CTA Case No. 2973 (Decision)

KKPUBL1C. OF 1 U IL PHILIPP INK'S COURT OF TAx APPEALS Of ' F.7.0N CITY ~l:G<II10 R. .Tl.Jl.IAO -AS , Petitioner , - versus - C. T.A. CASE NO. 2973 TllE COHHISSIONER OF INTEIU1TAL REVENUE , Respondent . X- - - - - - - - - - - - - - - X DE CI S I 0 N This is an appeal from ~1e d ec is i on of r espon- dent Commi ssione r of I n ternal Revenue assess in g against and demanding f rom pet itioner Maximo R. Jumao-as the paymen t of the sum of P 22 , 168 . 94 , as def ic iency income tax, in clusive of interest, f or the year 1976. Th e re cords show that p etitioner , a Fi l ip ino ci ti zen and an En ginee r, l ef t the Philippines on Apr il 3 , 1976 fo r Saudi Arabia and \vorked as a consult ine; enein ec r fo r Al-Huhandis Nizar Kurd i Con sultin g Engineers , a fore ign construction firm based in Hiyadh , SaL:.di Arabia . On January 2, 1977 , he filed a non -Resident Income Tax netur n fo r the t axaole year 1976 vri th the n evf..:rn.ie At tache in t he Philippine Embassy in Jedah, Saudi Arabia , declaring I

DECISION - CTA CASE KO. 2973 - 2~ the amount of $9 ,599 . 32 as his gross income in 1976, a personal exemption of $4, ooo , arriving at an adjusted gross income of $5 , 599 . 32, computed 1% t ax thereon in the sum of ~>5 5. 99, pursuant to Section 21 (a) and (b) of the National Int ernal Revenue Code, as amended, rounded u p the amount of $55. 99 tax due , a nd paid the sum o f $60 . 00 , ( p . 6 , BIR records) After inve:; t:Lgation of the said r eturn , how- ever , Assistant Co mmissioner Lauro D. Abraham sent petitioner a letter dated April 5, 1978 , holding that petitioner failed� to qualify as non- r esident f or the taxable year 1976, to be subject to the preferent.ial incolne tax rates of 1~; , 2% and 3~'v , under Section 21 ( a ) and (b) of the Na tional Internal Re venue Code, as amended , and instead subje cted the income of petitioner abroad to the normal tax rates from 3,; to 70~~ , under the same Section 21, and computed a deficiency income tax, inclusive of 14~ interest thereon in the ammmt of �22 ,1 68 . 94 ( p . 16 , BIR rec.) , co1npu ted as follov:s : Gross income per return. .. .. . . . . P71 , 994 . 90 Less : 10;.; Optional standar d deduction 5, ooo .oo Het income per invest.iga tion � � � � � � � � � 66 , 994- . 90 Less: Per~onal and additional exeH1ption lt- , 000 . 00 Amount subJect to tax ���������������� 62 , 994 . 90 Tax due there on ����������������� ���� � 19,798.00 Less: illnount already paid... .... .. .. (450.00) B a 1 an c e �� �� ��������� ���� � ��� � � � 19,348.00

DECISION - CTA CASE NO . 2973 - 3- Add : 14 % i nte rest per annwn ��� ��.� � � � 2, 82 0. 94 ~\10UNT STILL DUE .AND COLLECTIBLE uu� �22 , 168 . 94 whi ch amount petition e r was r equ ired to pay on Ha y 16 , 1978 . On May 17, 1978 , peti tioner reque sted for re - cons id erat i on and -vri t hdrawal of the def ic i ency i ncome t ax assessment f rom respondent assert ing t ha t , under Se ction 21 (a ) and ( b ) of t he Na t ional I nternal Revenu e Code , as amended by PD 323 , a non - resident is to be unders t ood as one Hho establishes , to the satisfact j_on o f' t:te ComlJ1is sione r , his physi cal p re :... sence abroad for an entire taxable year ; t ha t U..Y)der Se ction 2 of Revenue Regulation No. 9 - 73 , a n on- r esident citizen is one wh o establ ishes to the s a t is - faction of the CQrunissioner , the fact of his presence abroad for an uninterrupted period Hhich includes an entire taxabl e year ; that the phrase 11 un j_nterrupted period" should not be interpreted literally to n~gate the continuity of residence abroad ; that neither PD 323 nor Revenue Regulation ~; o . 9 -73 r equires that t he "uni nterrupted period" of pt.ysical presence abroad sho u.ld start f r om January to December of a year ; tin t the term 1 t a xable year , 0 under Section 84 ( 0 ) of the Revcmue Code, in cludes a re turn made for a fractional part of a year , and theref ore , does not

