Tax 2 Digests - Last Batch

1Ak 2 (kLMLDILS) CLASS DIGLS1 LAS1 8A1Cn
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44. GUAGUA V. COLLECTOR (LIQUIGAN)
Facts:
Guagua Electric Light Plant Co. is a grantee of municipal franchises by
the municpal councils of Guagua and Sexmoan, Pampanga. It reported
a gross income of P1,133,003.44 for 1947 go 1956 and paid thereon a
franchise tax of P56,664.97 computed at 5% in accordance with
Section 259 of the Tax Code. Believing that it should pay a lower
franchise tax as provided by its franchises, it filed a claim for refund on
25 March 1957 for overpayment. The Commissioner denied the refund
of franchise tax for the period prior to the 4th quarter of 1951 on the
ground that the right to refund has prescribed. The Commissioner
allowed the refund of P16,593.87. Later however, due to the holding in
Hoa Hin Co. vs. David, the Commissioner assessed against the
company deficiency franchise tax subject to a 25% surcharge, and
thereby including the amount previously allowed by the Commissioner
to be refunded.
Issue:
Whether the tax "refunded erroneously should be imposed against the
company, or if the right to recover has prescribed.
Held: Right to assess has prescribed.
Guagua Electric would be paying the same deficiency tax for the period
of 1 January to 30 November
1956 if it is required to pay P16,593.87 in addition to the sum of
P19,938.12, the difference between the tax computed at 5% pursuant
to Section 259 of the Tax Code and the franchise tax paid at 1% and
2% under the franchise. Further, by insisting on the payment of
P16,593.87 (September 1951 to November 1956), the
Commissioner is trying to collect the same deficiency tax where the
right to assess the same, according to him, has been lost by
prescription. The demand on the taxpayer to pay the sum of
P16,593.87 is in effecct an assessment of deficiency franchise tax.
The Court of Tax Appeals however stated in its decision that Guagua
Electric did not raise the issue of prescription of the right of the
Government to assess and collect the sum of P16,593.87. This finding
of the lower court is not supported by the pleadings. In its letter dated
March 30, 1961 contesting the first assessment dated March 2, 1961
Guagua Electric assailed the right to assess and/or collect the tax on
grounds of prescription. In paragraph 20 of its petition for review
(C.T.A. Rec. p. 4), it raised the defense of prescription of the
Commissioner's right to assess and collect the tax.
Anent the contention of the Commissioner of Internal Revenue that
Guagua Electric failed to adduce evidence to prove prescription of his
right to assess and collect the P16.593.87, suffice it to state that in
paragraph 10 of the Commissioner's answer he admitted the
allegations in paragraph 13 of the petition for review. Paragraph 13
alleged the facts, supported by annexes, constituting prescription.
There was therefore no need for the taxpayer to present further
evidence in the point.
The Commissioner of Internal Revenue further maintains that the
prescription of his right to recover the amount of P16,593.87 is
governed by Article 1145(2) in relation to Articles 1154 and 1155 of
the Civil Code. Hence, prescription will set in only after the expiration
of six years from 1957 and 1959, the dates refunds were granted.
Since the petition for review and answer thereto were filed in the Court
of Tax Appeals on February 14, and May 4, 1962, he concludes that
the prescriptive period of six years has not expired.1wph1.t
As stated above, the demand on the taxpayer to pay the sum of
P16,593.87 is in effect an assessment for deficiency franchise tax. And
being so, the right to assess or collect the same is governed by
Section 331 of the Tax Code
5
rather than by Article 1145 of the Civil
Code. A special law (Tax Code) shall prevail over a general law (Civil
Code)
Guagua electric is absolved from paying P16,593.87.
45. CIR V. SUYOC (FUSTER)
46. REPUBLIC V. LOPEZ (CABAL)
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Doctrine: Where a taxpayer demands a reinvestigation, the time
employed in reinvestigation should be deducted from the total period
of limitation.

Facts: In 1950, Lopez filed his income tax return. In 1952, BIR issued
an assessment and demanded payment of deficiency income tax;
Lopez requested for reconsideration only to be denied.

In 1953, Lopez reiterated his petition. On 29 May 1954, giving due
course to the petition, BIR issued a revised assessment reducing the
imposed amount.

On 16 January 1956, Lopez prayed for reinvestigation which was again
acceded to by the BIR. On 23 March 1960, the BIR issued an
assessment demanding payment additional deficiency income tax,
increasing his total amount of deficiency income tax. On 22 April 1960,
this last reinvestigation became decided and concluded but still
without payment from Lopez. Thus, a collection suit was filed on 13
August 1960. Lopez moved to dismiss the complaint which the court
sustained.

Issue: Whether the action has prescribed

Held: No. In the case at bar, if the time employed in reinvestigation
(ie. the time for deciding taxpayers last reinvestigation which was
from 16 January 1956 to 22 April 1960) is deducted from the total
period of limitation (ie. the time between the first revised assessment
on 29 May 1954 and the filing of the complaint on 13 August 1960), it
will be seen that less than 5 years can be counted against the
Government.

Between 29 May 1954 and 13 August 1960, the total period of
limitation was for six (6) years, two (2) months, and fifteen (15)
days]. Between 16 January 1956 and 22 April 1960, the interrupted
period was for 4 years, 3 months, and 6 days. Deducting the latter
from the former interval, the computation results to only one (1) year,
three (3) months, and six (6) days counted against the government.

47. COMMISSIONER V. SISON (DELA CRUZ)
48. BISAYA LAND TRANSPO V. COLLECTOR (TANHUECO)
Petitioner Bisaya Land transport acquired equipment from United
States Commercial Co. which it used in the operation of its busses,
without paying the corresponding taxes. On investigation of its books
by the revenue agents, it was discovered that its gross receipts of the
transportation business from 1946 to 1951 were not declared for
taxation. It was also found that petitioner issued freight receipts but
the corresponding documentary stamps were not affixed thereto. A
deficiency additional residence tax was also determined. The CIR
assess the petitioner. The petitioner company alleged that the Court of
Tax Appeals erred in not holding that the claim for compensating tax
and residence tax has already prescribed.
Issue: W/N the claim for tax has already prescribed
Held: No it has not prescribed.
Ratio: (I really dunno how this is pertinent)
Petitioners pretense that the period of prescription, in relation to the
compensating tax should be computed from the filing of the income
tax returns is without merit. To being with, said income tax returns
have not been introduced in evidence and therefore, there was no
means to determine what data were included in said return to appraise
the BIR that the company should pay the compensating tax. Secondly,
income tax returns contain a statement of the taxpayers income for a
given year. The taxpayer is not supposed to declare in said returns
what he has purchased or received "from without the Philippines
commodities or merchandise that are subject to the compensating tax.
Generally, such purchasers are not "income and hence, have no place
in income tax returns.
49. BUTUAN SAWMILL V. CTA (DE LA TORRE)
An income tax return cannot be considered as a return for
compensating tax for purposes of computing the period of prescription
under Section 331 of the Tax Code, and that the taxpayer must file a
return for the particular tax required by law in order to avail himself of
the benefits of Section 331 of the Tax Code; otherwise, if he does not
file a return, an assessment may be made within the time stated in
Section 332(a) of the same Code.
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FACTS
Butuan Sawmill sold logs to Japanese firms from January 1951 to June
1953. The FOB prices included costs of loading, wharfage stevedoring
and other costs in the Philippines. Also, the quality, quantity and
measurement specifications of the logs were certified by the Bureau of
Forestry. The freight was paid by the Japanese buyers and the
payments of the logs were effected by means of irrevocable letters of
credit in favor of Butuan and payable through the PNB or any other
bank named by it.
Upon investigation by the BIR, it was ascertained that no sales tax
return was filed by the Butuan and neither did it pay the corresponding
tax on the sales. It assessed Butuan Sawmill deficiency sales taxes.
Butuan Sawmills reconsiderations having been denied, it filed a
petition for review with the CTA.
ISSUES
1. Whether petitioner is liable to pay the 5% sales tax on
its sales of logs to the Japanese buyers - YES.
2. Whether the assessment thereof was made within the
prescriptive period provided by law therefore - YES.

RATIO
Butuan insists that the transaction was consummated in Japan, but it
is clear that said export sales had been consummated in the
Philippines and were, accordingly, subject to sales tax therein.
On the second issue, Butuan avers that the filing of its income tax
returns, wherein the proceeds of the disputed sales were declared, is
substantial compliance with the requirement of filing a sales tax
return, and, if there should be deemed a return filed, Section 331, and
not Section 332(a), of the Tax Code providing for a 5-year prescriptive
period within which to make an assessment and collection of the tax in
question from the time the return was deemed filed, should be applied
to the case at bar. Since Butuan filed its income tax returns for the
years 1951, 1952 and 1953, and the assessment was made in 1957
only, it further contends that the assessment of the sales tax
corresponding to the years 1951 and 1952 has already prescribed for
having been made outside the five-year period prescribed in Section
331 of the Tax Code and should, therefore, be deducted from the
assessment of the deficiency sales tax made by respondent.
The above contention has already been raised and rejected as not
meritorious in a previous case decided by this Court. Thus, an income
tax return cannot be considered as a return for compensating tax for
purposes of computing the period of prescription under Section 331 of
the Tax Code, and that the taxpayer must file a return for the
particular tax required by law in order to avail himself of the benefits
of Section 331 of the Tax Code; otherwise, if he does not file a return,
an assessment may be made within the time stated in Section 332(a)
of the same Code.
It being undisputed that Butuan failed to file a return for the
disputed sales corresponding to the years 1951, 1952 and
1953, and this omission was discovered only on September 17,
1957, and that under Section 332(a) of the Tax Code
assessment thereof may be made within ten (10) years from
and after the discovery of the omission to file the return, it is
evident that the lower court correctly held that the assessment
and collection of the sales tax in question has not yet
prescribed.
50. CIR V. AYALA SECURITIES (MANLICLIC)
- internal revenue taxes shall be assessed within 5 years after the
return was filed, and no proceeding in court without assessment for
the collection of such taxes shall be begun after the expiration of such
period

Ayala Securities Corporation filed its income tax returns with BIR for
its fiscal year. Attached to its income tax return was the audited
financial statements. The income tax due on the return of Ayala
Securities was duly paid for within the time prescribed by law.

CIR advised Ayala of the assessment of P758k on its accumulated
surplus reflected on its income tax return for the fiscal year. Ayala, on
the other hand, protested against the assessment on its retained and
accumulated surplus pertaining to the taxable year and sought
reconsideration thereof one of the reasons being, that the said
assessment was issued beyond the 5-year prescriptive period. CIR
responded by asking them to execute a waiver which Ayala did not do.
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Manila Examiners of the CIR requested for the payment of the said
amount within 5 days from receipt of the said letter and so the
corporation filed with the CTA a Petition for Review of the assessment.

The Petition for Review alleges that the assessment made by CIR is
illegal and invalid considering that (1) the assessment in question,
having been issued only on February 21, 1961, and received by the
respondent corporation on March 22, 1961, the same was issued
beyond the five-year period from the date of the filing of respondent
corporations income tax return petitioner's right to make the
assessment has already prescribed, pursuant to the provision. CTA
ruled in favor of the corporation.

ISSUE
Whether the applicable provision in this case is Section 331 of
the NIRC which provides for a 5-year period of prescription of
assessment from the filing of the return, or Section 332(a) of
the which provides for a 10-year period of limitation for the
same purpose - SECTION 331

RATIO
On the issue of whether Sec. 331 or See. 332(a) of the National
Internal Revenue Code should apply to this case, there is no iota of
evidence presented by the petitioner as to any fraud or falsity on the
return with intent to evade payment of tax, not even in the income tax
nor in the letter-decision of February 18, 1963, nor in his answer to
the petition for review. Petitioner merely relies on the provisions of Sec
25 of the National Internal Revenue Code, violation of which, according
to Petitioner, presupposes the existence of fraud. But this is begging
the question and We do not subscribe to the view of the petitioner.

The applicable provision of law in this case is Section 331 of the
National Internal Revenue Code, to wit:
SEC. 331. !eriod of limitation upon assessment and collection.
- Except as provided in the succeeding section, internal
revenue taxes shall be assessed within five years after the
return was filed, and no proceeding in court without
assessment for the collection of such taxes shall be begun
after the expiration of such period. For the purposes of this
section, a return filed before the last day prescribed by law for
the filing thereof shall be considered as filed on such last day:
Provided, That this limitation shall not apply to cases already
investigated prior to the approval of this Code.

