PROTECTOR'S SERVICES, INC., V CA ET. AL. G.R. No 118176, April 12, 2000

PROTECTOR’S SERVICES, INC., V CA ET. AL. G.R.
No 118176, April 12, 2000

contractor’s tax.
Facts: Petition Protector’s Services, Inc., (PSI) is a contractor engaged in recruiting

PSI filed a petition for review on December 5, 1990 with the CTA averring that
security guards for clients. After an audit investigation, the BIR assessed PSI
assessments for documentary stamp and expanded withholding taxes and without
deficiency percentage taxes including surcharges, penalties and interests of
basis having been paid on July 22, 1988; the period for collection of the 1985
P503,564.39, P831,464.30 and P1,514,047.86 for 1983, 1984 and 1985,
assessment letter therefore, the period to collect the percentage taxes for the first,
respectively. On December 7, 1987, respondent CIR sent demand letters for
second and third quarter of 1984 has lapsed, the assessment letter therefore having
payment of said assessments for 1983 and 1984 on December 10, 1987, but denied
been sent on December 10, 1987, or beyond 3 years from filing of the quarterly
receiving the notice of deficiency tax for 1985.
returns, and that the base amount was erroneous since salaries of security guards,
employer’s share of SSS, SIF and medicare contributions should not form part of
Petitioner PSI, sent a protest letter dated January 12, 1988 regarding the 1983 and
taxable gross receipts.
1984 assessments, claiming that gross receipts subject to percentage tax should
exclude salaries of the security guards, employer’s share of SSS, SIF and Medicare
The CTA dismissed the petition stating that: (1) the assessments were made within
contributions. Without formally acting thereon, the BIR sent a follow-up letter dated
the 3-year prescriptive period which should be reckoned from January 20, 1985, the
July 12, 1988 for the settlement of the taxes based on its computation, plus additional
date of filing the final return; (2) receipt of the 1985 assessment cannot be denied as
documentary stamp taxes of P2,025 on PSI’s capitalization for 1983 and 1984 and as
all assessments were sent in 1 envelope, as testified to by BIR personal; and (3) the
deficiency expanded withholding tax of P703.41, thereby bringing the total unsettled
protest letter having filed only on January 12, 1988, or 33 days from December 10,
tax to P2,851,805.16.
1987, the request for reinvestigation was filed out of time. On review by the CA, the
CTA’s decision was affirmed.
On July 12, 1988, petition paid the P2,025 documentary stamp tax and P703.41
deficiency expanded withholding tax. The following day, PSI filed its second protest
for the 1983 and 1984 assessments and included for the first time its protest against
Issues:
the 1985 assessment. On November 9, 1990, the BIR denied the protests stating
• Whether or not the CTA has jurisdiction to act on the petition for review filed before
that salaries of security guards are part of taxable gross receipts for determination of
it.
• Whether or not the assessments against PSI for deficiency percentage tax for 1983 acclaimed if the taxpayer still has an unpaid tax, and not from the tentative
and 1984 were made within the prescriptive period. quarterly payments.
• Whether or not the period for collection of taxes for taxable years 1983, 1984 and
1985 has already prescribed. As to the contention that for failure of the BIR to commence collection of the 1983,
• Whether or not the assessments are correct. 1984 and 1985 deficiency taxes either by judicial action or by distraint and levy, the
government’s right to collect the tax has prescribed, the court ruled that “the
suspension of the running of the statute of limitations for tax collection for the period
Held: An assessment maybe administratively protested within 30 days from receipt during which the commissioner is prohibited from making the assessment or
thereof; otherwise, the assessment shall become final and unappealable. In this beginning distraint or levy or a proceeding in court and 60 days thereafter.” In the
case, PSI received the assessments on December 10, 1987 and protested the 1983 instant case, PSI filed a petition before the CTA to prevent the collection of the
and 1984 assessments on January 12, 1988, or 33 days thereafter. Hence, the assessed deficiency tax. When the CTA dismissed the case, petitioner elevated the
protests were filed out of time and PSI can no longer dispute the correctness of case to the SC, hoping for a review in the favor. The actions taken by petitioner
assessment. The CTA correctly dismissed the appeal for lack of jurisdiction. before the CTA and the SC suspended the running of the statute of limitation.
Petitioner’s contention that the Government’s right to assess and collect the 1983, As to the correctness of the assessment, it was held that contractor’s tax on gross
1984 and 1985 assessments had already prescribed in view of BP700, which receipts imposed on business agents including private detective watchman agencies,
reduced the prescriptive period for assessment and collection of internal revenue was a tax on the sale of services or labor, imposed on the exercise of a privilege. The
taxes to 3 yrs, lacks merit BP700 was approved on April 5, 1984. The 3-year term “gross receipts” means all amounts received by the prime or principal contractor
prescriptive period for assessment and collection of revenue taxes applied to taxes as the total price, undiminished by the amount paid to the subcontractor under the
paid beginning 1984. Clearly, the tax assessment made on December 10, 1987, for subcontract arrangement. Hence, gross receipts could not be diminished by
the par 1983 was still covered by the 5-year statutory prescriptive period. employer’s SSS, SIF and medicare contributions. Furthermore, it has been
consistently ruled by the BIR that the salaries paid to security guards should form
The 3-year prescriptive period for assessment of contractor’s tax should be computed part of the gross receipts subject to tax.
at the time of filing of the final annual percentage tax return, when it can be finally
Facts: Petitioner was assessed for deficiency percentage taxes including surcharges,
penalties and interests thereon for the year 1983, 1984 and 1985. Petitioner filed a
protest against the assessment claiming that its gross receipts subject of percentage
taxes should exclude the salaries of the security guards as well as the employer’s
share of SSS and State Insurance Fund and Medicare contributions. BIR Deputy
Commissioner denied with finality the latter’s protest against the subject assessment
holding that the salaries paid to security guards form part of the taxable gross
receipts in the determination of the 3% and 4% contractor’s tax. Petitioner filed a
petition for review before the Court of Tax Appeals (CTA),
Issue: Does the term “gross receipts” of a contractor subject to percentage tax
include the salaries paid to its employees, its SSS, SIR and Medicare contributions?
Held: Yes. The term “gross receipts” means all amounts received by the principal
contractor as the total price, undiminished by the amount paid to the subcontractor
under a subcontractor arrangement. Hence, gross receipts could not be diminished
by the employer’s SSS, SIF and Medicare contributions. The BIR has consistently
held that salaries of security guards form part of the taxable gross receipts

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PROTECTOR’S SERVICES, INC., V CA ET. AL. G.R.

No 118176, April 12, 2000

Facts: Petition Protector’s Services, Inc., (PSI) is a contractor engaged in recruiting

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