DECISI OtJ - CTA CASE NO . 29 73 - 4- necessarily r:1ean a 12 month period ; and tha t the r ationale behind PD 323 is t o li ghten the tax hu.rden s of non - resident Fi lip inos who have es t ablished the i r r esidenc e abroad . ( pp . 18- 21, BI R r ec .) This aforesaid request for reconsideration and wi t hdr awal of the assessment was denied in a l e tter date d May 24 , 1978 ( p . 9 , BI R rec . ) of Fortunato ~guas , Chief , International Ope rations Division of the Bureau of Int e rnal Revenue . Thia lett e r was admittedly l'eceived by petitioner on June 6 , 1978 . lJ ot satisfied , pe titioner , on June 19 , 1978 , request ed fo r reconsideration of Ul'i-: den ial whi ch Ha s r eceiv ed by res pond ent on June 22 , 1<)78 . ( pp . 22 - 30 , Bi it r ec. ) Hm-Jev ,~ r , in a l ette r da ed Jul y 28 , 1978 , and received by petiti oner on August 29 , 1978 , res - penden t den i ed pe tLt ioner ' s re ~uest . ( p . 31, BI R re c . ) !1ence , t :�d.s appeal on Se!)t ernbf~r 27 , 1978 . Th e issue on the rneri ts involved in this case is vJher~her or no.t peti ti one r 1:1a y be considered as a non - resident, ci ti?.en for 1976 a nd , t~H~ refore , his adjust ed :sr oss inC01!1e fro rn abroad is subject to t he pr ef crcntLul i"lco:nc: tax rates of 1 ~; , 2 1b and 3;:; under Section 21 ( a ) and ( b ) of the Tax Code , as rt.: 'ICmde d 1 by PD 323 . We note , however , tha t res pondent raised the issue of juri s diction , i.e . ,,!he tht::r the appeal "t (\' (")

DECI SION - CTA CASE NO. 2973 - 5- i n this case was seasonably filed within 30 day s f r om the receipt of the final decision . Th i s question of jurisdic tion must first have t o be det ermined , since i f t he clai m of lack of juris - diction is founded , this Court can not decide t he case on tL.e merits . In connection ,,lit h the j urisdictional qu estion , r espondent cont~nds t hat the letter of May 24 , 1978 c onstituted the appealable decision , and that when petitioner a cknovrled ged re cei1! t -there of on June 6, 1978 , he should have in ter pos ed the appeal 'dith in thirty- day period in accordance Hith the provisions of Sect:Lon 11 of Republic Act _To . 1125 . Petitioner, on his par t , assailed the stand of r espondent and argued t ha t the decision Hhich i s appealable to this court is t~ f inal decisibn of respondent on tlte disputed assessment dated July 28 , 1978 , which was r eceived by peti t ion er on August 29 , 19'78 . It is 'd ell established doctrine th<.:tt the f �inal de cis i on is that decision \-Jh�j ch from the very terms or vJOrds of r esp ondent therein , he has 1:-Jeant it to be his final decisi.on . (.St. -St~ phtm' s Association v::; . Call . of Int . Re v . , 10Lt- Phil . 31 4 ; ;:ro r a l es v . Call . of Int. Rev . , 17 SCRA 10 18 .) ') \ J 'I '

DECISION ~ CTA CASE NO. 2973 - 6- Respondent 1 s lett er of f�1ay 2l1-, 1972 '.;h"lch stated thus - 11Please dvise your cl ie nt a ccorcli.n:;ly to pay the said amoun t of P22 , 168 . 94- to any collection agent of t he Bureau of Inter- nal Revenue nearest his pl ace in order t ha t the same may b e consid e r e d closed a nd termi - nated. " d oes not cont~in t he el emen t o f fi na l ity , a ndj there fore , it can not be considered as tre f:inal decision of r espondent appealable to this Court. Vie bel:i ev e that the subseq uent l etter of res~ pondent dated July 28 , 1978 is the final decision on the dis puted asse ssment. This i s so be cause it is t~w dec .i sion o f the Commissioner of Internal Revenue on the disputed assessment . Where a t a x- payer y_uestions an assess r:Hmt , ::md asks trw Collector ( Co r1m issioner of Int ernal 3.ev enu8 ) to re c on sider or can c el ~1e same be c~use he (the taxpayer) b eli e v e s h e i s not l iable therefo r , t !1e assessment b c;co rne:.:; a " disput ed asse::;sment11 tha t the Collector ( Cor:'l!nis- sioner) mc.st decide and the taxpayer can appeal to t !'1e Court of Tax Appeals only u p o n re c c~ipt of the decision on t:h~ cLsimted assessment . (S t . St ephen ' s A ssocla~inn vs . Sollector , supra . ) Con sidering , therefore , t:1at the petiti.orwr

