PROTECTOR'S SERVICES, INC., petitioner, vs. COURT OF APPEALS AND COMMISSIONER OF INTERNAL REVENUE, respondents. Korteä

Assailed in this petition for review is the Decision1 [Rollo, pp. 40-47.] of the Court of Appeals dated November 28, 1994, in CA-G.R. SP No.31825. It affirmed the judgment of the Court of Tax Appeals which had dismissed the petition for review of assessments made by the Commissioner of Internal Revenue imposing deficiency percentage taxes on petitioner for the years 1983, 1984 and 1985. The dispositive portion of the CTA's decision states:

The facts are as follows:

Petitioner Protector's Services, Inc. (PSI) is a contractor engaged in recruiting security guards for clients. After an audit investigation conducted by the Bureau of Internal Revenue (BIR), petitioner was assessed for deficiency percentage taxes including surcharges, penalties and interests thereon, as follows:

On December 7, 1987, respondent Commissioner sent by registered mail, demand letters for payment of the aforesaid assessments. However, petitioner alleged that on December 10, 1987, it only received Demand Letter Nos. 18-452-83B-87 -B2 and 18-451-84B-87 -B2 for the years 1983 and 1984, respectively. It denied receiving any notice of deficiency percentage tax for the year 1985.

Petitioner sent a protest letter dated January 02, 1988, to the BIR regarding the 1983 and 1984 assessments. The petitioner claimed that its gross receipts subject to percentage taxes should exclude the salaries of the security guards as well as the corresponding employer's share of Social Security System (SSS), State Insurance Fund (SIP) and Medicare contributions. Sclawä

Without formally acting on the petitioner's protest, the BIR sent a follow-up letter dated July 12, 1988, ordering the settlement of taxes based on its computation. Additional documentary stamp taxes of two thousand twenty-five (P2,025.00) pesos on petitioner's capitalization for 1983 and 1984, and seven hundred three pesos and forty-one centavos (P703.41) as deficiency expanded withholding tax were included in the amount demanded. The total unsettled tax amounted to two million, eight hundred fifty-one thousand, eight hundred five pesos and sixteen centavos (P2,851,805.16).

On July 21, 1988, petitioner paid the P2,025.00 documentary stamp tax and the P703.41 deficiency expanded withholding tax. On the following day, July 22, 1988, petitioner filed its second protest on the 1983 and 1984 percentage taxes, and included, for the first time, its protest against the 1985 assessment.

On November 9, 1990, BIR Deputy Commissioner Eufracio Santos sent a letter to the petitioner which denied with finality the latter's protests against the subject assessments, stating thus:

On December 5, 1990, petitioner filed a petition for review before the CTA contending that:

The CTA dismissed the petition on the following grounds: (1) The three-year period of limitation for assessment of taxes in 1984 commenced from the date of filing the final return on January 20, 1985, hence assessment made on December 10, 1987, was within said period. (2) Petitioner could not deny receipt of the 1985 assessment on the same date, December 10, 1987, for as supported by testimony of the BIR personnel, all the assessment letters for the years 1983, 1984, and 1985 were included in one envelope and mailed together. (3) Petitioner's protest letter dated January 2, 1988, was filed on January 12, 1988, or thirty-three days from December 10, 1987, hence, the request for reinvestigation was filed out of time.

Petitioner appealed to the Court of Appeals, which affirmed the decision of the CTA. Hence, the present petition, wherein petitioner raises the following issues:

As to the first issue, petitioner maintains that the assessments only became final on November 9, 1990, when the CIR denied the request for reconsideration. Consequently, the CTA had jurisdiction over the appeal filed by the petitioner on December 5, 1990. Furthermore, the CTA resolved that the assessments became final after thirty days from receipt of demand letters by the petitioner, without the latter interposing a reconsideration. xä law

The pertinent provision of the National Internal Revenue Code of 1977 (NIRC 1977), concerning the period within which to file a protest before the CIR, reads:

We note that indeed on December 10, 1987, petitioner received the BIR's assessment notices. On January 12, 1988, petitioner protested the 1983 and 1984 assessments and requested for a reinvestigation. From December 10, 1987 to January 12, 1988, thirty-three days had lapsed. Thereafter petitioner may no longer dispute the correctness of the assessments. Hence, in our view, the CTA correctly dismissed the appeal for lack of jurisdiction.

On the second issue, petitioner argues that the government's right to assess and collect the 1983, 1984 and 1985 taxes had already prescribed. Relying on Batas Parnbansa (BP) Blg. 700, which reduced the period of limitation for assessment and collection of internal revenue taxes from five to three years, petitioner asserts that the government was barred from reviewing the 1983 tax starting December 10, 1987, the expiry date of the three-year limit. Petitioner insists that the reckoning period of prescription should start from the date when the quarterly percentage taxes were paid and not when the Final Annual Percentage Tax Return for the year was filed. Moreover, he denies having received the 1985 tax assessment.

