IN CASE OF DENIAL OF PROTEST: REFERRAL TO SOLGEN FOR COLLECTION 9.
9. The CIR did not reply, instead, it referred the case to the Solicitor General ("SG") for
G.R. No. L-21731 – Republic v. Lim Tian Teng Sons & Co., Inc.
BENGZON, J.
The Collector of Internal Revenue ("CIR") made an assessment against Lim Tian Teng Sons
and Co., Inc. ("LTTSCI") demanding from the latter payment of PHP 15,000 in taxes inclusive
of surcharge. In the same month, LTTSCI requested for a reinvestigation with a request to
produce supporting evidence. The CIR did not reply. Instead, it remanded the case to the
Solicitor General ("SG") who did not grant a reinvestigation but rather reiterated the content
of the assessment. Thereafter, the CIR filed a tax collection suit against LTTSCI with the
Court of First Instance of Cebu. LTTSCI assailed the collection suit on the ground that the
CIR cannot commence collection without a final and executory assessment notice. The
Court held that LTTSCI's claim is incorrect, as nowhere in the NIRC is the CIR required to
rule first on the request for reinvestigation before going to the court for collection
proceedings. (Summary taken from UberDigests)
DOCTRINE
Nowhere in the Tax Code is the CIR required to rule first on a taxpayer's request for
reinvestigation before he can go to court for the purpose of collecting the tax assessed. On
the contrary, Section 305 of the same Code withholds from all courts, except the CTA, under
Section 11 of RA 1125, the authority to restrain the collection of any national internal-revenue
tax, fee, or charge, thereby indicating the legislative policy to allow the CIR much latitude in
the speedy and prompt collection of taxes. xxx No government could exist if all litigants were
permitted to delay the collection of its taxes.
The CIR is authorized to collect delinquent internal revenue taxes either by distraint
and levy or by judicial action or both simultaneously.
FACTS
1. Lim Tian Teng Sons & Co., Inc. ("LTTSCI") is a domestic corporation in Cebu City,
engaged in the exportation of copra. LTTSCI uses the accrual method in its accounting
of its business.
2. The copra was weighed before shipment in the port of departure and upon arrival in the
port of destination. The weight before shipment was called copra outturn.
3. To allow for loss in weight due to shrinkage, LTTSCI collected on 95% of the amount
appearing in the letter of credit covering every copra outturn. The 5% balance remained
outstanding until final liquidation and adjustment.
4. In March 1953, LTTSCI filed its income tax return for 1952, based on accrued income
and expenses. LTTSCI treated the copra outturn shipped in 1951 as part of its
beginning inventory for 1952 (as stock on hand) in the sum of PHP 95,500 partially
collected.
5. In the audit and examination of LTTSCI's 1952 ITR, the CIR eliminated the PHP 95,500
outturn from the 1952 beginning inventory and instead considered it as accrued income
for 1951.
6. This increased taxpayer's 1952 net income by PHP 95,500, which in turn increased
LTTSCI's taxable net income for 1952.
7. Hence, the CIR, in a letter dated January 16, 1957, assessed LTTSCI a deficiency
income tax of PHP 10,074 and a 50% surcharge which LTTSCI must pay not later
than February 15, 1957. (30 days)
8. On January 31, 1957, LTTSCI requested for a reinvestigation of its 1952 tax liability
collection by judicial action.
10. On September 20, 1957, the SG demanded from LTTSCI the payment of PHP
15,111.50 within 5 days stating that otherwise, judicial action would be instituted
without further notice.
11. LTTSCI reiterated its request for reinvestigation which the SG forwarded to the CIR.
12. The Deputy of the CIR then informed LTTSCI that its request for investigation would be
granted provided it executed, within 10 days, a waiver of the statute of limitations as
required in General Circular V-258.
13. The CIR Deputy also extended the period within which to file the waiver but advised
that if there is no waiver passed on or before said date, judicial action for collection
would be instituted without further notice.
14. LTTSCI denies that it ever received the letter described in Fact No. 13.
15. LTTSCI failed to file such waiver and hence, eight months after, the CIR instituted with
the CFI of cebu an action for the collection of the deficiency tax.
16. The CFI held in favor of the CIR, however, the latter was not satisfied. The CIR filed an
MR on the ground that the CFI did not include the 5% surcharge for late payment of
tax. MR was denied by the CFI, stating that there was already a 50% surcharge.
17. Both LTTSCI and CFI are now appealing before the Supreme Court.
ISSUE with HOLDING
1. WON the lower court had jurisdiction even if the CIR had not yet issued its final decision
on the requests of LTTSCI for reinvestigation. – YES IT HAD JURISDICTION.
a. LTTSCI's argument that the final decision of the CIR on the disputed
assessment is a condition precedent to the filing of an action for the collection
of the tax deficiency is ERRONEOUS.
b. The CIR is authorized to collect delinquent internal revenue taxes either
by distraint and levy or by judicial action or both simultaneously.
c. The only requisite before he can collect tax is that he must assess the same
within the time fixed by law.
i. Exception: if it is a false or fraudulent return with intent to evade the
tax or failure to file return – proceeding in court to collect may be
begun EVEN WITHOUT assessment.
d. Nowhere in the Tax Code is the CIR required to rule first on a taxpayer's
request for reinvestigation before he can go to court for the purpose of
collecting the tax assessed.
e. On the contrary, Section 305 of the same Code withholds from all courts,
except the CTA, under Section 11 of RA 1125, the authority to restrain the
collection of any national internal-revenue tax, fee, or charge, thereby
indicating the legislative policy to allow the CIR much latitude in the speedy
and prompt collection of taxes. xxx No government could exist if all litigants
were permitted to delay the collection of its taxes.
f. RA 1125 creating the CTA allows the taxpayer to dispute the correctness/
legality of an assessment, but it does not stop/prohibit the CIR from
collecting the tax through any means provided in Section 316 of the Tax
Code except when enjoined by the CTA.
2. WON the lower court erroneously ruled that the assessment was correct. – NO, THE
LOWER COURT RULED CORRECTLY.
a. Nothing is more indicative of the CIR's decision against reinvestigation than
its insistence to collect the tax.
1
 b. The decision was communicated in a letter on September 20, 1957 and
LTTSCI had thirty (30) days from its receipt (October 8) within which to appeal OTHER NOTES
to the CTA per Section 11 of RA 1125. SEC. 51. Assessment and payment of income tax. —
c. Instead of appealing to the CTA however, LTTSCI reiterated its request for
reinvestigation instead to the CIR. xxx xxx xxx
d. In response, the CIR wrote LTTSCI another letter, stating that its request for
reinvestigation will be granted only if it waives the statute of limitations per (c) Surcharge and interest in case of delinquency. — To any sum or sums due and unpaid
General Circular No. V-258. after the dates prescribed in subsections (b), (c) and (d) for the payment of the same, there
i. In effect, the ball was in the court of LTTSCI, however, no shall be added the sum of five per centum on the amount of tax unpaid and interest at the
reinvestigation happened because LTTSCI itself failed to submit rate of one per centum a month upon said tax from the time the same became due xxx.
such written waiver on or before the deadline.
e. LTTSCI questions the legality of the aforementioned General Circular, but this
is without merit or basis. The Secretary of Finance has the authority to issue
rules and regulations for the effective enforcement of the Taxcode.
DIGESTER:
f. LTTSCI's failure to appeal to the CTA made the assessment in question final,
executory, and demandable. Hence, when the action for collection was
begun, LTTSCI is barred from disputing the correctness of the assessment.

