Haystack: Collector of Internal Revenue vs. Benipayo (GR L-13656, 31 January 1962)

Collector of Internal Revenue vs. Benipayo (GR L-13656, 31 January 1962)
En Banc, Dizon (J): 8 concur, 1 took no part

Facts: Alberto D. Benipayo is the owner and operator of the Lucena Theater located in the municipality of Lucena, Quezon. On 3 October 1953 Internal Revenue Agent Romeo de Guia investigated Benipayo’s amusement tax liability in connection with the operation of said theater during the period from August 1952 to September 1953. On 15 October 1953 De Guia submitted his report to the Provincial Revenue Agent to the effect that Benipayo had disproportionately issued tax-free 20-centavo children’s tickets. His finding was that during the years 1949 to 1951 the average ratio of adults and children patronizing the Lucena Theater was 3 to 1, i.e., for every 3 adults entering the theater, 1 child was also admitted, while during the period in question, the proportion was reversed — 3 children to 1 adult. From this he concluded that Benipayo must have fraudulently sold 2 tax-free 20-centavo tickets, in order to avoid payment of the amusement tax prescribe in Section 260 of the National Internal Revenue Code (NIRC). Based on the average ratio between adult and children attendance in the past years, Examiner de Guia recommended a deficiency amusement tax assessment against Benipayo in the sum of P11,193.45, inclusive of 25% surcharge, plus a suggested compromise penalty of P900.00 for violation of section 260 of the NIRC, or a total sum of P12,093.45 covering the period from August 1952 to September 1953, inclusive. On 14 July 1954, the Collector issued a deficiency amusement tax assessment against Benipayo demanding from the latter the payment of the total sum of P12,152.93 within thirty days from receipt thereof. On 16 August 1954, Benipayo filed the corresponding protest with the Conference Staff of the BIR. After due hearing, the Conference Staff submitted to the Collector its finding to the effect that the “meager reports of these fieldmen are mere presumptions and conclusions, devoid of findings of fact of the alleged fraudulent practices of the herein taxpayer”. In view thereof, and as recommended by the Conference Staff, the Collector referred the case back to the Provincial Revenue Agent of Quezon for further investigation. The report submitted by Provincial Revenue Officer H. I. Bernardo after this last investigation supported agent De Guia’s assessment. After considering said report, the Conference Staff recommended to the Collector the issuance of the deficiency amusement tax assessment in question.

The issue being raised in the Court of Tax Appeals, said court, on 23 January 1948, reversed the decision of the Collector, relieving Benipayo from the payment of the deficiency amusement tax assessed against him in the total amount of P12,093.45. The Collector appealed to the Supreme Court.

The Supreme Court affirmed the appealed judgment, with costs.

1. Nature of an assessment; Basis
An assessment fixes and determines the tax liability of a taxpayer. As soon as it is served, an obligation arises on the part of the taxpayer concerned to pay the amount assessed and demanded. Hence, assessments should not be based on mere presumptions no matter how reasonable or logical said presumptions may be. In order to stand the test of judicial scrutiny, the assessment must be based on actual facts.

2. Presumption of correctness of assessment cannot rest upon another presumption
The presumption of correctness of assessment being a mere presumption cannot be made to rest on another presumption that the circumstances in 1952 and 1953 are presumed to be the same as those existing in 1949 to 1951 and July 1955. Assuming arguendo that the average ratio of adults and children patronizing the Lucena Theater from 1949 to 1951 was 3 to 1, the same does not give rise to the inference that the same conditions existed during the years in question (1952 and 1953). The fact that almost that same ratio existed during the month of July, 1955 does not provide a sufficient inference on the conditions in 1952 and 1953.

3. Fraud is a serious charge and must be supported by clear and convincing proof
To sustain the deficiency tax assessed against Benipayo would amount, in effect, to a finding that he had, for a considerable period of time, cheated and defrauded the government by selling to each adult patron 2 children’s tax-free tickets instead of 1 ticket subject to the amusement tax provided for in Section 260 of the NIRC. Fraud is a serious charge and, to be sustained, it must be supported by clear and convincing proof which, in the present case, is lacking.

4. Rebate system discontinued; Context of Benipayo’s admission
The claim that Benipayo admitted having resorted to the anomalous practice already mentioned is not entirely correct. What Benipayo appears to have admitted was that during a certain limited period he had adopted a sort of rebate system applicable to cases where adults and children came in groups and were all charged 20 centavos admission tickets. This practice was, however, discontinued when he was informed by the BIR that it was not in accordance with law.