The Ayala Securities Corporation could, therefore, file its income tax
returns on or before January 15, 1956. The assessment by the
Commissioner of Internal Revenue shall be made within five (5) years
from January 15, 1956, or not later than January 15, 1961, in
accordance with Section 331 of the National Internal Revenue Code
herein above-quoted. As the assessment issued on February 21, 1961,
which was received by the Ayala Securities Corporation on March 22,
1961, was made beyond the five-year period prescribed under Section
331 of said Code, the same was made after the prescriptive period had
expired and, therefore, was no longer binding on the Ayala Securities
Corporation

51. AZNAR V. CA (same as first batch, see BACANI)

52. CIR V. JAVIER (BAHJIN)

Doctrine: Fraud is never imputed and the courts never sustain
findings of fraud upon circumstances which, at most, create only
suspicion and the mere understatement of a tax is not itself proof of
fraud for the purpose of tax evasion.

Facts: Javier erroneously received US$1,000,000.00 instead of only
US$1,000.00 as remittance from his US-based sister-in-law, through a
clerical error by Mellon Bank. A complaint was filed by Mellon Bank
against Javier to return the excess amount. Also, an information was
filed by the city fiscal against Javier for the crime of estafa, alleging
that he has already misappropriated and converted to his own
personal use said excess amount received. While both cases were
pending, Javier filed his ITR for taxable year 1977, showing a net
income of P48,053.88 and stating in the footnote of the return that
"Taxpayer was recipient of some money received from abroad which
he presumed to be a gift but turned out to be an error and is now
subject of litigation." He was subsequently assessed for deficiency
taxes. He protested and denied that he had any undeclared income in
1977, and requested that the assessment be made to await final court
decision on the cases filed against him. The Commissioner maintained
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otherwise, and furthermore imposed a 50% fraud penalty in addition
to the assessed deficiency taxes.

Issue: Whether a taxpayer who merely states as a footnote in his ITR
that a sum of money that he erroneously received and already spent is
the subject of a pending litigation, and there did not declare it as
income, is liable to pay the 50% penalty for filing a fraudulent return?

Held: NO FRAUD.

Under the then Section 72 of the Tax Code (now Section 248), a
taxpayer who files a fraudulent return is liable to pay the fraud penalty
of 50% of the tax due from him or of the deficiency tax, in case
payment has been made on the basis of the return filed before the
discovery of the falsity or fraud.

Fraud is never imputed and the courts never sustain findings of fraud
upon circumstances which, at most, create only suspicion and the
mere understatement of a tax is not itself proof of fraud for the
purpose of tax evasion.

In the case at bar, there was no actual and intentional fraud through
willful and deliberate misleading of the BIR. The government was not
induced to give up some legal right and place itself at a disadvantage
so as to prevent its lawful agents from proper assessment of tax
liabilities, because Javier did not conceal anything. He in fact "laid his
cards on the table" and gave the BIR an opportunity to examine the
subject erroneously remitted amount when he stated the same as his
footnote in the ITR. Error or mistake of law is not fraud. The
petitioner's zealousness to collect taxes from the unearned windfall to
Javier is highly commendable. Unfortunately, the imposition of the
fraud penalty in this case is not justified by the extant facts. Javier
may be guilty of swindling charges, perhaps even for greed by
spending most of the money he received, but the records lack a clear
showing of fraud committed because he did not conceal the fact that
he had received an amount of money although it was a "subject of
litigation." As such, the 50% surcharge imposed as fraud penalty by
the petitioner against the private respondent in the deficiency
assessment should be deleted.

53. REPUBLIC V. ACEBEDO (BRIONES)

DOCTRINE: Mere request of reinvestigation does not suspend the
running of the prescriptive period. Waiver of statute of limitations
must be in writing and must be executed before the expiration of
the original prescriptive period.
FACTS: This is a complaint for collection of deficiency income tax
for the year 1948. The corresponding assessment was issued on
September 24, 1949. The complaint was filed on December 27,
1961. After Acebedo filed his answer but before trial started, he
moved to dismiss the case on the ground of prescription. The trial
court dismissed the case; hence the CIR appealed this dismissal.
ISSUE: Whether the collection suit has already prescribed.
RULIG: YES. The present suit was not begun within the five years
after the assessment of the tax, which was 1949. The waiver of
the statute of limitations presented by the Cir was ineffective
because it was executed beyond the original five-year limitation.
The CIR contends, however, that period of prescription was
suspended by the Acebedos various requests for reinvestigation or
reconsideration of the tax assessment. The trial court correctly
rejected this contention since mere request for reinvestigation or
reconsideration of an assessment does not have the effect of such
suspension. The ruling is logical, otherwise there would be no point
to the legal requirement that the extension of the original period
must be agreed upon in writing.
In the case at bar, the defendant, after receiving the
assessment notice of September 24, 1949, asked for a
reinvestigation thereof on October 11, 1949 There is no evidence
that this request was considered or acted upon. Consequently, the
request for reinvestigation did not suspend the running of the
period for filing an action for collection. On October 6, 1951, again,
defendant requested a reinvestigation of his tax liability. Nothing
came of this request either. Then on February 9, 1954, the
defendant's lawyers wrote the Collector of Internal Revenue
informing him that the books of their client were ready at their
office for examination. After more than a year, CIR required that
the defendants specify his objections to the assessment and
execute "the enclosed forms for waiver, of the statute of
limitations." The last part of the letter was a warning that unless
the waiver "was accomplished and submitted within 10 days the
collection of the deficiency taxes would be enforced by means of
the remedies provided for by law."
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It will be noted that up to October 4, 1955 the delay in
collection could not be attributed to the defendant at all. His
requests in fact had been unheeded until then, and there was
nothing to impede enforcement of the tax liability by any of the
means provided by law. By October 4, 1955, more than five years
had elapsed since assessment in question was made, and hence
prescription had already set in, making subsequent events in
connection with the said assessment entirely immaterial. Even the
written waiver of the statute signed by the defendant on December
17, 1959 could no longer revive the right of action, for under the
law such waiver must be executed within the original five-year
period within which suit could be commenced.
54. SINFOROSA ALCA V. CA (ALDANA)

Doctrine: A waiver of the prescriptive period signed at a date after the
expiration of the period is a valid agreement. It is not just an
extension, therefore, of the period of limitation, but a renunciation of
her right to invoke the defense of prescription which was then already
available to her. There is nothing unlawful nor immoral about this kind
of waiver; just like any other right, the right to avail of the defense of
prescription is waivable.
Facts:
O Sinforosa Alca is the owner and operator of Pacific Industrial
Manufacturing (Phil.) engaged in manufacturing rubbing
alcohol
O Sept 1960 - CIR assessed Alca for P43k by way of specific tax
on rubbing alcohol produced in and removed from the factory
between June 1953 and Aug 1960, plus compromise penalty
of P1,000.00.
O Alca protested arguing that specially denatured alcohol is
exempt from tax and assuming he is liable to pay the specific
tax on the denatured alcohol, the assessment of the tax on
September 1960 was made beyond the 5-year period.
O CTA ruled that the 10-year prescriptive period is applicable in
this case because the official transcript sheets submitted by
the taxpayer are not returns for purposes of the prescriptive
law. Therefore, no return is actually filed.
Issue: WON the period to assess has prescribed
Held: NO
Ratio: It is not disputed that the taxpayer did not file any returns for
purposes of paying the specific tax due on the manufactured products
with denatured alcohol as chief ingredient. However, even assuming
that the official transcript sheets are to be considered as valid returns,
the assessment in question shall still remain valid. For while it is true
that the demand for payment of the specific tax accruing from June
1953 to Aug 1960 was only made on Sept 1960 and, therefore, as far
as the taxes due from June 1953 to Sept 1955 are concerned, the
demand therefor had been made beyond the required 5-year period, it
appears that on December 9, 1959, petitioner taxpayer had signed a
waiver to the running of the prescriptive period beginning January 20,
1956 ... but not after December 31, 1966."
But then, it is argued that for a written agreement extending the
prescriptive period to be valid, it is necessary that the same be made
before the period to be extended has expired. The rule would not apply
in this case. Note that petitioner's waiver was of the period of
prescription beginning January 20, 1956. It is not just an extension,
therefore, of the period of limitation, but a renunciation of her right to
invoke the defense of prescription which was then already available to
her. There is nothing unlawful nor immoral about this kind of waiver;
just like any other right, the right to avail of the defense of
prescription is waivable. (Note: Case was however remanded for
recomputation of tax based on error by agents of the government in
collecting the wrong tax for the period June 1953 to Aug 1956).
55. RP V. KIM DE YU (LAVADIA)
Doctrine:
Section 331 (old Tax Code) gives the Government five years from
filing of the return (which is not false or fraudulent) within which to
assess the tax due. Collection then may be effected within five years
after assessment or within the "period for collection agreed upon in
writing by the Commissioner of Internal Revenue and the taxpayer
before the expiration of such five-year period."
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Facts:
Respondent filed her ITR from 1948 through 1953. The BIR assessed
the taxes due, and respondent paid (back then, di pa uso ang self-
assessment). On July 17, 1956 the BIR issued to her deficiency income
tax assessments for the years 1945 to 1953. She protested the
assessments and requested a reinvestigation. On August 30, 1956,
she signed a "waiver" as condition to the reinvestigation requested. On
July 18, 1958, the BIR issued assessment notices for the years 1948
to 1953. This last assessment, like the one issued in 1956, covered not
only the basic deficiency income taxes, but also 50% thereof as
surcharge (for fraud). Upon her failure to pay, an action for collection
was filed against her in the RTC on May 11, 1959. Taxpayer contends
that the period of assessment has already prescribed.
Issue:
Whether the assessment has already prescribed
Held:
Counting from July 17, 1956, assessments for tax years 1948-1950
has already prescribed, while assessments for tax years 1951-1952 it
has not prescribed.
While fraud is alleged by the BIR, the same has not been established.
On three different occasions it arrived at three highly different
computations. The right to assess or collect the income taxes for the
years 1948 to 1950 had already prescribed, therefore, when the
Bureau of Internal Revenue issued the deficiency income tax
assessments on July 17, 1956.
The tax years 1948 to 1950 cannot be deemed included in the "waiver
of the statute of limitations under the National Internal Revenue Code"
executed by appellee on August 30, 1956. The five-year period for
assessment, counted from the date the return is filed, may be
extended upon agreement of the Commissioner and the taxpayer, but
such agreement must be made before, not after, the expiration of the
original period. The clear import of the provision is that it does not
authorize extension once prescription has attached.
The waiver validly covers only the tax years 1951 and 1952, with
respect to which the five-year period had not yet elapsed when the
said waiver was executed. With respect to the tax year 1953, as to
which the return was filed by appellee on March 1, 1954, the waiver
was not necessary for the effectivity of the assessment made on July
18, 1958, since such assessment was well within the original five-year
period provided by law. After the assessment on July 18, 1958, BIR
had five years within which to file suit for collection.
56. CIR V. BF GOODRICH (SALAZAR)
Doctrine: The law on prescription, being a remedial measure, should
be liberally construed in order to afford protection and safeguard
taxpayers from any unreasonable examination, investigation, or
assessment. As a corollary, the exceptions to the law on prescription
must be strictly construed.
Facts: Respondent BF Goodrich Phils., Inc. (now Sime Darby
International Tire Co. Inc.), was an American-owned and controlled
corporation. As a condition for approving the manufacture by private
BF Goodrich of tires and other rubber products, the Central Bank of
the Philippines required it to develop a rubber plantation. In
compliance with this requirement, it purchased a certain parcels of
land in Tumajubong, Basilan, and there developed a rubber plantation.
The justice secretary rendered an opinion stating that, upon the
expiration of the Parity Amendment, the ownership rights of Americans
over public agricultural lands, including the right to dispose or sell their
real estate, would be lost. On the basis of this Opinion, Bf Goodrich
sold to Siltown Realty Philippines, Inc. (Siltown) on January 21, 1974,
its Basilan landholding for P500,000 payable in installments. In accord
with the terms of the sale, Siltown leased the said parcels of land back
to BF Goodrich for a period of 25 years, with an extension of another
25 years at the latters option.
On 23 April 1975, an assessment for deficiency income tax was issued
against BF Goodrich and the same was paid.
Subsequently, on 10 October 1980, the BIR issued against BF
Goodrich an assessment for deficiency in donors tax in the amount of
P1,020,850, in relation to the previously mentioned sale of its Basilan
landholdings to Siltown. The BIR deemed the consideration for the sale
insufficient, and the difference between the FMV and the actual
purchase price a taxable donation.
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Private respondent contested this assessment. On April 9, 1981, it
received another assessment dated March 16, 1981, which increased
to P1,092,949 the amount demanded for the alleged deficiency donors
tax.
BF Goodrich appealed the correctness and the legality of these last two
assessments (1980 & 1981 assessments) to the CTA. CTA rendered its
decision modifying the assessment, increasing the tax liability to
P1,311,179.01 plus 10% surcharge and 20% annual interest.
Bf Goodrich elevated the matter to the CA which reversed the CTA. It
ruled that what is involved here is not a first assessment; nor is it one
within the 5-year period stated in Section 331 above. Since what is
involved in this case is a multiple assessment beyond the five-year
period, the assessment must be based on the grounds provided in
Section 337, and not on Section 15 of the 1974 Tax Code. Section 337
utilizes the very specific terms fraud, irregularity, and mistake. Falsity
does not appear to be included in this enumeration. Falsity suffices for
an assessment, which is a first assessment made within the five-year
period. When it is a subsequent assessment made beyond the five-
year period, then, it may be validly justified only by fraud, irregularity
and mistake on the part of the taxpayer.
Issue: Whether CIRs right to assess deficiency donors tax has
prescribed as ruled by CA.
Held: Yes. Section 331 of the NIRC provides that internal revenue
taxes must be assessed within five years after the return was filed.
Applying this provision of law to the facts at hand, it is clear that the
October 16, 1980 and the March 1981 assessments were issued by the
BIR beyond the five-year statute of limitations. The Court found no
basis to disregard the five-year period of prescription.
The subsequent assessment made by the CIR on October 10, 1980,
modified by that of March 16, 1981, violates the law. Involved in this
petition is the income of the petitioner for the year 1974, the returns
for which were required to be filed on or before April 15 of the
succeeding year. The returns for the year 1974 were duly filed by the
petitioner, and assessment of taxes due for such year -- including that
on the transfer of properties on June 21, 1974 -- was made on April
13, 1975 and acknowledged by Letter of Confirmation No. 101155
terminating the examination on this subject. The subsequent
assessment of October 10, 1980 modified, by that of March 16, 1981,
was made beyond the period expressly set in Section 331 of the NIRC
Petitioner BIR claims that it merely followed the provision of Section
15 of the NIRC (now, Section 16) which provides for assessment of the
proper tax on the best evidence obtainable where there is reason to
believe that a report of a taxpayer is false, incomplete or erroneous.
They claim that the present case falls within this section, because the
return filed was false, since the land had a value of P2.6 Million pesos,
but BF Goodrich sold the same for only P500,000.
However, Section 15 does not provide an exception to the statute of
limitations on the issuance of an assessment, by allowing the initial
assessment to be made on the basis of the best evidence available.
Having made its initial assessment in the manner prescribed, the
commissioner could not have been authorized to issue, beyond the
five-year prescriptive period, the second and the third assessments
under consideration before us.
Nor is petitioners claim of falsity sufficient to take the questioned
assessments out of the ambit of the statute of limitations.
SEC. 332. xceptions as to period of limitation of assessment and
collection of taxes. -- (a) In the case of a false or fraudulent return
with intent to evade a tax or of a failure to file a return, the tax may
be assessed, or a proceeding in court for the collection of such tax
may be begun without assessment, at any time within ten years after
the discovery of the falsity, fraud, or omission
Petitioner insists that private respondent committed falsity when it
sold the property for a price lesser than its declared FMV. This fact
alone did not constitute a false return which contains wrong
information due to mistake, carelessness or ignorance. It is possible
that real property may be sold for less than adequate consideration for
a bona fide business purpose; in such event, the sale remains an arms
length transaction. In the present case, the BF Goodrich was
compelled to sell the property even at a price less than its market
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9f
value, because it would have lost all ownership rights over it upon the
expiration of the parity amendment. In other words, BF Goodrich was
attempting to minimize its losses. At the same time, it was able to
lease the property for 25 years, renewable for another 25. This can be
regarded as another consideration on the price.
Furthermore, the fact that it sold its real property for a price less than
its declared FMV did not by itself justify a finding of false return.
Indeed, private respondent declared the sale in its 1974 return
submitted to the BIR. Within the five-year prescriptive period, the BIR
could have issued the questioned assessment, because the declared
fair market value of said property was of public record. This it did not
do, however, during all those five years. Moreover, the BIR failed to
prove that respondent's 1974 return had been filed fraudulently with
intent to evade the payment of the correct amount of tax.
The law on prescription, being a remedial measure, should be liberally
construed in order to afford protection and safeguard taxpayers from
any unreasonable examination, investigation, or assessment. As a
corollary, the exceptions to the law on prescription must be strictly
construed.
57. BOISE CASCADE V. CIR (CHAN)
Doctrine: Prescription of Right to Assess
Facts: Boise is a domestic corporation engaged in the manufacturing
and selling of all kinds of paper products. It is a subsidiary of Boise
Internaltional. Bataan Pulp & Paper Mills (Bataan) and Zamboanga
Wood Products Inc. (Zamboanga) which are also engaged in the same
business Boise, sought the financial aid of Boise as both are in the
verge of bankruptcy. Boise obtained 3 loans from Boise Intl. The first
loan was in the amount of Php. 1,920,200 with interest of 12% per
annum. The second loan amounted to Php 600k with interest of 12%
per annum, which was subsequently given to Bataan. Lastly, a loan
amounting to Php 11.4 million with interest of 3/4% per annum was
obtained and given to Zamboanga. Pursuant to the existing Central
Bank Rules & Regulations, the 3 loans were accepted and approved for
registration as foreign loans. All these amounts loaned and the
interests that accrued or were due were reflected in its books of
account and financial statements.

