THIRD DIVISION

[G.R. No. 197117, April 10, 2013]

FIRST LEPANTO TAISHO INSURANCE CORPORATION, Petitioner, v.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

MENDOZA, J.:

Before the Court is a petition for review on certiorari1 under Rule 45 of the 1997 Rules of Civil
Procedure filed by First Lepanto Taisho Corporation, now FLT Prime Insurance Corporation
(petitioner), assailing the March 1, 2011 Decision2 and the May 27, 2011 Resolution3 of the
Court of Tax Appeals (CTA) En Banc, in CTA E.B. No. 563, which affirmed the May 21, 2009
Decision of the CTA-Second Division.

The Facts:

Petitioner is a non-life insurance corporation and considered as a “Large Taxpayer under

Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94 effective
1994.”4 After submitting its corporate income tax return for taxable year ending December 31,
1997, petitioner received a Letter of Authority, dated October 30, 1998, from respondent
Commissioner of Internal Revenue (CIR) to allow it to examine their books of account and other
accounting records for 1997 and other unverified prior years.

On December 29, 1999, CIR issued internal revenue tax assessments for deficiency income,
withholding, expanded withholding, final withholding, value-added, and documentary stamp
taxes for taxable year 1997.

On February 24, 2000, petitioner protested the said tax assessments.

During the pendency of the case, particularly on February 15, 2008, petitioner filed its Motion
for Partial Withdrawal of Petition for Review of Assessment Notice Nos. ST-INC-97-0220-99;
ST-VAT-97-0222-99 and ST-DST-97-0217-00, in view of the tax amnesty program it had
availed. The CTA Second Division granted the said motion in a Resolution,5 dated March 31,
2008.

Consequently, on May 21, 2009, the CTA Second Division partially granted the petition.6 It
directed petitioner to pay CIR a reduced tax liability of P1,994,390.86. The dispositive portion
reads:chanroblesvirtuallawlibrary
WHEREFORE, in view of the foregoing considerations, the instant Petition for Review is
hereby PARTIALLY GRANTED. Accordingly, petitioner is hereby ORDERED TO PAY
deficiency withholding tax on compensation, expanded withholding tax and final tax in the
reduced amount of P1,994,390.86, computed as follows:

Basic Tax Surcharges Interest Total

Deficiency P774,200.55 P193,550.14 P312.227.34 P1,279,978.03
Withholding Tax
on Compensation
ST-WC-97-0221-
99
Deficiency 132,724.02 33,181.01 53,526.27 219,431.30
Expanded
Withholding Tax
ST-EWT-97-
0218-99
Deficiency Final 299,391.84 74,847.96 120,741.73 494,981.53
Withholding Tax
ST-FT-97-0219-
99
TOTALS P1,206,316.41 P301,579.11 P486,495.34 P1,994,390.86

Petitioner’s Motion for Partial Reconsideration7 was likewise denied by the CTA Second
Division in its October 29, 2009 Resolution.8
cralawvllred

Unsatisfied, petitioner filed a Petition for Review before the CTA En Banc.9cralawvllred

On March 1, 2011, the CTA En Banc affirmed the decision of the CTA Second Division.10 cralawvllred

Petitioner contended that it was not liable to pay Withholding Tax on Compensation on the
P500,000.00 Director’s Bonus to their directors, specifically, Rodolfo Bausa, Voltaire Gonzales,
Felipe Yap, and Catalino Macaraig, Jr., because they were not employees and the amount was
already subjected to Expanded Withholding Tax. The CTA En Banc, however, ruled that
Section 5 of Revenue Regulation No. 12-86 expressly identified a director to be an employee.

As to transportation, subsistence and lodging, and representation expenses, the expenses would
not be subject to withholding tax only if the same were reimbursement for actual expenses of the
company. In the present case, the CTA En Banc declared that petitioner failed to prove that they
were so.

As to deficiency expanded withholding taxes on compensation, petitioner failed to substantiate

that the commissions earned totaling P905,428.36, came from reinsurance activities and should
not be subject to withholding tax. Petitioner likewise failed to prove its direct loss expense,
occupancy cost and service/contractors and purchases.
As to deficiency final withholding taxes, “petitioner failed to present proof of remittance to
establish that it had remitted the final tax on dividends paid as well as the payments for services
rendered by the Malaysian entity.”11 cralawvllred

As to the imposition of delinquency interest under Section 249 (c) (3) of the 1997 National
Internal Revenue Code (NIRC), records reveal that petitioner failed to pay the deficiency taxes
within thirty (30) days from receipt of the demand letter, thus, delinquency interest accrued from
such non-payment.

Petitioner moved for partial reconsideration, but the CTA En Banc denied the same in its May
27, 2011 Resolution.12 cralawvllred

Hence, this petition.13

cralawvllred

The principal issue in this case is whether the CTA En Banc erred in holding petitioner liable for:

a. deficiency withholding taxes on compensation on directors’ bonuses under

Assessment No. ST-WC-97-0021-99; cralawlibrary

b. deficiency expanded withholding taxes on transportation, subsistence and

lodging, and representation expense; commission expense; direct loss
expense; occupancy cost; and service/contractor and purchases under
Assessment No. ST-EWT-97-0218-99; cralawlibrary

c. deficiency final withholding taxes on payment of dividends and

computerization expenses to foreign entities under Assessment No. ST-FT-
97-0219-99; and

d. delinquency interest under Section 249 (c) (3) of the NIRC.

The Court finds no merit in the petition.

