ABS-CBN Broadcasting Corp. vs. Court of Tax Appeals [G.R. No. L-52306. October 12, 1981]

Facts: During the period pertinent to this case, 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 Philippines. for which petitioner paid rentals after withholding income tax of 30%of one-half of the film rentals. In implementing Section 4(b) of the Tax Code, the Commissioner issued General Circular V-334. Pursuant thereto, ABS-CBN Broadcasting Corp. dutifully withheld and turned over to the BIR 30% of ½ of the film rentals paid by it to foreign corporations not engaged in trade or business in the Philippines. The last year that the company withheld taxes pursuant to the Circular was in 1968. On 27 June 1908, RA 5431 amended Section 24 (b) of the Tax Code increasing the tax rate from 30% to 35% and revising the tax basis from “such amount” referring to rents, etc. to “gross income.” In 1971, the Commissioner issued a letter of assessment and demand for deficiency withholding income tax for years 1965 to 1968. The company requested for reconsideration; where the Commissioner did not act upon. 

Issue: Whether Revenue Memorandum Circular 4-71, revoking General Circular V-334, may be retroactively applied. 

Held: Rulings or circulars promulgated by the Commissioner have no retroactive application where to so apply them would be prejudicial to taxpayers. Herein ,the prejudice the company of the retroactive application of Memorandum Circular 4-71 is beyond question. It was issued only in 1971, or three years after 1968, the last year that petitioner had withheld taxes under General Circular No. V-334. 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. The company was no longer in a position to withhold taxes due from foreign corporations because it had already remitted all film rentals and had no longer control over them when the new circular was issued. Insofar as the enumerated exceptions are concerned, the company does not fall under any of them.

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