On January 12, 1967, Boise filed its amended income tax return for
the year 1966. CIR assessed Boise for deficiency income and
withholding taxes covering fiscal years June 30, 1966 and June 30,
1967 as well as calendar year ended December 31, 1967. CIR in
another letter dated September 15, 1972, assessed Boise for the year
1968 holding the latter liable for deficiency withholding income tax in
the total amount of P451,976.86. The assessment issued by CIR was
based on the disallowed item of interest expenses claimed by Boise on
the ground that the aforesaid interest expenses were considered
disguised dividend distributions. The withholding tax deficiency
assessment was based on the ground that the duty to withhold and
pay the tax arises upon accrual of the income in the books of accounts
of petitioner and not at the time of actual payment or remittance. In a
letter dated May 5, 1972, which was received by CIR on May 8, 1972,
Boise filed a letter of protest. On January 25, 1977, CIR denied Boise's
letters of protest and reiterated the payment of the said deficiency
assessments.

Boise contends that the amended income tax return for 1966 was filed
by it on January 12, 1967. However, the demand or assessment letter
which was dated April 3, 1972 was released by CIR on April 12, 1972
which date of release of the assessment is five years and three months
counted from the date of filing of the Boise's Income tax return for
1966. Therefore, Boise concluded that the right of CIR to assess
deficiency income tax for said year 1966 has already prescribed
pursuant to Section 331 of the 1972 Tax Code and there was no valid
waiver of the statute of limitation signed by the Commissioner of
Internal Revenue which may suspend the running of the period of
prescription. On the other hand, CIR contends that the assessment in
question was filed within the prescribed period because Boise had
executed and signed a waiver of statute of limitation under Section
332 (b) of the National Internal Revenue Code and said waiver was
signed by the Revenue District Officer of Makati. Hence, on February
22, 1977, petitioner appealed to this Court.
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Issue: Whether there was a valid waiver of the statute of limitation
and CIR's right to assess petitioner for the fiscal year ended June 30,
1966 has not prescribed.

Held: No valid waiver was executed and as such CIR's right to assess
has prescribed. CIR decision reversed.
Ratio: There was no proper filing of a valid waiver of the statute of
limitation which was actually signed by Boise and Revenue District
Officer of Makati. The law is clear and explicit that a valid waiver of the
statute of limitation must be in writing and must be both signed by the
Commissioner of Internal Revenue and the taxpayer. A close scrutiny
of the aforesaid waiver of the statute of limitation shows that Revenue
District Officer Sixto J. Javier had merely attested the aforesaid
waiver; that aforesaid officer did not sign the waiver either for or by
virtue of the authority of the Commissioner of Internal Revenue.
Clearly, for all legal intents and purposes of the above law, Section
332 of the National Internal Revenue Code, there was no valid waiver
executed by herein Commissioner of Internal Revenue and Boise to
stop the running of the period within which to validly assess the tax.
In the instant case, the language of said statute of limitation being
plain and unambiguous, it conveys a clear and definite meaning, and
said statute must simply be applied and never to be interpreted. It is
only the Commissioner of Internal Revenue, who is specially named by
said provision of Section 332(b) of the Tax Code, as the one who can
sign the waiver of the statute of limitation, and since the
Commissioner has not signed the waiver, there is, therefore, no
consummated or valid waiver which may suspend the running of the
period within which to assess the tax in question. Consequently, CIR's
assessment which was made more than five years from the filing of
Boise's amended income tax return on January 12, 1967 for the
taxable year 1966 has prescribed.

*very long case and numerous issues; other held:
The transaction is a loan as approved by the Central Bank. As such,
accrued interest are valid and legal and are deductible. Withholding
taxes assessed has been paid. The obligation to withhold and pay
taxes at source should be on the date of actual remittances. The 25%
surcharge, interests and compromise penalty are not imposable.
58. CARNATION PHILS V. CIR (BACANI)
Doctrine:

Although the period of prescription is waivable by agreement, there
must exist, however, two essential requisites for the waiver to
be valid: first, the waiver must be entered into before
expiration of the time prescribed for making an assessment;
and second, the Commissioner and the taxpayer must have
consented thereto in writing.

Facts:
Petitioner comes before this Court praying for the nulling and voiding
of the assessments covering its alleged deficiency income and sales for
the taxable year ending September 30, 1981, in the total amount of
P19.5M.

Petitioner, through its Senior Vice President Jaime O. Lardizabal, and
in consideration of the approval by the CIR of petitioner's request for
reinvestigation and/or reconsideration of its internal revenue case
involving the assessments for the fiscal year 1981 which were pending
at the time, signed three separate waivers

Neither waiver was signed by respondent Commissioner or any
of his agents.

Petitioner filed a basic protest with the BIR therein disputing the
assessments. These protests were denied by respondent in a letter,
stating:

"In view thereof, it is requested that the aforesaid tax liabilities of your
client (petitioner herein) be paid immediately, inclusive of the
penalties incident to late payment.
"This is our final decision. If you are not amenable thereto, you may
appeal to the Court of Tax Appeals within thirty (30) days after
receipt of this letter, otherwise, your client's assessments shall
become final, executory and unappealable."

Petitioner contends that the deficiency assessments subject of the
instant petition are barred by prescription, since they were issued
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9f
beyond five years from the filing of the returns covering the internal
revenue taxes assessed therein.

Issue: whether or not the deficiency assessments subject of the
instant petition are barred by prescription, since they were issued
beyond five years from the filing of the returns?

Held:

Yes, barred by prescription.

However, although the period of prescription is waivable by
agreement, there must exist, however, two essential requisites
for the waiver to be valid: first, the waiver must be entered into
before expiration of the time prescribed for making an
assessment; and second, the Commissioner and the taxpayer
must have consented thereto in writing.

We agree with petitioner, and find that the subject
assessments were issued beyond the five-year prescriptive
period allowed by the Tax Code.

59. MARCOS V. CA (same as first batch, see PARAS)

60. CIR V. PASCOR (same a first and second batch, see
ADVINCULA and LOVERIA)

61. TUPAZ V. ULEP (same as first batch, see FRANCISCO)

62. CIR V. SISON (same as above, see DE LA CRUZ)

63. REPUBLIC V. ABLAZA (LEYNES)

Doctrine: The law on prescription being a remedial measure should be
interpreted in a way conducive to bringing about the beneficient
purpose of affording protection to the taxpayer within the
contemplation of the Commission which recommend the approval of
the law.

Facts: On October 3, 1951, the Collector of Internal Revenue (CIR)
assessed income taxes for the years 1945, 1946, 1947 and 1948 on
the income tax returns of defendant-appellee Luis G. Ablaza. The
assessments total P5,254.70 . On October 16, 1951, the accountants
for Ablaza requested a reinvestigation of Ablaza's tax liability, on the
ground that (1) the assessment is based on third-party information
and (3) neither the taxpayer nor his accountants were permitted to
appear in person. The petition for reinvestigation was granted in a
letter of the CIR, dated October 17, 1951. On October 30, 1951, the
accountants for Ablaza again sent another letter to the CIR submitting
a copy of their own computation. On October 23, 1952, said
accountants again submitted a supplemental memorandum.On March
10, 1954, the accountants for Ablaza sent a letter to the examiner of
accounts and collections of the Bureau of Internal Revenue requesting
a copy of the detailed computation of the alleged tax liability as soon
as the reinvestigation is terminated.
On February 11, 1957, after the reinvestigation, the CIR made a final
assessment of the income taxes of Ablaza, fixing said income taxes for
the years already mentioned at P2,066.56. Notice of the said
assessment was sent and upon receipt thereof the accountants of
Ablaza sent a letter to the CIR, dated May 8, 1957, protesting the
assessments, on the ground that the income taxes are no longer
collectible for the reason that they have already prescribed. As the
Collector did not agree to the alleged claim of prescription, action was
instituted by him in the Court of First Instance to recover the amount
assessed. The Court of First Instance upheld the contention of Ablaza
that the action to collect the said income taxes had prescribed.

