COMMISSIONER OF INTERNAL REVENUE, VS. COMMISSION ON ELECTIONS, REPRESENTED BY ATTY. MARIA NORINA S. TANGARO- CASINGAL, ACTING DIRECTOR OF THE LAW DEPARTMENT.

Ruling

Accordingly, the CTA Second Division's Amended Decision dated January 3, 2017 and Resolution [5] dated May 9, 2017, which upheld the deficiency basic Expanded Withholding Tax (EWT) assessment against the COMELEC for the taxable year 2008 amounting to P30,645,542.62, was affirmed. ANTECEDENTS In May 2008, the COMELEC entered into a contract with Smartmatic Sahi Technology, Inc. (Smartmatic) and Avante International Technology, Inc. (Avante) for the lease, with option to purchase, electronic voting machines relative to the conduct of the August 2008 Autonomous Region for Muslim Mindanao Regional Election. The COMELEC did not impose or withhold EWT on payments to Smartmatic and Avante on the belief that the procurement of election materials and equipment are "free from taxes and import duties" under Section 12 [6] of Republic Act (RA) No. 8436, [7] as amended by RA No. 9369. [8] On April 23, 2010, the COMELEC received a Letter of Authority from the Bureau of Internal Revenue (BIR) to examine its books of accounts and accounting records for all withholding taxes for 2008. The investigation yielded a deficiency EWT assessment of P26,269,583.62 and P4,375,959.00 against the COMELEC for failure to deduct, withhold and remit the required tax on income payments made to Smartmatic and Avante. [9] After the informal conference on December 21, 2010, the COMELEC received a Preliminary Assessment Notice on June 13, 2011, assessing it for deficiency EWT of P45,592,340.89. [10] The COMELEC received the Final Assessment Notice and Formal Letter of Demand on January 13, 2012 and the Regional Director's denial of its protest and demand to pay the assessed tax on October 30, 2012. [11] On November 29, 2012, the COMELEC interposed an administrative appeal to the CIR, which was denied on October 16, 2014. On November 18, 2014, the COMELEC filed a Petition for Review with the CTA. [12] Ruling of the CTA Division On August 2, 2016, the CTA Second Division rendered its Decision, [13] partly granting the COMELEC's petition. The CTA Division agreed with the CIR's position that the COMELEC's duty as a withholding agent on income payments to its suppliers is distinct from its exemption to the payment of duties and taxes on the purchase, lease, rent, or acquisition of election materials and equipment from local or foreign sources under Section 12 of RA No. 8436, as amended. The CTA Division stressed that the COMELEC's exemption under Section 12 refers only to direct taxes. Here, the deficiency assessment arose from the COMELEC's failure to withhold EWT on the lease contract payments to its suppliers. Nonetheless, the CTA Division ruled that the COMELEC is not liable for the deficiency interest following Section 247 (b) [14] of the 1997 National Internal Revenue Code, as amended [15] (Tax Code), which imposes the liability for the accrued interest on deficiency tax on the employee responsible for the withholding and remittance of tax. The COMELEC sought a reconsideration. On J