DECISION - CTA CASE NO . 2973 - 7- h e rein received r esoondent's decis i on dated J uly 28 , 1978 only on August 29, 1978 , and the instant appeal was filed on Septembe r 27 , 1978 , only t v1enty- nine ( 29) days vi e r e con sumed. The appeal vms filed 11lithin t he re,slementc.n~y period of 30 days and th is Court has jurisdiction to decide t he instant case . We now come to the is sue of whe ther or not pet :Ltl.one :c 1nay be c onside r ed as a non -r esident cit:L- zen for 1976 so that h is inclU.e f r oin abroad in l~ha t y ea r will be s u bject to the preferen t ial income t a x r a t es of 1;; on the adjusted (:S r oss inc >:ne of $5 , 599 . 32 , Hhich is \�lithin the statutory adj usted gross income of $6 , 000 under 3ect1on 21 ( a ) and ( b) o f the Revenue Code , a s a ~ended by PD 323 . This issue is not nevJ. In a s :um.la r ca:.:;e (C armencita ? . Pat :i.o v.s . Co rw;~ . of I nt . Itev., CTA Case Fa . 29 13 , February 26 , 1981) , as t his ins t a nt case , this Court held that a l~axp0.yer , '.-Iho stayed for l ess than 12 uon ths in his initial year of ~tay a broad , ca n not be cons i_dered a nun- J~esident ci tL~en du.r "Lnc the period in ctuest'ion , and , hence is not en ti t.led t:) a pply the rate of 1;& on h :Ls adjusted gross inc .:ne of .$5 , 599 . 32 , but on those;)' rates from I 7 3 }~ to 70,&ordinar i.ly impo s ed on re sident citizens . ~:le held i.n the aforeci t.8cl c::1.s e o [' Ca rmenc :L:-.a P . Patio :

DECISION - CTA CASE ro . 29 73 - 8- He agree \�li t h respoud en L . The lm1 i s clear that i.n o rd er to c.rl a1ify as a n on - r e s id ent c i t iz en an~ avail of t h e pre f e ren - tial income tax r ate s und e r Se ct:..on 2 1 , one must heLVe actl:ta lly and phy sicall y stayed or r esided a broad f or an unhd;errupted peri od o f one ent i r�t~ t axa bl e year , i . e . f o r the p er :2.od starti n g f rom Janu ary 1 an d E'md in e; December 31 , of a gi_v en ye a r . 0 U �er\'lis e , i f tl1e pe r icd o f t h e taxpaye r 1 s stay ab roc.d i s l ess than one yea r , the i n come earn ed abr oad durin g that pe ri od o f less t~an one ye a r \�J:L1J s u b j ec t t h e sarne to the pro g re~;sj v e incoue tax rc.tt f; :.:> of 3 ;.~ to 70;; , and t o t h i s i ncome abr oad shal l he included the i n come eD.rned in tlle Fhili.ppi.n e;:i dur ing tl ;a.t s a me pe r :L c;cl of J e~i0 tl1an one year�, jt's t 1 H :P tll e in c orries of petition er tn qu.e:::it i on . This must be so because tlte te r m " taxable year 11 , i n Sect i on 21 , as amended by P . D . 3 23 , rneur.. s the . cale1�clar year , 'vihich be c:Lr1s on Janu ary 1 and ends on De c ember 31 , of ea ch year . P etitioner no t being consider ed a non - r es i dent citizen who had esta~lis h ed he r phys ical presen ce abr oad f or ru 1 uninterrupted per iod of an ent ir e taxable year , her income eD.rned abr oa d f or t he })e r:Loc.l of less than one taxa ble yea r , or fro:n l�!ay 1 , 1975 to Decerur:cr 3 1 , 1975, i n clue in5 tba t i nco me earned in the Phi l ippj_nes fo r tlH~ period f r om Janual'Y 1 t o FdJr ua:r�y 27 , 197 5, s l to u2_ll bf~ subje c t(~ d to the pr ogre ss i v�e tax rates of from 3;; t o 70:,; pur suant to Sect::l.on 21 , a~ a mende d by P . D. 323 . \>!e :':'ir1d no cccen t r eCJ.son :-o rnodi i'y o1.u� <:~. fore - said decj si.on and to depart fr<WJ tl-J e cone] 1J[3 :i on :::�eacrwcl t1 , c~J � ein . The cle c j ~ ; i o r, o~ res pon dent Co rl!mis - tioner deficiency l.r,e;one "..,u;: , :r;lus intere st , r:1u st be necesse:1.rily llave to be upheld . \�.TH:S.HJ~FO!-{}; , the d e l�isj_on appealed from l:-, hereby '} ~ \) �--- 1.

DE CISIOF - CTA CASE ITO. 2973 - 9- uffir::1ed . :!?oti tioner l1axi':10 :a . Jumao-as is hereby order e d to pay , within thirty ( 3 0 ) days f ro~ receipt o~ this decisi on , the a~ount of P1 9 , 348 . oo , as def iciency inco::ne te.x for 1976 , plu s 5,~ surcharge there on , and 14)b i n ter es t per annu:-11 f ro ~n ~,';ay 16 , 1978 to the date of full paymen t , p rov iderl t he ma xi~1um a mount t ha t may be collect ed o.s i nte rest on fue def ic i ency s hall in no case exceed the a mount oor - responding to a period of three (3) years , pursuant to S e c tion 51 ( d ) of the Tax Code , a s a~ended . Wi th costs a gai~st peti tioner . ,so ORDEi:lliD. ~~uezon City , July 20 , 198 1 � . irJE concrr:t : Presiding 1 Associate Judge 1l