Issue: Whether or not the Governments right to collect taxes has
prescribed?

Held: Yes, The law prescribing a limitation of actions for the collection
of the income tax is beneficial both to the Government and to its
citizens; to the Government because tax officers would be obliged to
act promptly in the making of assessment, and to citizens because
after the lapse of the period of prescription citizens would have a
feeling of security against unscrupulous tax agents who will always
find an excuse to inspect the books of taxpayers, not to determine the
latter's real liability, but to take advantage of every opportunity to
molest peaceful, law-abiding citizens. Without such legal defense
taxpayers would furthermore be under obligation to always keep their
books and keep them open for inspection subject to harassment by
unscrupulous tax agents. The law on prescription being a remedial
measure should be interpreted in a way conducive to bringing about
the beneficient purpose of affording protection to the taxpayer within
the contemplation of the Commission which recommend the approval
of the law.

The question in the case at bar boils down to the interpretation of the
letter, dated March 10, 1954, quoted above. If said letter be
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9f2
interpreted as a request for further investigation or a new
investigation, different and distinct from the investigation demanded
or prayed for in Ablaza's first letter, then the period of prescription
would continue to be suspended thereby. But if the letter in question
does not ask for another investigation, the result would be just the
opposite. In our opinion the letter dated March 10, 1954 , does not ask
for another investigation. Its first paragraph quoted above shows that
the reinvestigation then being conducted was by virtue of its request
of October 16, 1951. All that the letter asks is that the taxpayer be
furnished a copy of the computation. The request may be explained in
this manner: As the reinvestigation was allowed on October 1, 1951
and on October 16, 1951, the taxpayer supposed or expected that at
the time, March, 1954 the reinvestigation was about to be finished and
he wanted a copy of the re-assessment in order to be prepared to
admit or contest it. Nowhere does the letter imply a demand or
request for a ready requested and, therefore, the said letter may not
be interpreted to authorize or justify the continuance of the suspension
of the period of limitations.

64. CIR V. CAPITOL (MANGAHAS)

Doctrine: Period of prescription is suspended by taxpayers request
for reconsideration or review of the assessment and by reiteration of
said request.
Facts:
Capitol filed its income tax returns for the years 1948, 1949, 1950,
and 1951 and promptly paid the amounts assessed thereon. In an
investigation conducted by an examiner, Capitol was found liable for
deficiency income taxes for the said years for a total of P27, 212.88.
April 8, 1953- CIR sent income tax assessment notices requesting
payment of the aforesaid amounts due and collectible, the said taxes
being based on disallowed deductions, and over-claimed depreciations.
May 30, 1953- Capitol requested for the breakdown of the amounts
reflected in the said notices.
June 21, 1955- CIR sent Capitol circular letters inquiring as to whether
payment was already made.
July 1, 1955- Capitol in reply to above circular letters reiterated its
request of the breakdown.
September 20, 1955- CIR reiterated his demand for payment of the
income tax assessment for the years concerned.
October 15, 1955- Capitol wrote to CIR and explained the disallowed
items and requested for re-investigation.
October 26, 1955- CIR after investigation released a memorandum
report and submitted to the Acting Provincial Revenue Officer
reiterating his findings and recommended that the previous
assessments be affirmed.
September 2, 1959- CIR demanded from Capitol the payment of the
said deficiency income taxes.
September 16, 1959- Capitol asked the CIR for the cancellation of the
assessment in a letter. Upon its denial, said respondent initiated the
instant proceeding in the Court of Tax Appeals.
CTA ruled that that the right of respondent Commissioner to collect
said deficiencies has already prescribed, The deficiency assessments in
question were made on April 8, 1953 and the CIR's answer to the
instant petition for review, which is tantamount to a judicial action for
collection was filed on December 29, 1959, or 6 years, 8 months and
21 days thereafter, it follows that the right of respondent CIR to collect
said deficiencies has already prescribed. (This is also the contention of
Capitol)
Issue:
Whether CIRs right to collect Capitol's deficiency income tax
assessments in question has already prescribed under Section 332 (c)
of the National Internal Revenue Code?
Held/ Ratio: No. The period was suspended twice- first, by
request for itemized information on the disallowed items on
May 30, 1953; second, by reiteration of the request for
breakdown on July 1, 1955.
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9f
The period commenced to run on April 8, 1953 when the assessment
was made. But the same was interrupted when the respondent
taxpayer, by letter of May 30, 1953, requested for itemized
information on the disallowed items. While the said letter did not
specifically use the words "review" or "reconsideration," the request
itself for an explanation of the disallowances made in the assessment
in effect was an exception to the correctness thereof. The request was
denied when CIR demanded for payment of the alleged deficiency tax
on June 21, 1955. The period for collection then started to run
again, but it was tolled when the taxpayer reiterated its
request for explanation of the disallowances on July 1, 1955 or
after 10 days.
Clearly, although the assessment was sent on April 8, 1953, by
respondent taxpayer's own requests for review or reconsideration of
the disputed assessment, the period for collection thereof had been
interrupted. Therefore, deducting from the total period from April 8,
1953 (date of the deficiency assessment) to December 29, 1959 (date
of answer which is tantamount to a judicial action), or a total of 6
years, 8 months and 21 days, the period of interruption from May 30,
1953 (when respondent filed its petition for clarification amounting to
reconsideration or review of the assessment) to June 21, 1955 (when
the petitioner in effect denied the petition by reiterating its demand for
payment), or a total of 2 years and 21 days, there is left a period of
4 years and 8 months within which judicial collection may be
effected. Since the law allows 5 years for such purpose, the collection
sought by the CIR is still timely.
65. PALANCA V. CIR (FRANCISCO)

Doctrines:
O "It is not essential that the warrant of distraint and levy be
fully executed in order that it may have the effect of
suspending the running of the statute of limitation upon
collection of the tax; it is enough that the proceeding be
validly begun or commenced and that its execution has not
been suspended by reason of the voluntary desistance of the
respondent (government).
O "While the law provides that said warrant should be served
upon the taxpayer except when he is absent from the
Philippines when it may be served upon his agent or upon an
occupant of the property, there is nothing therein that would
prevent the service to be made upon his authorized
representative
Facts:
O In 1947, Diluangco died and testate proceedings were filed
O On March 27, 1951, Atty. San Jose, the executor and counsel
for the heirs, belatedly filed the estate and inheritance tax
return
O On August 18, 1952, the deficiency estate taxes were finally
assessed in the amount of P10,437.56
O In June 1955, a warrant of distraint and levy was issued to
San Jose since the tax was yet to be paid
O Instead of paying the tax, San Jose requested that the heirs
be informed of the taxes respectively due from each of them
O In a letter dated April 28, 1956, the BIR explained the
breakdown of the amounts due from the heirs
O San Jose requested for a reconsideration which was denied
O In September 1957, the heirs requested for a revaluation of
the estate
O Before said request could be acted upon, the heirs claimed
that the right of the government to collect the tax had
prescribed since 1) the warrant was not executed within 5
years from the final assessment; and 2) the warrant was not
served upon the proper parties which were the heirs who were
present in the Philippines and therefore ineffective
Issue:
O Whether the right to collect the tax had already prescribed.
NO
Ratio:
O The NIRC then provided: "Where the assessment of any
internal revenue tax has been made within the period of
limitation above prescribed, such tax may be collected by
distraint or levy by the proceeding in court, but only if begun
(1) within five years after the assessment of the tax..."
O (Insert 1
st
doctrine)
O Since the warrant was issued in 1955, the tax collection was
begun within 5 years from August 1952 when the final
assessment was made
O The delay in the execution of the warrant was clearly because
of the acts of the taxpayer, not by reason of the voluntary
desistance of the government
O The warrant was indeed served upon the proper party
O (Insert 2
nd
doctrine)
O The warrant was served upon San Jose, the duly authorized
representative of the estate and of the heirs
O There being a valid service, the warrant effectively suspended
the prescriptive period for the collection of the tax

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66. REPUBLIC V. KER (DE LEON)

The running of the prescriptive period to collect the tax shall be
suspended for the period during which the Commissioner of Internal
Revenue is prohibited from beginning a distraint and levy or instituting
a proceeding in court, and for sixty days thereafter.

Facts
In 1953 the Bureau of Internal Revenue examined and audited Ker &
Co., Ltd.'s returns and books of accounts and subsequently issued the
following assessments for deficiency income tax:
On March 1, 1956 Ker & Co., Ltd. filed with the Court of Tax Appeals a
petition for review with preliminary injunction. No preliminary
injunction was issued, for said court dismissed the appeal for having
been instituted beyond the 30-day period provided for in Section 11 of
Republic Act 1125.
On March 15, 1962, the Bureau of Internal Revenue demanded
payment of the aforesaid assessments together with a surcharge of
5% for late payment and interest at the rate of 1% monthly. Ker &
Co., Ltd. refused to pay, instead in its letters dated March 28, 1962
and April 10, 1962 it set up the defense of prescription of the
Commissioner's right to collect the tax.
Issue
Did the filing of a petition for review by the taxpayer in the Court of
Tax Appeals suspend the running of the statute of limitations to collect
the deficiency income for the years 1948, 1949 and 1950?
Held
Yes
Ratio
Under Section 333 of the Tax Code, quoted hereunder:
SEC. 333. Suspension of running of statute.-The running of the
statute of limitations provided in Section 331 or three hundred thirty-
two on the making of assessments and the beginning, of distraint or
levy or a proceeding in court for collection, in respect of any
deficiency, shall be suspended for the period during which the
Collector of Internal Revenue is prohibited from making the
assessment or beginning distraint or levy or a proceeding in court, and
for sixty days thereafter.
the running of the prescriptive period to collect the tax shall be
suspended for the period during which the Commissioner of Internal
Revenue is prohibited from beginning a distraint and levy or instituting
a proceeding in court, and for sixty days thereafter.
From March 1, 1956 when Ker & Co., Ltd. filed a petition for review in
the Court of Tax Appeals contesting the legality of the assessments in
question, until the termination of its appeal in the Supreme Court, the
Commissioner of Internal Revenue was prevented, as recognized in
this Court's ruling in Ledesma, et al. v. Court of Tax Appeals, from
filing an ordinary action in the Court of First Instance to collect the tax.
Besides, to do so would be to violate the judicial policy of avoiding
multiplicity of suits and the rule on lis pendens.
Thus, did the taxpayer produce the effect of temporarily staying the
hands of the Commissioner of Internal Revenue simply through a
choice of remedy. And, if We were to sustain the taxpayer's stand, We
would be encouraging taxpayers to delay the payment of taxes in the
hope of ultimately avoiding the same.
67. CIR V. ALGUE (REGIS)

68. CIR V. WYETH (RIGETS)

Doctrine: The prescriptive period provided by law to make a collection
by distraint or levy or by a proceeding in court is interrupted once a
taxpayer requests for reinvestigation or reconsideration of the
assessment.

Facts: Wyeth Suaco Laboratories, Inc. is a domestic corporation
engaged in the manufacture and sale of assorted pharmaceutical and
nutritional products.

By virtue of a Letter of Authority, a Revenue Examiner conducted an
investigation and examination of the books of accounts of Wyeth
Suaco. The report disclosed that Wyeth allegedly failed to remit
withholding tax at source on accrued royalties, remuneration for
technical services and cash dividends, resulting in a deficiency
withholding tax.

The Bureau of Internal Revenue assessed Wyeth Suaco on the
aforesaid tax liabilities in two (2) notices. Wyeth protested the
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assessments and requested their cancellation or withdrawal on the
ground that said assessments lacked factual or legal basis.

Wyeth Suaco filed a petition for review in Court of Tax Appeals praying
that petitioner be enjoined from enforcing the assessments by reason
of prescription and that the assessments be declared null and void for
lack of legal and factual basis.