g. THE ASSESSMENT WAS CORRECT.

i. LTTSCI uses the accrual method of accounting, thus, the CIR was
correct in treating the PHP 95,500 outstanding as accrued income
for 1951 and NOT as stock on hand in January 1952
ii. LTTSCI's method of taking up the copra outturn as 'copra on hand'
in the beginning inventory of 1952 is incorrect as this will treat the
same as 'cost of goods sold' for that same year which effectively
reduces the total gross sales for said year. This is inconsistent with
the accrual method of accounting.
h. The 50% surcharge was also correctly imposed.
i. There is every indication that LTTSCI's ITR is fraudulent,
considering that the copra outturn was already copra in some other
foreign port, and not anymore in the bodega of LTTSCI.
ii. Per its regular system of accounting, LTTSCI should have had no
choice but to treat the copra outturn as accrued income but it did not
do so.
iii. Sa madaling salita, sinong niloloko ni LTTSCI, na alam naman
niyang wala na sa bodega niya ang copra since December 1951,
pero bakit sinama pa rin niya as 'stock on hand' for January 1952.

3. WON the 5% surcharge for the late payment of tax should be imposed. - YES
a. Per Section 51 of the Tax Code (see other notes) the 5% surcharge is
mandatory and automatically due once the tax is not paid on time.
b. Moreover, the Government's contention that the delinquency interest due
started when LTTSCI was notified of the assessment amount and will
continue to accrue until full payment of tax.

DISPOSITIVE PORTION
Wherefore, the decision appealed from is modified. Lim Tian Teng Sons & Co., Inc. is hereby
ordered to pay the sum of P10,074.00 as deficiency income tax for 1952 plus 50% and 5%
surcharges thereon for fraud and late payment, respectively, and 1% monthly interest upon
said tax of P10,074.00, computed from February 16, 1957 until the tax is fully paid. With
costs against defendant-appellant.

So ordered.