For taxation purposes, a director is considered an employee under Section 5 of Revenue

Regulation No. 12-86,14 to wit: chanroblesvirtuallawlibrary

An individual, performing services for a corporation, whether as an officer and director or

merely as a director whose duties are confined to attendance at and participation in the
meetings of the Board of Directors, is an employee.

The non-inclusion of the names of some of petitioner’s directors in the company’s Alpha List
does not ipso facto create a presumption that they are not employees of the corporation, because
the imposition of withholding tax on compensation hinges upon the nature of work performed by
such individuals in the company. Moreover, contrary to petitioner’s attestations, Revenue
Regulation No. 2-98,15 specifically, Section 2.57.2. A (9) thereof,16 cannot be applied to this case
as the latter is a later regulation while the accounting books examined were for taxable year
1997.

As to the deficiency withholding tax assessment on transportation, subsistence and lodging, and
representation expense, commission expense, direct loss expense, occupancy cost,
service/contractor and purchases, the Court finds no cogent reason to deviate from the findings
of the CTA En Banc. As correctly observed by the CTA Second Division and the CTA En Banc,
petitioner was not able to sufficiently establish that the transportation expenses reflected in their
books were reimbursement from actual transportation expenses incurred by its employees in
connection with their duties as the only document presented was a Schedule of Transportation
Expenses without pertinent supporting documents. Without said documents, such as but not
limited to, receipts, transportation-related vouchers and/or invoices, there is no way of
ascertaining whether the amounts reflected in the schedule of expenses were disbursed for
transportation.

With regard to commission expense, no additional documentary evidence, like the reinsurance
agreements contracts, was presented to support petitioner’s allegation that the expenditure
originated from reinsurance activities that gave rise to reinsurance commissions, not subject to
withholding tax. As to occupancy costs, records reveal that petitioner failed to compute the
correct total occupancy cost that should be subjected to withholding tax, hence, petitioner is
liable for the deficiency.

As to service/contractors and purchases, petitioner contends that both parties already stipulated
that it correctly withheld the taxes due. Thus, petitioner is of the belief that it is no longer
required to present evidence to prove the correct payment of taxes withheld. As correctly ruled
by the CTA Second Division and En Banc, however, stipulations cannot defeat the right of the
State to collect the correct taxes due on an individual or juridical person because taxes are the
lifeblood of our nation so its collection should be actively pursued without unnecessary
impediment.

As to the deficiency final withholding tax assessments for payments of dividends and
computerization expenses incurred by petitioner to foreign entities, particularly Matsui Marine &
Fire Insurance Co. Ltd. (Matsui),17 the Court agrees with CIR that petitioner failed to present
evidence to show the supposed remittance to Matsui.

The Court likewise holds the imposition of delinquency interest under Section 249 (c) (3) of the
1997 NIRC to be proper, because failure to pay the deficiency tax assessed within the time
prescribed for its payment justifies the imposition of interest at the rate of twenty percent (20%)
per annum, which interest shall be assessed and collected from the date prescribed for its
payment until full payment is made.

It is worthy to note that tax revenue statutes are not generally intended to be liberally
construed.18 Moreover, the CTA being a highly specialized court particularly created for the
purpose of reviewing tax and customs cases, it is settled that its findings and conclusions are
accorded great respect and are generally upheld by this Court, unless there is a clear showing of a
reversible error or an improvident exercise of authority.19 Absent such errors, the challenged
decision should be maintained.
WHEREFORE, the petition is DENIED. The March 1, 2011 Decision and the May 27, 2011
Resolution of the Court of Tax Appeals En Banc, in CTA E.B. No. 563, are AFFIRMED.

SO ORDERED.

Velasco, Jr., (Chairperson), Peralta, Abad, and Leonen, JJ., concur.

Endnotes:

1
Rollo, pp. 12-51.
2
Id. at 52-82. Penned by Associate Justice Esperanza R. Fabon-Victorino, with Presiding Justice
Ernesto D. Acosta and Associate Justices Juanito C.Castañeda, Jr., Lovell R. Bautista, Erlinda P.
Uy, Caesar A. Casanova, Olga Palanca-Enriquez, Cielito N. Mindaro-Grulla and Amelia R.
Cotangco-Manak concurring.
3
Id. at 84-86.
4
Id. at 53.
5
Id. at 125-126.
6
Id. at 128-152. Penned by Associate Justice Erlinda P. Uy, with Associate Justices Juanito C.
Castañeda, Jr. and Olga Palanca-Enriquez, concurring.
7
Id. at 157-170.
8
Id. at 172-178.
9
Id. at 109-123.
10
Id. at 52-82. Penned by Associate Justice Esperanza R. Fabon-Victorino, with Presiding
Justice Ernesto D. Acosta and Associate Justices Juanito C.Castañeda, Jr., Lovell R. Bautista,
Erlinda P. Uy, Caesar A. Casanova, Olga Palanca-Enriquez, Cielito N. Mindaro-Grulla and
Amelia R. Cotangco-Manak concurring.
11
Id. at 77.
12
Id. at 84-86.
13
Id. at 12-51.
14
Dated August 1, 1986.
15
Dated April 17, 1998.
16
(9) Fees of directors who are not employees of the company paying such fees, whose duties are
confined to attendance at and participation in the meetings of the board of directors.
17
Petitioner’s Non-Resident Foreign corporation stockholder.
18
Commissioner of Internal Revenue v. Acosta, G.R. No. 154068, August 3, 2007, 529 SCRA
177, 186.
19
Chevron Philippines, Inc. v. Commissioner of the Bureau of Customs, G.R. No. 178759,
August 11, 2008, 561 SCRA 710, 742.