Petitioner issued a warrant of distraint of personal property and
warrant of levy of real property to enforce collection of the deficiency
taxes. However, collection of the deficiency taxes by virtue of warrants
of distraint and levy was enjoined by the CTA.

CTA rendered its decision in favor of Wyeth that the deficiency
assessment may not be collected due to prescription.

Issue: Whether or not petitioner's right to collect deficiency
withholding tax at source and sales tax liabilities from Wyeth is barred
by prescription.

Held: No. The main thrust of the BIR is that the five-year prescriptive
period provided by law to make a collection by distraint or levy or by a
proceeding in court has not yet prescribed. Although he admits that
more than five years have already lapsed from the time the
assessment notices were received by Wyeth up to the time the
warrants of distraint and levy were served, he avers that the running
of the prescriptive period was stayed or interrupted when Wyeth Suaco
protested the assessments. BIR argues that the protest letters sent by
SGV & Co. in behalf of Wyeth Suaco requesting for withdrawal and
cancellation of the assessments were actually requests for
reinvestigation or reconsideration, which could interrupt the running of
the five-year prescriptive period.

Wyeth Suaco, on the other hand, maintains the position that it never
asked for a reinvestigation nor reconsideration of the assessments.
What it requested was the cancellation and withdrawal of the
assessments for lack of legal and factual basis.

Thus, it did not interrupt the running of the period.

After carefully examining the records of the case, the Court finds that
Wyeth Suaco admitted that it was seeking reconsideration of the tax
assessments. Wyeth's claim that it did not seek reinvestigation or
reconsideration of the assessments is belied by the subsequent
correspondence or letters written by its officers. These letters of Wyeth
Suaco interrupted the running of the five-year prescriptive period to
collect the deficiency taxes. Verily, the original assessments were both
received by Wyeth Suaco. However, when Wyeth Suaco protested the
assessments and sought its reconsideration, the prescriptive period
was interrupted. This period started to run again when the Bureau of
Internal Revenue served the final assessment to Wyeth Suaco.

69. CIR V. UNION SHIPPING (same as first batch, see
SALAZAR)

70. DELTA MOTORS V. CIR (BARRIENTOS)

Doctrine: The burden of proof is on the taxpayer contesting the
validity or correctness of an assessment to prove not only that the
Commissioner of Internal Revenue is wrong but that he (taxpayer) is
right. And if the taxpayer fails to present evidence or proof in support
of his allegations in his petition for review, or to prosecute his action,
as in this case, conformably to the doctrine of the presumption in favor
of the correctness of the tax assessment, the CTA will merely sustain
the assessment against the taxpayer.
(Personal Note: The case did not mention anything about remedies
before payment of the tax. The case probably tells us that the
taxpayer has the remedy of protesting to the appellate division of the
BIR and the CTA.)
Facts: Delta Motors is engaged in the business of manufacture and
sale of passenger cars and commercial vehicles. For the years 1975,
1976, 1977 and the first semester of 1978, Delta Motors filed the
required business tax returns for trucks and automobiles and paid the
taxes due thereon. However, CIR denies that the taxes were paid.
CIR assessed and demanded from Delta Motors payment of 35M as
deficiency percentage tax for 1975 and 1976. Delta Motors contested
the assessment and requested administrative hearing of the case.
While the case is still pending resolution, the CIR issued another letter
of demand urging Delta Motors to pay 42M as deficiency percentage
taxes for 1977 and the first semester of 1978. Delta Motors protested
the two (35M and 42M) assessments and requested that a "conference
hearing" be held in the appellate division of the BIR. CIR denied Delta
Motors protest and modified the original assessments by adding 11M
as additional deficiency percentage taxes for the periods involved.
Total tax assessed is 88M.
Delta Motors appealed from this decision with the CTA. For repeated
failure of Delta Motors to appear or to prosecute its action by
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9f
presenting evidence at the scheduled hearings, the case was
submitted for decision by CIR on the basis of the pleadings and the
records of the BIR.
Issue: Whether the assessment is valid
Held: YES. Delta Motors is ordered to pay the tax assessed. The
records of the BIR show that Delta Motors failed to pay the correct
amount of: (1) sales tax as manufacturer of cars and commercial
vehicles; (2) sales tax as manufacturer of electric fans, refrigerators,
air conditioners, television sets, stereo sets; (3) percentage tax as
contractor engaged in the servicing of the motor vehicles and
appliances sold by it; and (4) advance sales tax due on its imported
raw materials for air conditioners.
There is no showing in the pleadings or in the records that Delta
Motors questioned the computations of the deficiency taxes assessed
against it by the CIR. While Delta Motors prays in its petition for
review filed with this Court that the assessments are null and void
which should be withdrawn and cancelled, Delta Motors either failed to
appear or to present evidence at the scheduled hearings to
substantiate the nullity and illegality of the assessments.
Since no evidence was presented by Delta Motors to substantiate the
errors that are claimed to have been committed by the CIR in making
the assessments in question, this Court has no other alternative than
to resort to the legal truism that "all presumptions are in favor of the
correctness of tax assessments." The burden of proof is on the
taxpayer to show the contrary. This action finds support in the
following authorities:
"All presumptions are in favor of the correctness of tax
assessments. The good faith of tax assessors and the
validity of their actions are presumed. They will be
presumed to have taken into consideration all the facts to
which their attention was called. No presumption can be
indulged that all of the public officials of the state in the
various countries who have to do with the assessment of
property for taxation will knowingly violate the duties
imposed upon them by law.
"When an importer challenges by legal steps the
correctness of the assessment of a duty by the Collector
of Customs, the question to be decided is not whether the
Collector was wrong but whether the importer was right,
the burden being on the latter to establish the correctness
of his own contention.
Even more, under section 3 of Rule 17, Rules of Court, if plaintiff
(petitioner herein) fails to appear at the time of the trial, or to
prosecute his action for an unreasonable length of time, which actually
happened in this case, the action may be dismissed upon motion of
the defendant (respondent) or upon the court's own motion. This
dismissal shall have the effect of an adjudication upon the merits,
unless otherwise provided by court. Parenthetically, it may be stated
that the general rules provided in the Rules of Court govern
proceedings in the Court of Tax Appeals. The rules promulgated by the
Court of Tax Appeals are merely supplementary.

71. REPUBLIC V. BASA (PARAS)

Doctrine: Deficiency assessments may be made within ten years after
the discovery of the falsity or omission. The court action should be
instituted within five years after the assessment but this period is
suspended during the time that the Commission is prohibited from
instituting a court action.

FACTS:
In a demand letter dated August 31, 1967, the Commissioner of
Internal Revenue assessed against Augusto Basa deficiency income
taxes for 1957 to 1960 totalling P16,353.12. Deficiencies were based
on the taxpayer's failure to report in full his capital gains on the sales
of land. This omission or underdeclaration of income justified the
imposition of 50% surcharge. The taxpayer did not contest the
assessments in the Tax Court. The Commissioner's letter-decision on
the case was dated ecember 6, 1974. On the assumption that the
assessments had become final and incontestable, the Commissioner on
September 3, 1975 sued the taxpayer in the Manila Court of First
Instance for the collection of said amount.

The trial court in a decision dated April 20, 1976 affirmed the
assessments and ordered Basa to pay P16,353.12 plus 5% surcharge
and one percent monthly interest from August 31, 1967 to August 31,
1970. Instead of appealing to this Court directly under Republic Act
No. 5440, in relation to Rules 41 and 45 of the Rules of Court, since no
factual issues are involved, Basa tried to appeal to the Court of
Appeals. He did not perfect his appeal within the reglamentary period.
The trial court dismissed it in its order dated October 1, 1976. On
December 23, 1976 Basa filed the instant special civil action of
certiorari wherein he assailed the trial court's decision.

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ISSUE: Whether the decision of the Court of First Instance of Manila
(not the Tax Court) in an income tax case is reviewable by the
Appellate Court or by this Court.

HELD: NO. The petition is devoid of merit. The trial court acted within
its jurisdiction in rendering its decision and dismissing Basa's appeal.
He should have appealed to this Court. His failure to do so rendered
the decision final and executory. He has no cause of action for
certiorari.

RATIO:
If he wanted to contest the assessments, he should have appealed to
the Tax Court. Not having done so, he could not contest the same in
the Court of First Instance. The issue of prescription raised by him is
baseless. The assessments were predicated on the fact that his income
tax returns, if not fraudulent, were false because he underdeclared his
income. In such a case, the deficiency assessments may be made
within ten years after the discovery of the falsity or omission.
The court action should be instituted within five years after the
assessment but this period is suspended during the time that
the Commission is prohibited from instituting a court action.**
Basa's requests for reinvestigation tolled the prescriptive period of five
years within which court action may be brought.

72. MARCOS V. CA (see PARAS digest)

73. AGUINALDO V. CIR (ADVINCULA)

DOCTRINE:
FACTS: Aguinaldo Industries is engaged in the manufacture of fishing
nets (a tax exempt industry), which is handled by its Fish Nets
Division. It is also engaged in the manufacture of furniture which is
operated by its Furniture Division. Each division is provided with
separate books of accounts. The income from the Fish Nets Division,
miscellaneous income of the FIsh Nets Division, and and the income
from the Furniture Division are computed individually.

Petitioner acquired a parcel of land in Muntinglupa Rizal as site
for its fishing net factory. The transaction was entered in the books of
the Fish Nets Division. The company then found another parcel of land
in Marikina Heights, which was more suitable. They then sold the
Muntinglupa property and the profit derived from the sale was entered
in the books of the Fish Nets Division as miscellaneous income to
separate it from its tax exempt income.

For 1957, petitioner filed 2 separate ITRs (one for Fish Nets
and one for Furniture). After investigation, BIR examiners found that
the Fish Nets Div deducted from its gross income PhP 61k as additional
remuneration paid to the companys officers. Such amount was taken
from the sale of the land and was reported as part of the selling
expenses. The examiners recommended that such deduction be
disallowed. Petitioner then asserted in its letter that it should be
allowed because it was paid as bonus to its officers pursuant to Sec.3
of its by-laws: "From the net profits shall be deducted for allowance of
the Pres. - 3%, VP - 1%, members of the Board - 10%.

CTA imposed a 5% surcharge and 1% monthly interest for the
deficiency assessment. Petitioner then stressed that the profit derived
from the sale of the land is not taxable because the Fish Nets Div
enjoys tax exemption under RA 901.

ISSUE: (1) whether the bonus given to the officers of the petitioner
upon the sale of its Muntinglupa land is an ordinary and necessary
business expense deductible for income tax purposes; and (2) whether
petitioner is liable for surcharge and interest for late payment.

HELD: (1) YES. These extraordinary and unusual amounts paid by
petitioner to these directors in the guise and form of compensation for
their supposed services as such, without any relation to the measure
of their actual services, cannot be regarded as ordinary and necessary
expenses within the meaning of the law. This posture is in line with the
doctrine in the law of taxation that the taxpayer must show that its
claimed deductions clearly come within the language of the law since
allowances, like exemptions, are matters of legislative grace.
Moreover, petitioner cannot now claim that the profit from the
sale is tax exempt. At the administrative level, the petitioner implicitly
admitted that the profit it derived from the sale of its Muntinglupa
land, a capital asset, was a taxable gain - which was precisely the
reason why for tax purposes the petitioner deducted therefrom the
questioned bonus to its corporate officers as a supposed item of
expense incurred for the sale of the said land, apart from the
P51,723.72 commission paid by the petitioner to the real estate agent
who indeed effected the sale. The BIR therefore had no occasion to
pass upon the issue.
To allow a litigant to assume a different posture when he
comes before the court and challenge the position he had accepted at
the administrative level, would be to sanction a procedure whereby the
court - which is supposed to review administrative determinations -
would not review, but determine and decide for the first time, a
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question not raised at the administrative forum. The requirement of
prior exhaustion of administrative remedies gives administrative
authorities the prior opportunity to decide controversies within its
competence, and in much the same way that, on the judicial level,
issues not raised in the lower court cannot be raised for the first time
on appeal. Up to the time the questioned decision of the respondent
Court was rendered, the petitioner had always implicitly admitted that
the disputed capital gain was taxable, although subject to the
deduction of the bonus paid to its corporate officers. It was only after
the said decision had been rendered and on a motion for
reconsideration thereof, that the issue of tax exemption was raised by
the petitioner for the first time. It was thus not one of the issues
raised by petitioner in his petition and supporting memorandum in the
CTA.
(2) YES. Interest and surcharges on deficiency taxes are imposable
upon failure of the taxpayer to pay the tax on the date fixed in the law
for the payment thereof, which was, under the unamended Section 51
of the Tax Code, the 15th day of the 5th month following the close of
the fiscal year in the case of taxpayers whose tax returns were made
on the basis of fiscal years. A deficiency tax indicates non-payment of
the correct tax, and such deficiency exists not only from the
assessment thereof but from the very time the taxpayer failed to pay
the correct amount of tax when it should have been paid and the
imposition thereof is mandatory even in the absence of fraud or willful
failure to pay the tax is full.
74. ABRA VALLEY V. AQUINO (DE LOS REYES)

Exemption of educational and religious organization is not confined to
the primary use of the property for religious and educational purposes
but also extends to incidental use of said property.

