G.R. Nos. L-17462 and L-17472, May 29, 1967
Case Parties:

REPUBLIC OF THE PHILIPPINES, petitioner, vs. JOSE RAZON and JAI-ALAI CORPORATION, respondents. (G.R. No. L-17462)
JAI-ALAI CORPORATION OF THE PHILIPPINES, petitioner, vs. REPUBLIC OF THE PHILIPPINES, COURT OF TAX APPEALS and JOSE RAZON, respondents. (G.R. No. L-17472)

FACTS

1. The Republic of the Philippines (Republic) filed an action to collect income taxes from Haig Assadourian, an Egyptian citizen formerly a resident of the Philippines who left for the U.S. in 1946 and never returned.
2. The first cause of action sought to recover from Jose Razon, as attorney-in-fact of Assadourian, the sum of P73,522.62 as Assadourian’s income tax liability for 1946.
3. The second cause of action sought to recover jointly and severally from Jose Razon and Jai-Alai Corporation, as withholding agents, the 12% withholding tax amounting to P30,080.00 on income received by Assadourian for 1947 and 1948 under Section 53(b) and (c) of the National Internal Revenue Code.
4. Assadourian, as general manager of Jai-Alai Corporation, had a management contract. On August 6, 1947, Jai-Alai Corporation, represented by its Vice-President Jose Razon, entered into an indenture with Assadourian in Los Angeles, California, whereby the corporation agreed to pay him P200,000.00 in consideration of his claim for management percentage fees for 1946-1950. The amount was payable in installments: P40,000.00 by August 20, 1947, and P20,000.00 monthly from September 1947 to April 1948.
5. The Bureau of Internal Revenue (BIR) discovered this indenture in 1949. It assessed withholding taxes against Jai-Alai Corporation for failing to withhold 12% on the payments to Assadourian, a non-resident alien.
6. Jai-Alai Corporation claimed it could not pay the purchase price and subrogated its rights to Senator Vicente Madrigal, who paid Assadourian. The Court of Tax Appeals found that only P80,000.00 was paid in 1947 and P80,000.00 in 1948, not the full P200,000.00.
7. Jose Razon died during the pendency of the case, and his estate was substituted.
8. The Court of Tax Appeals rendered a decision ordering Jai-Alai Corporation to pay the Republic P12,000.00 (12% withholding tax on P80,000.00 paid in 1947) plus surcharge, and dismissing the complaint against Jose Razon and the cross-claim against him. Both the Republic and Jai-Alai Corporation appealed.

ISSUE

1. Whether Jose Razon, as attorney-in-fact of Haig Assadourian, is personally liable for Assadourian’s 1946 income tax.
2. Whether Jai-Alai Corporation and Jose Razon are liable as withholding agents for the 12% tax on income paid to Assadourian, a non-resident alien, in 1947 and 1948.
3. Whether the cause of action to collect the withholding tax had prescribed.

RULING

1. On the first cause of action (1946 income tax): The Supreme Court affirmed the dismissal of the complaint against Jose Razon. Razon, as a mere attorney-in-fact, did not assume personal liability for Assadourian’s taxes. His acts, such as filing tax returns and requesting installment payments, were performed in a representative capacity. The tax liability remained solely that of the taxpayer, Assadourian. The guaranty executed by Jack George did not make Razon liable.
2. On the second cause of action (withholding taxes for 1947 and 1948):
a. Liability of Jai-Alai Corporation: The Supreme Court modified the Court of Tax Appeals decision. Jai-Alai Corporation was held liable as a withholding agent under Section 53(b) of the Tax Code for its failure to withhold the 12% tax on the income paid to Assadourian, a non-resident alien not engaged in trade or business within the Philippines. The corporation’s defense that it subrogated its payment obligation to Senator Madrigal was unavailing; it remained the debtor obligated to withhold the tax. The Court found that only P80,000.00 was paid in 1947 and P80,000.00 in 1948. Thus, Jai-Alai Corporation was ordered to pay the 12% withholding tax on P80,000.00 for 1947 (P9,600.00) plus a 25% surcharge (P2,400.00), and on P80,000.00 for 1948 (P9,600.00) plus a 25% surcharge (P2,400.00), with interest at 1% per month from January 15, 1953.
b. Liability of Jose Razon (his Estate): The Supreme Court reversed the Court of Tax Appeals and held Jose Razon (his Intestate Estate) jointly and severally liable with Jai-Alai Corporation for the withholding taxes, surcharges, and interests. As Vice-President of Jai-Alai Corporation who signed the indenture and effected the payments to Assadourian, Razon was a “person having the control, receipt, custody, disposal, or payment” of the income subject to withholding under Section 53(c) of the Tax Code. His personal involvement made him a withholding agent under the law.
3. On prescription: The Supreme Court affirmed the Court of Tax Appeals’ finding that the right to collect had not prescribed. Jai-Alai Corporation failed to file a withholding tax return. Under Section 332(c) of the Tax Code, a judicial proceeding for collection may be begun without assessment within ten years after the discovery of the omission. The omission was discovered in 1949, and the judicial suit against Jai-Alai Corporation was initiated on January 16, 1953 (when it was included as a defendant in the amended complaint). Only four years had elapsed, so the action was timely.
DISPOSITIVE:
The decision of the Court of Tax Appeals was modified. Jai-Alai Corporation and the Intestate Estate of Jose Razon were held jointly and severally liable for the withholding taxes, surcharges, and interests on the P80,000.00 paid to Assadourian in 1947 and the P80,000.00 paid in 1948. The dismissal of the complaint against Jose Razon regarding the 1946 income tax was affirmed. Costs were imposed.