G.R. No. 186155 - LAPANDAY FOODS CORPORATION, VS. COMMISSIONER OF INTERNAL REVENUE.D E C I S I O N - Supreme Court E-Library

Ruling

WHEREFORE, the Petition for Review is granted as regards the assessment for deficiency EWT and DST for the taxable year 2000. The deficiency EWT and DST assessments for the respective amounts of [PHP]410,236.79 and [PHp]514,881.47 are hereby CANCELLED and WITHDRAWN for lack of basis. However, the assessment for deficiency VAT is AFFIRMED. Petitioner is liable to pay deficiency VAT in the amount of [PHP]3,464,253.56, computed as follows: Undeclared Gross Receipts: 1 st Quarter [PHP] 8,043,381.56 4 th Quarter [PHP] 9,120,744.31 Total [PHP]17,164,125.87 Deficiency Output Vat Due [PHP]1,716,412.59 Add: 25% Surcharge 429,103.15 Interest (1-26-01 to 11-29-04) 1,318,737.82 Total Amount Due [PHP]3,464,253.56 In addition, petitioner is liable to pay 20% delinquency interest in the amount of [PHP] 3,464,253.56 computed from November 29, 2004 until full payment thereof pursuant to Section 249(C)(3) of the Tax Code. [21] Ruling of the CTA En Banc After its motion for partial reconsideration was denied by the CTA Division, [22] Lapanday appealed to the CTA En Banc , raising the following issues: I THE FIRST DIVISION ERRED IN FINDING THAT THE RESPONDENT'S RIGHT TO ASSESS PETITIONER FOR DEFICIENCY VAT FOR THE FIRST QUARTER OF 2000 HAS NOT PRESCRIBED. II THE FIRST DIVISION ERRED IN FINDING THAT THE INTEREST ON LOANS EXTENDED TO AFFILIATES IS SUBJECT TO 10% VAT. III ASSUMING THAT THE INTEREST ON LOANS TO AFFILIATES IS SUBJECT TO VAT, THE FIRST DIVISION ERRED IN FINDING THAT THE VAT PAYABLE IS EQUIVALENT TO 10% OF THE GROSS RECEIPTS, NOT 1/11 OF GROSS RECEIPTS AS PROVIDED UNDER SECTION 108(C) OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED BY REPUBLIC ACT NO. 8424 ("TAX CODE"). [23] On the first issue, the CTA En Banc affirmed the CTA Division in holding that the assessment made on January 21, 2004 covering the first quarter of 2000 has not yet prescribed. Applying Sec. 203 of the NIRC, the tax court considered the quarterly VAT return of Lapanday for the first quarter of 2000 as belatedly filed on September 4, 2001, in which case the reckoning of the three-year prescriptive period for assessment shall be such date of actual filing of the return and not the deadline prescribed by law for the filing of said return. It did not consider April 25, 2000 as the starting point of the three-year period because the return filed on such date, which is also the deadline for the filing of the quarterly VAT return for the first quarter of 2000, was not a quarterly VAT return but merely a monthly VAT declaration for the month of March 2000. On whether the interest on the loans are subject to VAT, the CTA En Banc ruled for their taxability reasoning that in extending loans to its affiliates, Lapanday provided assistance to corporations, and thus performed services incidental to its business. The tax court ratiocinated that if the income from the main business activity is subject to VAT, then the incidental income, such as the interest income from the loans to the affiliates in