FACTS: Abra Valley College, an educational corporation and institution
of higher learning duly incorporated with the Securities and Exchange
Commission in 1948, filed a complaint to annul and declare void the
"Notice of Seizure' and the "Notice of Sale" of its lot and building
located at Bangued, Abra, for non-payment of real estate taxes and
penalties. Said "Notice of Seizure"was issued for the satisfaction of the
said taxes thereon. It was found during trial that: 1.) the elementary
pupils are housed in a two-storey building across the street 2.) that
the high school and college students are housed in the main building;
3. )that the Director with his family is in the second floor of the main
building; and 4.) that the annual gross income of the school reaches
more than one hundred thousand pesos.

Petitioner contends that the primary use of the lot and building for
educational purposes, and not the incidental use thereof, determines
and exemption from property taxes under Section 22 (3), Article VI of
the 1935 Constitution. Hence, the seizure and sale of subject college
lot and building, which are contrary thereto as well as to the provision
of Commonwealth Act No. 470, otherwise known as the Assessment
Law, are without legal basis and therefore void.On the other hand,
private respondents maintain that the college lot and building in
question which were subjected to seizure and sale to answer for the
unpaid tax are used: (1) for the educational purposes of the college;
(2) as the permanent residence of the President and Director thereof,
Mr. Pedro V. Borgonia, and his family including the in-laws and
grandchildren; and (3) for commercial purposes because the ground
floor of the college building is being used and rented by a commercial
establishment, the Northern Marketing Corporation

Issue: Whether or not the school is used exclusively for educational
purposes and are therefore exempt from taxes?

Held: No. But only the first floor leased out for commercial purposes
should be taxed. The rest is exempted including the second floor
where the director and his family resides because it is considered as
incidental use thereof.

Ratio: While the Court allows a more liberal and non-restrictive
interpretation of the phrase "exclusively used for educational
purposes" as provided for in Article VI, Section 22, paragraph 3 of the
1935 Philippine Constitution, reasonable emphasis has always been
made that exemption extends to facilities which are incidental to and
reasonably necessary for the accomplishment of the main purposes.
Otherwise stated, the use of the school building or lot for commercial
purposes is neither contemplated by law, nor by jurisprudence. Thus,
while the use of the second floor of the main building in the case at
bar for residential purposes of the Director and his family, may find
justification under the concept of incidental use, which is
complimentary to the main or primary purpose-educational, the lease
of the first floor thereof to the Northern Marketing Corporation cannot
by any stretch of the imagination be considered incidental to the
purpose of education. Under the 1935 Constitution, the trial court
correctly arrived at the conclusion that the school building as well as
the lot where it is built, should be taxed, not because the second floor
of the same is being used by the Director and his family for residential
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purposes, but because the first floor thereof is being used for
commercial purposes. However, since only a portion is used for
purposes of commerce, it is only fair that half of the assessed tax be
returned to the school involved.

NOTE: Other cases cited: "exclusively used for educational purposes"
was clarified by the Court in the cases of Herrera vs. Quezon City
Board of assessment Appeals, 3 SCRA 186 [1961] and Commissioner
of Internal Revenue vs. Bishop of the Missionary District, 14 SCRA 991
[1965],

"Moreover, the exemption in favor of property used exclusively for
charitable or educational purposes is 'not limited to property actually
indispensable' therefor (Cooley on Taxation, Vol. 2, p. 1430), but
extends to facilities which are incidental to and reasonably necessary
for the accomplishment of said purposes, such as in the case of
hospitals, "a school for training nurses, a nurses' home, property use
to provide housing facilities for interns, resident doctors,
superintendents, and other members of the hospital staff, and
recreational facilities for student nurses, interns, and residents' (84
CJS 6621), such as "Athletic fields" including "a firm used for the
inmates of the institution. (Cooley on Taxation, Vol. 2, p.
1430).Nueva Segovia v. Provincial Board of Ilocos Norte, It was
clarified that the term "used exclusively" considers incidental use also.
75. CIR V. PROCTER & GAMBLE (GRUBA)

DOCTRINE:?

FACTS
- In1974 and 1975, P&G-Phil. declared dividends payable to its
parent company and sole stockholder P&G-USA amounting to
P24M from which the dividends amount to P8M, representing the
35% withholding tax at source was deducted.
- On 1977, P&G-Phil filed with CIR a claim for refund or tax credit
in the amount of P4M claiming that in pursuant to Sec24b of the
NIRC, the applicable rate of withholding tax on the dividends
remitted was only 15%
- -CIR did not respond to the claim
- P&G-Phil filed a petition for review with CTA
- CTA ordered CIR to refund or grant the tax credit in the amount
claimed by P&G-Phil
- CIR appealed to the CTA and the said court reversed its decision
stating the following reasons:
- P&G-USA is the proper party to claim the refund or tax
credit here involved
- there is nothing in Sec. 902 or other provisions in the US
Tax Code that allows a credit against the US tax due
from P&G-USA of taxes deemed to have been paid in the
Philippines equivalent to 20% which represents the
difference between the regular tax of 35% on
corporations and 15% tax on dividends
- P&G-Phil failed to meet certain conditions necessary for it
to be subject to the preferential tax rate 15% instead of
35%
ISSUE
Whether or not P&G-Phil has the capacity to bring the claim for
refund
HELD
YES.
-Section 306 of the NIRC provides that ",o .ui or rocccvinq .nu|| vc
wuinuincv in unq cour for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously or
illegally assessed or collected, or of any penalty claimed to have
been collected without authority, or of any sum alleged to have
been excessive or in any manner wrongfully collected, uni| u c|uiw
{or rc{unv or crcvi nu. vccn vu|q {i|cv ~in nc ,owwi..ioncr o{ 1ncrnu| c.cnuc; but
such suit or proceeding may be maintained, whether or not such
tax, penalty, or sum has been paid under protest or duress. In
any case, no such suit or proceeding shall be begun after the
expiration of two years from the date of payment of the tax or
penalty regardless of any supervening cause that may arise after
payment: . . . (Emphasis supplied
-Section 309 (3) of the NIRC, in turn, provides: "credit or refund
taxes erroneously or illegally received, . . . ,o crcvi or rc{unv of taxes
or penalties .nu|| vc u||o~cv un|c.. nc uuqcr {i|c. in ~riinq with the
Commissioner u c|uiw {or crcvi or rc{unv within two (2) years after the
payment of the tax or penalty. (As amended by P.D. No. 69)
(Emphasis supplied)
-The question which arises is: is P&G-Phil. a uuqcr under Section
309 (3) of the NIRC?
-The term "uuqcr" is defined in our NIRC as referring to "unq cr.on
.uvjcc o u imposed by the Title [on Tax on Income]." It thus
becomes important to note that under Section 53 (c) of the
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NIRC, the withholding agent who is "required to deduct and
withhold any tax" is made " cr.onu||q |iuv|c {or .ucn u" and indeed is
indemnified against any claims and demands which the
stockholder might wish to make in questioning the amount of
payments effected by the withholding agent in accordance with
the provisions of the NIRC. The withholding agent, P&G-Phil., is
vircc|q unv invccnvcn|q |iuv|c for the correct amount of the tax that
should be withheld from the dividend remittances. The
withholding agent is, moreover, subject to and liable for
deficiency assessments, surcharges and penalties should the
amount of the tax withheld be finally found to be less than the
amount that should have been withheld under law.
-A "person liable for tax" has been held to be a "person subject to
tax" and properly considered a "taxpayer." The terms liable for
tax" and "subject to tax" both connote legal obligation or duty to
pay a tax. It is very difficult, indeed conceptually impossible, to
consider a person who is statutorily made "liable for tax" as no
"subject to tax." By any reasonable standard, such a person
should be regarded as a party in interest, or as a person having
sufficient legal interest, to bring a suit for refund of taxes he
believes were illegally collected from him.
-We believe and so hold that, under the circumstances of this
case, P&G-Phil. is properly regarded as a "taxpayer" within the
meaning of Section 309, NIRC, and as impliedly authorized to file
the claim for refund and the suit to recover such claim.

76. BERMEJO V. COLLECTOR (ROMAN)

DOCTRINE
After paying the tax, the citizen must submit a claim for refund before
resorting to the courts.

FACTS:
Bermejo was informed by the CIR that for sales of nipa shingles and
charcoal, the former owed the Government the sum of P1,083.75. He
objected to the assessment, contending mainly that the products were
agricultural, and as such, free from taxation. After paying the first
installment, he sued for recovery.
Before the trial, the CIR submitted a motion for dismissal of the
complaint on the ground that Bermejo had not complied with the
provisions of section 306 of the Internal Revenue Law, inasmuch as
said plaintiff had not before suing, filed a claim with the collector for
the refund of the amount he had delivered. The Judge absolved the
CIR on two grounds, to wit: (a) plaintiff failed to comply with section
306; and (b) the tax had been properly imposed.

Refuting the first ground of dismissal, Bermejo argues that section 306
has been substantially complied with, because previous to the
institution of this proceeding, there were letters sent to the collector
protesting against the tax.

ISSUE:
Whether Sec. 306 has been substantially complied with.

HELD:
No.
RATIO:
SEC. 306. #ecovery of tax erroneously of illegally collected. - No suit
or proceeding shall be maintained in any court for the recovery of any
national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, or of any penalty claimed
to have been collected without authority, or of any sum alleged to
have been excessive or in any manner wrongfully collected, until a
claim for refund or credit has been duly filed with the Collector of
Internal Revenue; . . . (Com. Act No. 466.)

The law clearly stipulates that after paying the tax, the citizen must
submit a claim for refund before resorting to the courts. The idea
probably is, first, to afford the collector an opportunity to correct the
action of subordinate officers; and second, to notify the Government
that such taxes have been questioned, and the notice should then be
borne in mind in estimating the revenue available for expenditure.
Previous objections to the tax may not take place of that claim for
refund, because there may be reason to believe that, in paying, the
tax payer has finally come to realize the validity of assessment.
Anyway, strict compliance with the conditions imposed for the return
of revenue collected is a doctrine consistently applied in this country.

77. CHEMPHIL V. CIR/CC (TONGSON)

78. CIR V. CA, CITYTRUST and CA (AQUINO)

DOCTRINE: that the Government is not bound by the errors
committed by its agents. In the performance of its governmental
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functions, the State cannot be estopped by the neglect of its agent and
officers.
Facts: On August 26, 1986, Citytrust filed a claim for refund from the
BIR for P19, 971,745.00 representing overpayment. Two days later, it
filed a petition with the CTA in order to toll the prescriptive period. In
its answer the CIR contends that (1) the mere averment of net loss for
1985 does not ipso facto merit a refund, (2) that the claimed income
tax overpayment and withheld taxes were not properly documented;
and (3) the right to the refund has already prescribed.
On February 20, 1991, the case was submitted for decision based
solely on the pleadings and evidence submitted by Citytrust. The BIR
could not present any evidence by reason of the repeated failure of its
Tax Credit/Refund Division to transmit the records of the case and its
investigation report to the Solicitor General.
On June 24, 1991, BIR filed with the CTA a motion praying for the
suspension of the proceedings on the ground that the claim of
Citytrust for tax refund was already being processed by the Tax
Credit/Refund Division of the BIR, and that said bureau was only
awaiting the submission by Citytrust of the required confirmation
receipts which would show whether the amount was actually paid and
remitted.
Citytrust filed an opposition claiming that since the CTA already
acquired jurisdiction over the case, it could no longer be divested of
the same; and that the proceedings therein could not be suspended by
the administrative proceeding, especially where the case had already
been submitted for decision.
CTA ordered CIR to grant refund in the amount of P13,314,506.14 to
Citytrust representing overpaid income taxes for 1984 and 1985, but
denied its claim for refund for its 1983 income tax return on the
ground of prescription. The CA affirmed.
Issue: Whether the CTA and CA erred in allowing the refund.
Held: Yes. The case is remanded to the CTA for further proceedings.
The BIR was denied its day in court by reason of the mistakes and/or
negligence of its officials and employees. It can be seen from the
records that when it was petitioner's turn to present evidence, several
postponements were sought by its counsel (SolGen) when it was their
turn to present evidence due to the unavailability of the necessary
records which were not transmitted by the Refund Audit Division of the
BIR to said counsel, as well as the investigation report made by the
Banks/Financing and Insurance Division of the said bureau/ despite
repeated requests. It was under such a predicament and in deference
to the tax court that petitioner's counsel was constrained to submit the
case for decision without presenting any evidence.
Despite the filing of the case ongoing with the CTA, the Tax Refund
Division of the BIR still continued to act administratively on the claim
for refund, instead of forwarding the records of the case to the Court
of Tax Appeals as ordered.
It is a long and firmly settled rule of law that the Government is not
bound by the errors committed by its agents. In the performance of its
governmental functions, the State cannot be estopped by the neglect
of its agent and officers.
(Furthermore, the Court noted that the BIR filed a supplemental
motion bringing the courts attention to an alleged income and
business tax assessment against the company. Since the fact of such
deficiency assessment is inextricably intertwined with the right to
claim for a tax refund for the same year. The deficiency assessment,
although not yet final, created a doubt as to the basis for the grant of
the refund.)
79. CC & CIR V. CA & PLANTERS (INOTURAN)

DOCTRINE: The taxpayer having filed his claim and the Collector of
Internal Revenue having had ample time to study it, the claimant may,
indeed should, within the statutory period of two years proceed
with his suit without waiting for the Collector's decision.

