MANILA, Philippines – The Supreme Court’s (SC) Third Division ruled that Manila Medical Services, Incorporated or the Manila Doctor’s Hospital, has no tax deficiency, affirming the decision of the Court of Tax Appeals.

“WHEREFORE, the Petition for Review on Certiorari filed by the petitioner Commissioner of Internal Revenue is DENIED for lack of merit. The Decision, dated September 1, 2020, and the Resolution, dated January 21 , 2021, of the Court of Tax Appeals En Banc, in CT A EB No. 2014, are AFFIRMED,” the decision read.

The decision was penned by Associate Justice Maria Filomena Singh, with concurrences from SC Third Division chairperson Associate Justice Alfredo Benjamin Caguioa and associate justices Henri Jean Paul Inting, Samuel Gaerlan, and Japar Dimaampao.

In affirming that the Manila Doctors Hospital has no tax deficiency, the High Court denied the Bureau of Internal Revenue (BIR) commissioner’s petition for review on certiorari against the CTA decision.

The CTA, on various occasions, had declared that the Final Assessment Notice (FAN) and the Warrant of Distraint or Levy (WDL) issued against the hospital canceled for being null and void.

In its decision, the High Court said the BIR commissioner’s petition lacks merit. The SC’s Third Division said the WDL is the decision appealable to the tax appellate court, and not the Final Decision on Disputed Assessment (FDDA), or the final decision on the appeal against the FAN.

The hospital had denied that it had received the FDDA.

The CTA and the CTA en banc ruled that the BIR commissioner failed to prove that Manila Doctors Hospital received the said FDDA. Even in such case that the hospital received the final decision, the FDDA would still be void for failure to comply with the requirements set by revenue regulations, the SC said.

“Clearly, the alleged FDDA merely informed MMS of its supposed tax liabilities without any basis. Thus, it is void for failing to state (1) the factual basis of the assessment and (2) the law, rules and regulations, or jurisprudence on which it is based,” the decision read.

The SC also disagreed with the BIR commissioner’s position that the letter of authority (LOA) remained in effect even after the revenue officer had been replaced. The SC defines LOA as “the authority given to the appropriate revenue officer assigned to perform assessment functions; it empowers or enables said revenue officer to examine the books of account and other accounting records of a taxpayer for the purpose of collecting the correct amount of tax.”

A new LOA is needed if the revenue officer who originally handled a tax review had been replaced or reassigned, the High Court said. Thus, without a new LOA, the revenue officer who assessed the Manila Doctors Hospital’s tax liabilities has no authority, the SC added.

The High Court also noted that the CTA had jurisdiction over the case, contrary to the BIR commissioner’s position.

What happened before

In October 2010, the Manila Doctors Hospital was notified about its alleged tax deficiency. Four years later, on September 12, 2014, the hospital received the WDL demanding the Manila Doctors Hospital to pay P79,960,408.62 “representing its alleged deficiency Income Tax and Value-Added Tax, including surcharges and interest.”

On November 6, 2018, the CTA declared the issued FAN and WDL null and void. The BIR commissioner filed a motion for reconsideration, but the CTA also denied the request in a resolution dated January 30, 2019, for lack of merit.

The BIR commissioner brought the case to the CTA en banc, which also denied the petition on September 1, 2020, for lack of merit, and likewise dismissed the BIR’s motion for reconsideration. The case was later brought to the SC, the court of last resort. – Rappler.com