CTA voids P51.6-M BIR withholding tax assessment vs JTKC Land

THE Court of Tax Appeals (CTA) has voided a P51.59-million deficiency withholding tax assessment issued by the Bureau of Internal Revenue (BIR) against property developer JTKC Land, Inc., ruling that the assessments lacked legal basis and, in part, were issued without valid audit authority.

In a 30-page decision promulgated on June 30, the CTA Special Third Division granted JTKC Land’s petition and canceled deficiency withholding tax-others (ONETT) assessments totaling P51.59 million, inclusive of interest and penalties, for taxable years 2008, 2009, and 2010. The court also set aside a P375,000 compromise penalty.

The case stemmed from the BIR’s finding that JTKC Land failed to withhold taxes on condominium units transferred to investors under Project Investment Agreements (PIAs). The Commissioner of Internal Revenue affirmed the assessments through a Final Decision on Disputed Assessment (FDDA), prompting the company to elevate the case to the CTA.

The CTA ruled that the assessments for taxable years 2008 and 2009 were void because the Letter of Authority (LoA) issued by the BIR authorized the examination of JTKC Land’s books only for taxable year 2010. It also held that a subsequent reinvestigation conducted by another revenue officer under a Memorandum of Assignment was invalid because no new or amended LoA had been issued.

For taxable year 2010, the court ruled that the BIR improperly disregarded BIR Ruling No. DA-(JV-023) 178-08, which recognized that the allocation of condominium units to investors under JTKC Land’s PIAs constituted a non-taxable return of capital and did not give rise to a withholding tax obligation.

The court said Revenue Memorandum Circular No. 55-2010 revoked only six rulings issued to G&W Architects and did not apply to JTKC Land’s ruling.

The CTA also found that the BIR failed to state the facts and the law on which the 2010 assessment was based, as required under Section 228 of the National Internal Revenue Code (NIRC).

It added that the BIR’s own assessment treated JTKC Land as the income payee, indicating that its investors — not the company — were the parties that could be liable as withholding agents under Section 57 of the Tax Code.

The tax court also invalidated the compromise penalty, saying such penalties require the taxpayer’s consent.

The CTA canceled the assessments, reversed the FDDA, and barred the BIR from enforcing or collecting the deficiency taxes and penalties. — Mark Joseph M. Sanchez