Planters Products, Inc. (Planters) is engaged in the manufacture and
sale of fertilizers and agricultural chemicals. In 1979, it imported 162
steel drums of Dursban Xylene mixture. On April 17, 1979, the
Customs Collector for the Port of Manila made a final assessment of
customs duties and advance sales tax amounting to P920,549 on the
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said importations pursuant to the classification under Tariff Heading
No. 38.11 classifying Durban Xylene Mixture subject to ad valorem tax
of 20%. Planters paid in full the customs duties and ADVANCE SALES
TAX amounting to P920,549.
However, unknown to the petitioner, five days earlier, or on April 18,
1979, the Tariff Commission had issued a ruling classifying Dursban
Xylene Mixture Insecticidal Concentrate as organo-inorganic
compounds subject to duty of only 10% ad valorem.
Upon discovery of the new ruling which would reduce its tax liability
for the importation of Dursban Xylene Mixture, Planters filed a letter-
protest on April 30, 1979 addressed to the Collector of Customs asking
for a refund of its excess payment. The Customs Collector did not
answer its letter. Planters reiterated its request for a refund on July 7,
1979. Still, the Collector made no reply.
On August 12, 1980, Planters filed with the Commissioner of Internal
Revenue a claim for refund of the overpaid advance sales tax on its
importation. Like the Collector of Customs, the Commissioner of
Internal Revenue did not act on the claim.
On April 21, 1981, or exactly two days before the expiration of the 2-
year prescriptive period for filing a suit to recover erroneously
collected taxes under Section 230 of the NIRC, Planters filed a petition
for review in the Court of Tax Appeals which resolved the issue in its
favor. CC and CIR appealed.
ISSUE Whether the CTA has jurisdiction to review the assessment
despite the absence of a decision of the CC and CIR.
HELD Yes. There is no merit in the Commissioner's argument that
the Court of Tax Appeals had no jurisdiction to review the assessment
made by the collector of customs because its jurisdiction in customs
cases is limited to a review of decisions of the commissioner upon
appeal by aggrieved parties.
The fact is that neither the Collector nor Commissioner of Customs had
rendered a decision, order or ruling on Planter's claim which the Court
of Tax Appeals may review. Planter's petition for review was filed
under Section 230 of the NIRC, as amended:
"Section 230. Recovery of Tax Erroneously or Illegally Collected. -
No suit or proceeding shall be maintained in an any court for the
recovery of any national internal revenue tax hereafter alleged to have
been erroneously or illegally assessed or collected, . . . until a claim for
refund or credit has been duly filed with the Commissioner . . . .
"In any case, no such suit or proceeding shall be begun after the
expiration of two years from the date of payment of the tax or penalty
regardless of any supervening cause that may arise after payment . . .
."
If the taxpayer, Planters, had waited longer for the decision of the
Collector or Commissioner on its claim before filing suit in the Tax
Court, its right of action would have prescribed. It correctly
interpreted the tax officials' silence as a denial of its claim.
The taxpayer having filed his claim and the Collector of Internal
Revenue having had ample time to study it, the claimant may, indeed
should, within the statutory period of two years proceed with his suit
without waiting for the Collector's decision. In other words, in fairness
to the taxpayer so as not to deprive him of his day in court and the
prompt adjudication of his case, he is left by necessity to presume and
conclude before the expiration of the two-year prescriptive period, that
his claim for refund has been denied by the Collector of Internal
Revenue if no action was taken thereon by the latter during the said
period. The taxpayer need not wait indefinitely for a decision or ruling
which may or may not be forthcoming and which he has no legal right
to expect.

80. GIBBS V. CIR (BALANI)

Doctrine: A taxpayer who has paid the tax, whether under protest or
not, and who is claiming a refund of the same, must comply with the
requirement of both sections, that is, he must file a claim for refund
with the Collector of Internal Revenue within 2 years from the date of
his payment of the tax, as required by Section 306 of the National
Internal Revenue Code, and appeal to the Court of Tax Appeals within
30 days from receipt of the Collector's decision or ruling denying his
claim for refund.
Facts: The CIR issued against the petitioners a deficiency income tax
assessment P16,873.00 for the tax year 1950 with the demand that
the said amount should be paid on or before March 15, 1956. On
March 14, 1956, Allison J. Gibbs, signing as attorney-in-fact for Finley
J. Gibbs, his brother, acknowledged receipt of the above assessment
notice and notified the respondent Commissioner that Finley J. Gibbs
was then living in California, and that the latter was notified by him of
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the said deficiency assessment. In the same letter, Allison J. Gibbs
questioned the disallowance of the items which gave rise to the
deficiency assessment and requested for a correction of it.
On August 26, 1956, however, the respondent Commissioner denied
the request for correction, and reiterated its initial assessment, asking
that it paid within 10 days from the receipt of the letter.
Having deemed the said letter as the "final decision" of the respondent
Commissioner on the matter, Allison J. Gibbs paid the amount under
protest, and at the same time, demanded a refund of the said
payment. If the CIR refused to refund, he threatened to file a petition
for review with the CTA and ask for damages and attorneys fees.
The respondent Commissioner denied the demand for refund in a letter
dated 26 October 1956. The said letter was received by the office of
Allison Gibbs on 14 November 1956.
On October 1, 1958, the petitioners filed with the respondent court a
petition for review and refund of income tax.
The respondent Court ruled that it had no jurisdiction to take judicial
cognizance of the petition for review on the ground that the petition
for review was filed beyond thirty (30) days from the date of receipt of
respondent's decision, dated October 26, 1956 and that it had no
jurisdiction over the cause of action with respect to the credit of the
amounts stated in the petition for review for the reason that the
request for credit and the petition for review praying for the credit of
said amounts have been filed beyond two (2) years from the dates of
payment of the amounts sought to be credited in the petition for
review.
Issue: Whether the court had jurisdiction over the case
Held:
No, the court had no jurisdiction over the case. The petition for refund
was filed out of time and the action had prescribed.
The petitioners maintain that income tax assessments against which
claims for refund have been lodged and which are covered by taxes
withheld at the source shall be considered paid, not at the time such
tax obligations fall due, but, only when the claims for refund against
the assessments are finally resolved by the authorities. Petitioners also
contend that the statute of limitation of two years prescribed in
Section 306 of the NIRC does not start to run until respondent
Commissioner has acted on the claim for refund or credit by the non-
resident taxpayer and so notified the taxpayer because until then the
withholding tax cannot be treated as a payment by the alien-resident
taxpayer; until then it is a mere deposit held by respondent
Commissioner for the account of the non-resident alien taxpayer.
Petitioners are mistaken. Payment is a mode of extinguishing
obligations and it means not only the delivery of money but also the
performance, in any other manner, of an obligation. A taxpayer,
resident or non-resident, who contributes to the withholding tax
system, does so not really to deposit an amount to the Commissioner
of Internal Revenue, but, in truth, to perform and extinguish his tax
obligation for the year concerned. In other words, he is paying his tax
liabilities for that year. Consequently, a taxpayer whose income is
withheld at the source will be deemed to have paid his tax liability
when the same falls due at the end of the tax year. It is from this
latter date then, or when the tax liability falls due, that the two-year
prescriptive period under Section 306 of the Revenue Code starts to
run with respect to payments effected through the withholding tax
system. It is of no consequence whatever that a claim for refund or
credit against the amount withheld at the source may have been
presented and may have remained unresolved.
In fine, a taxpayer who has paid the tax, whether under protest or not,
and who is claiming a refund of the same, must comply with the
requirement of both sections, that is, he must file a claim for refund
with the Collector of Internal Revenue within 2 years from the date of
his payment of the tax, as required by Section 306 of the National
Internal Revenue Code, and appeal to the Court of Tax Appeals within
30 days from receipt of the Collector's decision or ruling denying his
claim for refund, as required by Section 11 of Republic Act No. 1125.
If, however, the Collector takes time in deciding the claim, and the
period of two years is about to end, the suit or proceeding must be
started in the Court of Tax Appeals before the end of the two-year
period without awaiting the decision of the Collector. This is so
because of the positive requirement of Section 306 and the doctrine
that delay of the Collector in rendering decision does not extend the
peremptory period fixed by the statute.

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81. ACCRA INVESTMENTS V. CA (TENORIO)

FACTS
ACCRA INVESTMENTS (ACCRAIN) is a domestic corporation engaged in
the business of real estate investment and management consultancy.
ACCRAIN filed with the Bureau of Internal Revenue its annual
corporate income tax return for the calendar year reporting a net loss
of P2,957,142.00 on April 15, 1982. ACCRAIN declared as creditable
all taxes withheld at source by various withholding agents which
withholding agents aforestated paid and remitted the above amounts
representing taxes on rental, commission and consultancy income of
the petitioner corporation to the Bureau of Internal Revenue. ACCRAIN
filed a claim for refund. Pending action of the respondent
Commissioner on its claim for refund, the petitioner corporation, on
April 13, 1984, filed a petition for review with the respondent Court of
Tax Appeals. The CTA dismissed the case for being filed out of time
and the MR was likewise denied. A petition for review was submitted to
the SC and the SC referred the case to the CA. The CA affirmed
decision of the CTA.
ISSUE
Whether or not the claim for refund was filed on time
HELD: YES
RULING
Crucial in the resolution of the instant case is the interpretation of the
phraseology "from the date of payment of the tax" in the context of
Section 230 on Recovery of tax erroneously or illegally collected.
A correct application of the Gibbs case according to the court is that "a
taxpayer whose income is withheld at source will be deemed to have
paid his tax liability at the end of the tax year. It is from when the
same falls due at the his latter date then, or when the two-year
prescriptive period under Section 306 of the Revenue Code starts to
run with respect to payments effected through the withholding tax
system.. (this is how its typed sa lawphil)
The aforequoted ruling presents two alternative reckoning dates, (1)
the end of the tax year; and (2) when the tax liability falls due. In the
instant case, it is undisputed that the petitioner corporation's
withholding agents had paid the corresponding taxes withheld at
source to the Bureau of Internal Revenue from February to December
1981. ACCRAIN is not claiming a refund of overpaid withholding
taxes, per se. It is asking for the recovery the refundable or creditable
amount determined upon the petitioner corporation's filing of the its
final adjustment tax return on or before 15 April 1982 when its tax
liability for the year 1981 fell due. The petitioner corporation's taxable
year is on a calendar year basis, hence, with respect to the 1981
taxable year, ACCRAIN had until 15 April 1982 within which to file its
final adjustment return. The petitioner corporation duly complied with
this requirement
Anent claims for refund, section 8 of Revenue Regulation No. 13-78
issued by the Bureau of Internal Revenue requires that:
Section 8. Claims for tax credit or refund - Claims for tax credit or
refund of income tax deducted and withheld on income payments shall
be given due course only when it is shown on the return that the
income payment received was declared as part of the gross income
and the fact of withholding is established by a copy of the statement,
duly issued by the payor to the payee (BIR Form No. 1743-A) showing
the amount paid and the amount of tax withheld therefrom.
The term "return" in the case of domestic corporations like ACCRAIN
refers to the final adjustment return. It bears emphasis at this point
that the rationale in computing the two-year prescriptive period with
respect to the petitioner corporation's claim for refund from the time it
filed its final adjustment return is the fact that it was only then that
ACCRAIN could ascertain whether it made profits or incurred losses in
its business operations. The "date of payment", therefore, in
ACCRAIN's case was when its tax liability, if any, fell due upon its filing
of its final adjustment return on April 15, 1982.
82. CIR V. TMX SALES (CABAL)

Doctrine: The two-year prescriptive period shall be computed at the
time of filing the Final Adjustment Return or the Annual Income Tax
Return, where it can be finally ascertained if the taxpayer has still to
pay additional income tax or if he is entitled to a refund of overpaid
income tax.