Petitioner's contentions lack merit. Sections one and three of BP 700, "An Act Amending Sections 318 and 319 of the National Internal Revenue Code, which reduced the period of limitation for assessment and collection of internal revenue taxes from five to three years," provides: Scä

x x x

B.P. 700 was approved on April 5, 1984. The three-year prescriptive period for assessment and collection of revenue taxes applied to taxes paid beginning 1984. Clearly, the tax assessment made on December 10, 1987, for the year 1983 was still covered by the five-year statutory prescriptive period. This rule was emphasized in Revenue Memorandum Circular (RMC) No. 33-84, published on November 12, 1984, which defined the salient features of the application of BP 700, to wit:

Should the three-year limitation be reckoned at the time of the quarterly payment of contractor's tax or at the due date of the final annual tax?

Section 2 of Revenue Regulation No.6-81, states:

Only recently in G.R. No.115712, Commission of Internal Revenue vs. Court of Appeals, February 25, 1999, we held, that the three-year prescriptive period of tax assessment of contractor’s tax should be computed at the time of the filing of the "final annual percentage tax return,"5 [See G.R. No. 115712, Advance copy of the Court's decision in Commissioner of Internal Revenue vs. Court of Appeals, Court of Tax Appeals, and Carnation Philippines, Inc. (now merged with Nestle Philips. Inc.) February 25, 1999, p. 5.] when it can be finally ascertained if the taxpayer still has an unpaid tax, and not from the tentative quarterly payments.

Turning now to petitioner's denial that he received the 1985 assessment, we agree with the factual findings of the CTA that the assessment letter may be presumed to have been received by petitioner. The CTA found as follows: MisÓ spped

In reviewing administrative decisions, the reviewing court cannot re-examine the factual basis and sufficiency of the evidence.7 [Villanueva vs. Court of Appeals, 205 SCRA 537, 545 (1992)] The findings of fact must be respected, so long as they are supported by substantial evidence.8 [Ibid., citing Baliwag Transit Inc. vs. Court of Appeals, et al., 147 SCRA 82 (1987)]

As a subsidiary defense, petitioner interposes the third issue claiming that since the CIR failed, until now, to commence the collection of the 1983, 1984, and 1985 deficiency tax, the right to collect had, likewise, prescribed. Petitioner urges us to consider that for the government's failure to institute collection remedies either by judicial action or by distraint and levy, the right to collect the same has prescribed pursuant to Section 219 of the NIRC. Note, however, that Section 271 of the 1986 Tax Code provides for the suspension of running of the statute of limitation of tax collection, as follows: Sppedâ

In the instant case, PSI filed a petition before the CTA to prevent the collection of the assessed deficiency tax. When the CTA dismissed the case, petitioner elevated the case before us, hoping for a review in its favor. The actions taken by the petitioner before the CTA and now before us, suspended the running of the statute of limitation. In the old case of Republic of the Philippines vs. Ker and Company, Ltd.,9 [124 Phil. 822 (1966)] we held:

Finally, petitioner contends that the assessments made by the respondent CIR were erroneous because they included in the gross receipts subject to the contractor's tax the salaries of the security guards and the employer's share in the SSS, SIF and Medicare. Petitioner claims that it did not benefit from those amounts earmarked for other persons or institutions, hence, they must not be taxable.

Contractor’s tax on gross receipts imposed on business agents including private detective watchman agencies,11 [Section 191 (renumbered to 205; then further re-numbered to 170 during the time of assessment) of the Tax Code.] was a tax on the sale of services or labor, imposed on the exercise of a privilege.12 [Epifanio G. Gonzales, Celestina M. Robledo-Gonzales, National Internal Revenue Code, gross income taxation (BP Blg. 135) new withholding tax tables with annotations and implementing regulations, p. 527 (1984 Edition)] The term "gross receipts" means all amounts received by the prime or principal contractor as the total price, undiminished by the amount paid to the subcontractor under a subcontract arrangement.13 [Paragraph 2 of Section 205,1977 Tax Code (emphasis supplied)] Hence, gross receipts could not be diminished by employer's SSS, SIF and Medicare contributions.14 [Presently, the business tax imposed on contractor's services fees are now subject to the Value-Added Tax. Paragraph 19 of RMC 22-92 specifically states that: An agency which is engaged in the business of selling security guard services is subject to the 10% VAT based on the agency's quarterly gross receipts which, in this case, is composed of the salary and allowance of the guard, employer's share in the SSS, Medicare and State Insurance contributions, and the agency's administrative overhead and profit margin.] Furthermore, it has been consistently ruled by the BIR that the salaries paid to security guards should form part of the gross receipts, subject to tax, to wit:

These rulings were made by the CIR in the exercise of his power to "make judgments or opinions in connection with the implementation of the provisions of the internal revenue code." The opinions and rulings of officials of the government called upon to execute or implement administrative laws, command respect and weight.16 [Regalado vs. Yulo, 61 Phil. 173, 179 (1935)] We see no compelling reason in this case to rule otherwise. Sppedä jo

WHEREFORE, the assailed decision of the Court of Appeals, in CA- G.R. SP 31825, is AFFIRMED. Costs against petitioner.

Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur. 6/5/00 3:14 PM