ABS-CBN v CTA & CIR GR52306 Oct 12, 1981 [Circulars or rulings prospective]

G.R. No. L-52306 October 12, 1981

ABS-CBN BROADCASTING CORPORATION, petitioner,
vs.
COURT OF TAX APPEALS and THE COMMISSIONER OF INTERNAL REVENUE, respondents.

FACTS:
Petitioner corporation was engaged in the business of telecasting local as well as foreign films
acquired from foreign corporations not engaged in trade or business within the Philippine, for which
petitioner paid rentals after withholding income tax of 30%of one-half of the film rentals.
section 24 (b) of the National Internal Revenue Code, as amended by Republic Act No. 2343 dated
June 20, 1959, used to provide that income tax on non-resident corporations xxxx There shall be
levied, collected, and paid for each taxable year xxxx a tax equal to thirty per centum of such
amount (30%).
On April 12, 1961, in implementation of the aforequoted provision, the Commissioner of Internal
Revenue issued General Circular No. V-334 which states that xxxx The local distributor should
withhold 30% of one-half of the film rentals paid to the non-resident foreign film distributor and pay
the same to this office in accordance with law unless the non- resident foreign film distributor makes
a prior settlement of its income tax liability.

Petitioner dutifully withheld and turned over to the Bureau of Internal Revenue the amount of 30% of
one-half of the film rentals paid by it to foreign corporations not engaged in trade or business within
the Philippines. The last year that petitioner withheld taxes pursuant to the foregoing Circular was in
1968.
On June 27, 1968, Republic Act No. 5431 amended Section 24 (b) of the Tax Code increasing the
tax rate from 30 % to 35 %.
On February 8, 1971, the Commissioner of Internal Revenue issued Revenue Memorandum
Circular No. 4-71, revoking General Circular No. V-334, and holding that the latter was "erroneous
for lack of legal basis," because "the tax therein prescribed should be based on gross income
without deduction whatever. Xxxxx local films distributors and exhibitors shall deduct and
withhold 35% of the entire amount payable by them to non-resident foreign corporations, as film
rental or royalty, or whatever such payment may be denominated, without any deduction whatever.
Xxxx
On the basis of this new Circular, respondent Commissioner of Internal Revenue issued against
petitioner a letter of assessment and demand dated April 15, 1971, but allegedly released by it
and received by petitioner on April 12, 1971, requiring them to pay deficiency withholding income tax

on the remitted film rentals for the years 1965 through 1968 and film royalty as of the end of 1968 in
the total amount of P525,897.06
On May 5, 1971, petitioner requested for a reconsideration and withdrawal of the assessment.
Without acting thereon, respondent, on April 6, 1976, issued a warrant of distraint and levy over
petitioner's personal as well as real properties.
Pet. Filed petition for Review with the Court of Tax Appeals which affirmed the assessment by the
Commissioner of Internal Revenue, dated April 16, 1971, of a deficiency withholding income tax
against petitioner, ABS-CBN Broadcasting Corporation.
ISSUE:
Whether or not respondent can apply General Circular No. 4-71 retroactively.
RULING:
No. General Circular No.4-71 cannot be given retroactive effect.
Sec. 338-A (now Sec. 327) of the Tax Code provide xxxxx any of the rulings or circulars promulgated
by the Commissioner of Internal Revenue shall not be given retroactive application if the relocation,
modification, or reversal will be prejudicial to the taxpayers, except in the following cases: (a) where
the taxpayer deliberately mis-states or omits material facts from his return or any document required
of him by the Bureau of Internal Revenue: (b) where the facts subsequently gathered by the Bureau
of Internal Revenue are materially different from the facts on which the ruling is based; or (c) where
the taxpayer acted in bad faith
Rulings or circulars promulgated by the Commissioner of Internal Revenue have no retroactive
application where to so apply them would be prejudicial to taxpayers. It was issued only in 1971, or
three years after 1968, the last year that petitioner had withheld taxes under General Circular No. V334.
The assessment and demand on petitioner to pay deficiency withholding income tax was also made
three years after 1968 for a period of time commencing in 1965. Petitioner was no longer in a
position to withhold taxes due from foreign corporations because it had already remitted all film
rentals and no longer had any control over them when the new Circular was issued.
And in so far as the enumerated exceptions are concerned, admittedly, petitioner does not fall under
any of them.
The well-entrenched principle that the Government is never estopped from collecting taxes because
of mistakes or errors on the part of its agents is well settled. In fact, utmost caution should be taken in
this regard. But, like other principles of law, this also admits of exceptions in the interest of justice and
fairplay. The insertion of Sec. 338-A into the National Internal Revenue Code, as held in the case of
Tuason, Jr. vs. Lingad, is indicative of legislative intention to support the principle of good faith.
Furthernore the imposition of interest is uncalled for, petitioner merely relied in good faith and religiously

complied with no less than a Circular issued "to all internal revenue officials" by the highest official of
the Bureau of Internal Revenue and approved by the then Secretary of Finance.

WHEREFORE, the judgment of the Court of Tax Appeals is hereby reversed, and the questioned
assessment set aside. No costs.