Facts: Petition Protector’s Services, Inc., (PSI) is a contractor engaged in recruiting security guards for clients. After an audit investigation, the BIR assessed PSI deficiency percentage taxes including surcharges, penalties and interests of P503,564.39, P831,464.30 and P1,514,047.86 for 1983, 1984 and 1985, respectively. On December 7, 1987, respondent CIR sent demand letters for payment of said assessments for 1983 and 1984 on December 10, 1987, but denied receiving the notice of deficiency tax for 1985.
Petitioner PSI, sent a protest letter dated January 12, 1988 regarding the 1983 and 1984 assessments, claiming that gross receipts subject to percentage tax should exclude salaries of the security guards, employer’s share of SSS, SIF and Medicare contributions. Without formally acting thereon, the BIR sent a follow-up letter dated July 12, 1988 for the settlement of the taxes based on its computation, plus additional documentary stamp taxes of P2,025 on PSI’s capitalization for 1983 and 1984 and as deficiency expanded withholding tax of P703.41, thereby bringing the total unsettled tax to P2,851,805.16.
On July 12, 1988, petition paid the P2,025 documentary stamp tax and P703.41 deficiency expanded withholding tax. The following day, PSI filed its second protest for the 1983 and 1984 assessments and included for the first time its protest against the 1985 assessment. On November 9, 1990, the BIR denied the protests stating that salaries of security guards are part of taxable gross receipts for determination of contractor’s tax.
PSI filed a petition for review on December 5, 1990 with the CTA averring that assessments for documentary stamp and expanded withholding taxes and without basis having been paid on July 22, 1988; the period for collection of the 1985 assessment letter therefore, the period to collect the percentage taxes for the first, second and third quarter of 1984 has lapsed, the assessment letter therefore having been sent on December 10, 1987, or beyond 3 years from filing of the quarterly returns, and that the base amount was erroneous since salaries of security guards, employer’s share of SSS, SIF and medicare contributions should not form part of taxable gross receipts.
The CTA dismissed the petition stating that: (1) the assessments were made within the 3-year prescriptive period which should be reckoned from January 20, 1985, the date of filing the final return; (2) receipt of the 1985 assessment cannot be denied as all assessments were sent in 1 envelope, as testified to by BIR personal; and (3) the protest letter having filed only on January 12, 1988, or 33 days from December 10, 1987, the request for reinvestigation was filed out of time. On review by the CA, the CTA’s decision was affirmed.
Issues:
• Whether or not the CTA has jurisdiction to act on the petition for review filed before it.
• Whether or not the assessments against PSI for deficiency percentage tax for 1983 and 1984 were made within the prescriptive period.
• Whether or not the period for collection of taxes for taxable years 1983, 1984 and 1985 has already prescribed.
• Whether or not the assessments are correct.
Held: An assessment maybe administratively protested within 30 days from receipt thereof; otherwise, the assessment shall become final and unappealable. In this case, PSI received the assessments on December 10, 1987 and protested the 1983 and 1984 assessments on January 12, 1988, or 33 days thereafter. Hence, the protests were filed out of time and PSI can no longer dispute the correctness of assessment. The CTA correctly dismissed the appeal for lack of jurisdiction.
Petitioner’s contention that the Government’s right to assess and collect the 1983, 1984 and 1985 assessments had already prescribed in view of BP700, which reduced the prescriptive period for assessment and collection of internal revenue taxes to 3 yrs, lacks merit BP700 was approved on April 5, 1984. The 3-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 par 1983 was still covered by the 5-year statutory prescriptive period.
The 3-year prescriptive period for assessment of contractor’s tax should be computed at the time of filing of the final annual percentage tax return, when it can be finally acclaimed if the taxpayer still has an unpaid tax, and not from the tentative quarterly payments.
As to the contention that for failure of the BIR to commence collection of the 1983, 1984 and 1985 deficiency taxes either by judicial action or by distraint and levy, the government’s right to collect the tax has prescribed, the court ruled that “the suspension of the running of the statute of limitations for tax collection for the period during which the commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and 60 days thereafter.” 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 to the SC, hoping for a review in the favor. The actions taken by petitioner before the CTA and the SC suspended the running of the statute of limitation.
As to the correctness of the assessment, it was held that contractor’s tax on gross receipts imposed on business agents including private detective watchman agencies, was a tax on the sale of services or labor, imposed on the exercise of a privilege. 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 the subcontract arrangement. Hence, gross receipts could not be diminished by employer’s SSS, SIF and medicare contributions. 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.
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