G.R. No. 109976 and G.R. No. 112800; April 26, 2005
PHILIPPINE NATIONAL OIL COMPANY, Petitioner, vs. THE HON. COURT OF APPEALS, THE COMMISSIONER OF INTERNAL REVENUE and TIRSO SAVELLANO, Respondents. (Consolidated with G.R. No. 112800)

FACTS

Private respondent Tirso Savellano informed the BIR that the Philippine National Bank (PNB) failed to withhold the 15% final tax on interest earnings from money placements of the Philippine National Oil Company (PNOC), in violation of Presidential Decree No. 1931 which withdrew tax exemptions of government corporations. The BIR issued a demand to PNB as withholding agent and to PNOC as taxpayer for over P385 million in taxes and interest. PNOC proposed a compromise settlement, offering to pay 30% of the basic tax under Executive Order No. 44. BIR Commissioner Bienvenido Tan accepted, and PNOC paid P91,003,129.89, which, combined with a prior PNB payment, totaled P93,955,479.12 in collected taxes.
Savellano received a 15% informer’s reward based on this collected amount. Dissatisfied, he demanded a reward based on the original full assessment. He filed a Petition for Review with the Court of Tax Appeals (CTA), arguing the Commissioner gravely abused his discretion by compromising, thereby unlawfully diminishing his reward. He sought to compel full collection from PNOC/PNB and payment of the corresponding larger reward. The CTA and the Court of Appeals dismissed his petition.

ISSUE

Whether the Court of Tax Appeals correctly dismissed Savellano’s petition challenging the BIR Commissioner’s authority to compromise the tax liability of PNOC and PNB.

RULING

Yes, the CTA’s dismissal was correct. The BIR Commissioner possesses the statutory authority to compromise tax liabilities under the National Internal Revenue Code (NIRC). Executive Order No. 44 specifically authorized the compromise of delinquent accounts and disputed assessments pending as of December 31, 1985, by payment of 30% of the basic tax. The tax liability of PNOC, arising from the withdrawal of its exemption in 1984, constituted a “disputed assessment” eligible for compromise under this law. The Commissioner’s acceptance of PNOC’s offer was a valid exercise of this discretionary power.
Consequently, Savellano’s informer’s reward is legally based on the tax “actually collected” or recovered, as stipulated in the NIRC, not on the originally assessed amount. Since the compromise agreement was valid, the collected amount was P93,955,479.12, on which Savellano was duly paid 15%. He has no legal right to demand a reward on an assessment that was not fully collected due to a lawful compromise. His petition failed to state a cause of action as he could not compel the Commissioner to collect the full assessment or challenge the valid exercise of discretionary compromise authority.