in this case are: 
(a) on the procedural aspect, whether or not the Court of Tax Appeals
has jurisdiction over this case and (b) on the merits, whether or not Union
Shipping Corporation acting as a mere “husbanding agent” of Yee Fong
Hong Ltd. is liable for payment of taxes on the gross receipts or earnings of
the latter.

The main thrust of this petition is that the issuance of a
warrant or distraint and levy is proof of the finality of an assessment because it is the most
drastic action of all media of enforcing the collection of tax, and is
tantamount to an outright denial of a motion for reconsideration of an
assessment.  Among others, petitioner
contends that the warrant of distraint and levy was
issued after respondent corporation filed a request
for reconsideration of subject assessment, thus constituting petitioner’s final
decision in the disputed assessments (Brief for Petitioner, pp. 9 and 12).

Petitioner argues
therefore that the period to appeal to the Court of Tax
Appeals commenced to run from receipt of said
warrant on
November 25, 1976, so that on January 10, 1979 when respondent
corporation sought redress from the Tax Court, petitioner’s decision has long
become final and executory.

On this issue, this Court
had already laid down the dictum that the Commissioner should always indicate to the
taxpayer in clear and unequivocal
language what constitutes his final determination of the disputed assessment.

Specifically, this Court ruled:

“x x x we deem
it appropriate to state that the Commissioner of Internal Revenue should always
indicate to the taxpayer in clear and unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final
determination on the disputed assessment, as contemplated by sections 7 and 11 of
Republic Act 1125, as amended.  On the basis of this statement indubitably showing that the Commissioner’s communicated action is his final decision on the contested
assessment, the aggrieved taxpayer
would then be able to take
recourse to the tax court at the
opportune time.  Without
needless difficulty, the taxpayer would be able to determine when his right to appeal to the tax court
accrues.  This rule of conduct would also
obviate all desire and opportunity
on the part of the taxpayer to continually delay the finality of the
assessment – and, consequently, the collection of the amount demanded as taxes ­-
by repeated requests for recomputation and
reconsideration.  On the part of the
Commissioner, this would encourage his office to conduct a careful and thorough
study of every questioned assessment and render a correct and definite decision
thereon in the first instance.  This
would also deter the Commissioner from
unfairly making the taxpayer grope in
the dark and speculate as to which action constitutes the decision appealable to the tax court.  Of greater import, this rule of conduct would
meet a pressing need for fair play, regularity, and orderliness in
administrative action.” (Surigao Electric Co., Inc.
v. C.T.A., 57 SCRA 523, 528, [11974]).

There appears to be no dispute that petitioner did not rule on
private respondent’s motion for reconsideration but contary
to the above ruling of this Court, left private respondent in the dark as to which action of the
Commissioner is the decision appealable to the Court
of Tax Appeals.  Had he categorically
stated that he denies private respondent’s motion for reconsideration and that
his action constitutes his final determination on the disputed assessment, private
respondent without needless difficulty would have been able to determine when
his right to appeal accrues and the resulting confusion would have been
avoided.

Much later, this
Court reiterated the above-mentioned dictum in a ruling applicable on all fours
to the issue in the case at bar,
that the reviewable decision of the Bureau of
Internal Revenue is that contained in the letter of its Commissioner, that such
constitutes the final decision on the matter which may be appealed to the Court
of Tax Appeals and not the warrants of distraint
(Advertising Associates, Inc. v. Court of Appeals, 133 SCRA 769 [1984]
underscoring supplied).  It was likewise
stressed that the procedure enunciated is demanded by the pressing need for
fair play, regularity and orderliness in administrative action.

Under the circumstances, the Commissioner of Internal Revenue,
not having clearly signified his final action on the disputed assessment, legally the period to appeal has not commenced to
run.  Thus, it was only when private respondent received the summons on the civil
suit for collection of deficiency income on December 28,
1978 that the period to appeal commenced to run.

