THE Court of Tax Appeals (CTA) has voided a P51.59-million deficiency withholding tax assessment issued by the Bureau of Internal Revenue (BIR) against property developer JTKC Land, Inc., ruling that the assessments lacked legal basis and, partly, were issued without valid audit authority.
In a 30-page decision promulgated on June 30, the CTA Special Third Division granted JTKC Land’s petition and canceled deficiency withholding tax-others (ONETT) assessments totaling P51.59 million, inclusive of interest and penalties, for taxable years 2008, 2009, and 2010. The court also put aside a P375,000 compromise penalty.
The case stemmed from the BIR’s finding that JTKC Land did not withhold taxes on condominium units transferred to investors under Project Investment Agreements (PIAs). The Commissioner of Internal Revenue affirmed the assessments through a Final Decision on Disputed Assessment (FDDA), prompting the corporate to raise the case to the CTA.
The CTA ruled that the assessments for taxable years 2008 and 2009 were void since the Letter of Authority (LoA) issued by the BIR authorized the examination of JTKC Land’s books just for taxable 12 months 2010. It also held that a subsequent reinvestigation conducted by one other revenue officer under a Memorandum of Project was invalid because no latest or amended LoA had been issued.
For taxable 12 months 2010, the court ruled that the BIR improperly disregarded BIR Ruling No. DA-(JV-023) 178-08, which recognized that the allocation of condominium units to investors under JTKC Land’s PIAs constituted a non-taxable return of capital and didn’t give rise to a withholding tax obligation.
The court said Revenue Memorandum Circular No. 55-2010 revoked only six rulings issued to G&W Architects and didn’t apply to JTKC Land’s ruling.
The CTA also found that the BIR did not state the facts and the law on which the 2010 assessment was based, as required under Section 228 of the National Internal Revenue Code (NIRC).
It added that the BIR’s own assessment treated JTKC Land because the income payee, indicating that its investors — not the corporate — were the parties that might be liable as withholding agents under Section 57 of the Tax Code.
The tax court also invalidated the compromise penalty, saying such penalties require the taxpayer’s consent.
The CTA canceled the assessments, reversed the FDDA, and barred the BIR from enforcing or collecting the deficiency taxes and penalties. — Mark Joseph M. Sanchez