The request for
reinvestigation and reconsideration was in effect considered denied by
petitioner when the latter filed a civil suit for collection of
deficiency income.  So that on January
10, 1979 when private respondent filed the appeal with the Court of Tax Appeals, it consumed a total of only thirteen
(13) days well within the thirty day period to appeal pursuant to Section 11 of R.A. 1125.

On the merits, it was
found fully substantiated by the Court
of Tax Appeals that, respondent
corporation is the husbanding agent of the vessel Yee Fong Hong, Ltd. as follows:

“Coming to the second issue, petitioner contended and was substantiated
by satisfactory
uncontradicted testimonies of Clemente Celso, Certified Public
Accountant, and Rodolfo C. Cabalquinto, President and
General Manager, of petitioner that it is actually and legally the husbanding
agent of the vessel of Yee Fong Hong, Ltd. as (1) it neither performed nor
transacted any shipping business, for and in representation, of Yee Fong Hong,
Ltd. or its vessels or otherwise negotiated or procured cargo to be loaded in
the vessels of Yee Fong Hong, Ltd. (p. 21, t.s.n.,
July 16, 1980); (2) it never solicited or procured cargo or freight in the Philippines or elsewhere for loading in said vessels of Yee Fong
Hong, Ltd. (pp. 21 & 38, ibid.); (3) it had not collected any freight income or receipts for the said Yee Fong
Hong, Ltd. (pp. 22 & 38, ibid.; pp. 46 & 48, t.s.n.,
Nov. 14, 1980.); (4) it never had possession or control, actual or
constructive, over the funds
representing payment by Philippine
shippers for cargo loaded on said vessels (pp. 21 & 38, ibid; p. 48,
ibid); petitioner
never remitted to Yee Fong Hong, Ltd. any sum of money representing freight
incomes of Yee Fong Hong, Ltd. (p. 21, ibid.; p. 48, ibid); and
(5) that the freight payments made for cargo loaded in the Philippines for
foreign destination were actually paid directly by the shippers to the said Yee Fong Hong, Ltd. upon
arrival of the goods in the foreign ports.” (Rollo, pp. 58-59).

On the same issue, the Commissioner
of Internal Revenue Misael P. Vera, on query of
respondent’s counsel, opined that respondent corporation being merely a
husbanding agent is not liable for the payment of the income taxes due from the
foreign ship owners loading cargoes in the Philippines
(Rollo, p. 63;
Exhibit “I”, Rollo, pp. 64- 66).

Neither can private respondent be liable for withholding tax
under Section 53 of the Internal Revenue Code since it is not in possession, custody or control of the funds received by
and remitted to Yee Fong Hong, Ltd., a non-resident taxpayer.  As correctly ruled by the Court of Tax
Appeals, “if an individual or corporation like the petitioner in this case, is not in the actual
possession, custody, or control of the funds, it can neither be physically nor
legally liable or obligated to pay the so-called withholding tax on income
claimed by Yee Fong Hong, Ltd.”
(Rollo, p. 67).

Finally, it must be stated that factual findings of the Court of Tax Appeals are binding on
this Court (Industrial Textiles Manufacturing Company of the Phil., Inc. (ITEMCOP) v. Commissioner
of Internal Revenue, et al. (136
SCRA 549 [1985]).  It is well-settled
that in passing upon petitions for review of the decisions of the Court of Tax
Appeals, this Court is generally confined to questions of law. 
The findings of fact of
said Court are not to be disturbed unless clearly shown to be unsupported by
substantial evidence (Commissioner of Internal Revenue v. Manila Machinery
& Supply Company, 135 SCRA 8 [1985]).

A careful scrutiny of the
records reveals no cogent reason to disturb the findings of the Court of Tax
Appeals.

PREMISES CONSIDERED, the instant petition is
hereby DISMISSED and the assailed decision of the Court of Tax Appeals is
hereby AFFIRMED.

SO ORDERED.

Melencio-Herrera, (Chairman),
Padilla, Sarmiento, and
Regalado, JJ., concur.

* Penned by Associate Judge Constante C. Roaquin and
concurred in by Presiding Judge Amante Filler.  Associate Judge Alex Z. Reyes dissented in a
separate opinion.