Facts: TMX Sales, Inc., a domestic corporation, filed on 15 May 1981 a
quarterly income tax return for the first quarter of 1981 and paid half
(PHP247,000 of PHP571,000) of the income tax thereon. During the
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subsequent quarters, it suffered losses so that when it filed on April
15, 1982 its Annual Income Tax Return for 1981, it declared a net
loss. It thereafter filed a claim for refund of the PHP247,000, which
was not acted upon by the CIR. In 1984, TMX Sales, Inc. filed a
petition for review with the CTA to order the CIR to refund the amount
overpaid as income tax. The CIR raised the defense of prescription
against TMX Sales, Inc., stating that more than two years had already
elapsed since TMX paid the contended income tax and the filing of the
claim in court. CTA rendered a decision granting the petition of TMX
Sales, Inc. and ordering the CIR to refund the amount claimed. It
viewed the quarterly income tax paid as a portion or instalment of the
total annual income tax due.

Issue: (1) In case of tax paid on instalments, whether the two year
prescriptive period under Section 306 (now Section 292) of the NIRC
should be counted from the date of the final payment or last
instalment
(2) Whether the two-year prescriptive period to claim a refund of
erroneously collected tax provided for in Section 292 (now Section
230) of the NIRC commence to run from the date the of filing of the
Final Adjustment Return

Held: (1) Yes. However, there is no payment until the whole or entire
tax liability is completely paid. Thus, a payment of a part or portion
thereof, cannot operate to start the commencement of the statute of
limitations. The word "tax" or words "the tax" has been held to refer to
the entire tax and not a portion thereof and the vocable "payment of
tax" within statutes requiring refund claim, refer to the date when all
the tax was paid, not when a portion was paid.

(2) Yes. Section 292 (now Section 230) of the NIRC provides a two-
year prescriptive period to file a suit for a refund of a tax erroneously
or illegally paid, counted from the time the tax was paid. Section 85
(now Section 68) provides for the method of computing corporate
quarterly income tax which is on a cumulative basis. Section 87 (now
Section 69) requires the filing of an adjustment returns and final
payment of income tax. Section 321 (now Section 232) requires that
the books of accounts of companies or persons with gross quarterly
sales or earnings exceeding P25,000.00 be audited and examined
yearly by an independent CPA and their income tax returns be
accompanied by certified financial statements among others. Through
statutory construction, these sections must be harmonized, giving
effect to the legislative intention and avoiding unjust or an absurd
conclusion.

In the case at bar, the refund claimed by TMX Sales, Inc. based on its
Adjustment Return required in Section 87 (now Section 69), is
equivalent to the tax paid during the first quarter. A literal application
of Section 292 (now Section 230) would thus pose no problem as the
two-year prescriptive period reckoned from the time the quarterly
income tax was paid can be easily determined. However, if the quarter
in which the overpayment is made, cannot be ascertained, then a
literal application of Section 292 (Section 230) would lead to absurdity
and inconvenience.

Therefore, the filing and payment of quarterly income tax returns
should only be considered mere installments of the annual tax due.
These quarterly tax payments which are computed based on the
cumulative figures of gross receipts and deductions in order to arrive
at a net taxable income, should be treated as advances or portions of
the annual income tax due, to be adjusted at the end of the calendar
or fiscal year. Consequently, the two-year prescriptive period provided
in Section 292 (now Section 230) should be computed from the time of
filing the Adjustment Return or Annual Income Tax Return and final
payment of income tax.

In the instant case, TMX Sales, Inc. filed a suit for a refund on March
14, 1984. Since the two-year prescriptive period should be counted
from the filing of the Adjustment Return on April 15, 1982, TMX Sales,
Inc. is not yet barred by prescription.

83. CITIBANK NY V. CIR (MENDEZ)

Doctrine: hen a tax is paid in installments, the prescriptive period of
two years provided in Section 306 (now Section 292) of the NI#C
should be counted from the date of the final payment. And, the "final
payment" is the last quarter payment at the end of the calendar or
fiscal year when it is finally ascertainable that the taxpayer either
made profits or suffered losses in its business operations.

FACTS: Citibank, N.A., a resident foreign corporation engaged in
business in the Philippines, leased office building as well as parking
spaces located at Makati, Metro Manila. For the taxable years 1979
and 1980 petitioner's tenants withheld and paid to the respondent CIR
the corresponding taxes from the rentals due the petitioner pursuant
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to Section 1(c) of the Expanded Withholding Tax Regulations.
P270,160.05 was remitted for 1979, and P298,829.29 for 1980.

Petitioner filed its corporate annual income tax return for the calendar
year ended December 31, 1979 on April 15, 1980. It showed a net
loss of P74,854,916 and available tax credits of P6,257,780 which
were unutilized or unapplied because the year's operation resulted in a
loss. The tax withheld by the tenants during 1979 were not included in
the tax credits, although such rental income (P7,796,811.00) was
included in its income declared for said calendar year ended December
31, 1979.

Again, for the year ended December 31, 1980, petitioner's corporate
annual income tax return filed on April 15, 1981, showed net loss of
P77,071,790 for income tax purposes. Its available tax credit
(refundable) at the end of 1980 in the amount of P11,532,855.00 do
not also include the amounts withheld by petitioner's tenants against
their rental payments during 1980 but said income payment has been
declared as part of the gross income and included in the annual
income tax return.

Petitioner filed a claim for refund of the amounts of P270,160.56 and
P298,829.29 or a total of P568,989.85 on August 13, 1981 and the
present petition for review on October 12, 1981.

Respondent CIR avers that the right to the recovery of the taxes
withheld and paid on or before October 12, 1979 have already
prescribed, having been claimed beyond two years from the payment
of the penalties. The questioned withheld taxes on the rental income
for the first and second quarters of 1979 subject of the claim fell due
and were paid on or before April 15, 1979 and July 20, 1979
respectively, or more than two years prior to the filing of the instant
petition on October 12, 1981.

ISSUE: Whether the right of petitioner to claim refund has prescribed

RULING:
NO. As stated in jurisprudence, "when a tax is paid in installments, the
prescriptive period of two years provided in Section 306 (now Section
292) of the NIRC should be counted from the date of the final
payment. And, the "final payment" is the last quarter payment at the
end of the calendar or fiscal year when it is finally ascertainable that
the taxpayer either made profits or suffered losses in its business
operations.

The petition for review was filed on October 12, 1981 well within the
two year period counted from April 15, 1980, the date of the filing of
the final adjustment return for the calendar year ended December
1979, pursuant to Section 87(b) of the Tax Code.

The records make it clear that petitioner's income tax returns for the
taxable years in question have shown losses and excess creditable
income tax payments. Respondent points to no factual errors nor
superfluities which need be abridged.

84. CIR V. WANDER PHILS (ABDULWAHID)

DOCTRINE:

SC will not set aside the conclusion reached by an agency such as CTA
which is, by the very nature of its function, dedicated exclusively to
the study and consideration of tax problems and has necessarily
developed an expertise on the subject unless there has been an abuse
or improvident exercise of authority.

FACTS:

In 1975, Wander Philippines, Inc. (Wander), a domestic corp., wholly-
owned subsidiary of Glaro, a Swiss corporation not engaged in trade or
business in the Phil, filed its withholding tax return for the 2
nd
quarter
ending June 1975 and remitted to its parent company (Glaro)
dividends on which 35% withholding tax thereof was withheld and paid
to the BIR. In 1976, Wander filed a withholding tax return for the 2
nd

quarter ending June 1976 on the dividends it remitted to Glaro on
which 35% tax was withheld and paid to the BIR.

In 1977, Wander filed with the Appellate Division of the Internal
Revenue a claim for refund and/or tax credit in the amount of
P115,400.00, contending that it is liable only to 15% withholding tax
in accordance with Section 24 (b) (1) of the Tax Code. Commissioner
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failed to act on the claim for refund. Wander filed a petition with CTA.
CTA ordered CIR to grant a refund and/or tax credit to Wander in the
amount of P115,440.00 representing overpaid withholding tax on
dividends remitted by it to Glaro. CIR filed an MR, but CTA denied it.
In its petition for review, CIR argues that it is Glaro, and not Wander
which should be legally entitled to receive the refund if any.

ISSUE:

Whether CTA was correct in ordering CIR to grant refund/ tax credit to
Wander.

HELD:

YES. Wander, withholding agent, is the proper entity who should claim
for the refund/credit of overpaid withholding tax on dividends paid or
remitted by Glaro. SC, in construing Section 53 (b) of NIRC held that
"the obligation imposed upon the withholding agent is compulsory."

CIRs argument, being raised for the first time in its petition for
review, was never raised at the administrative level, or at the CTA.
Under the same principle of prior exhaustion of administrative
remedies, on the judicial level, issues not raised in the lower court
cannot be raised for the first time on appeal. SC will not set aside the
conclusion reached by an agency such as CTA which is, by the very
nature of its function, dedicated exclusively to the study and
consideration of tax problems and has necessarily developed an
expertise on the subject unless there has been an abuse or
improvident exercise of authority.

85. CIR V. PROCTER & GAMBLE (same as above, see GRUBA)

86. LASCONA LAND V. CIR (PELAYO)

Facts: On March 27, 1998, the Commissioner issued Assessment
Notice against Petitioner for alleged deficiency income tax, surcharge,
interest and compromise penalty for the year 1993 in the amount of
P753,266.56, resulting from the disallowance of certain items claimed
by Petitioner as deductions from its gross income specifically taxes and
licenses and interest expense. Petitioner received a copy of the said
assessment on April 1, 1998 and protested the same on April 20,
1998.
Through a letter dated March 3, 1999 and received by Petitioner on
March 12, 1999, Respondent informed Petitioner that they cannot give
due course to its request to cancel or set aside the assessment notice
since the case was not elevated to the Court of Tax Appeals as
mandated by the provisions of the last paragraph of Section 228 of the
Tax Reform Act of 1997. This, according to Respondent, rendered the
assessment notice final, executory and demandable.
"Section 228. Protesting of Assessment. - . . .
Such assessment may be protested administratively by filing a request
for reconsideration or reinvestigation within thirty (30) days from
receipt of the assessment in such form and manner as may be
prescribed by implementing rules and regulations. ithin sixty (60)
days from filing of protest, all relevant supporting documents shall
have been submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon
within one hundred eighty (180) days from submission of
documents, the taxpayer adversely affected by the decision or
inaction may appeal to the Court of Tax Appeals within (30)
days from receipt of said decision, or from the lapse of one
hundred eighty (180) day period; otherwise, the decision shall
become final, executory and demandable."
Respondent contends: Petitioner has 60 days from April 20, 1998, the
date it filed a protest against the subject assessment, or until June 19,
1998 within which to submit all relevant documents to support its
protest. Thereafter, the BIR has 180 days from June 19, 1998 or until
December 17, 1998 within which to rule on the protest. Petitioner then
has 30 days from December 17, 1998 or until January 16, 1999 within
which to appeal to the Court of Tax Appeals.
Issue: Whether or not the assessment has become final, executory
and demandable because of the failure of Petitioner to appeal to this
Court within thirty (30) days from the lapse of the one hundred eighty-
day period mentioned in Section 228 of the Tax Reform Act of 1997.
Held: We rule in favor of the Petitioner.
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The wordings of Section 228 of the Tax Code clearly provide that it is
only the decision not appealed by the taxpayer that becomes final,
executory and demandable. As aptly cited by Petitioner, in
Commissioner of Internal Revenue vs. Villa, 22 SCRA 3, the Supreme
Court held:
"The word 'decisions' in paragraph 1, Section 7 of #epublic Act 1125,
quoted above, has been interpreted to mean the decisions of the
Commissioner of Internal #evenue on the protest of the taxpayer
against the assessments. efinitely, said word does not signify the
assessment itself. e quote what this Court said aptly in a previous
case:
".here a taxpayer questions an assessment and asks the Collector
to reconsider or cancel the same because he (the taxpayer) believes
he is not liable therefor, the assessment becomes a 'disputed
assessment' that the Collector must decide, and the taxpayer can
appeal to the Court of Tax Appeals only upon receipt of the decision of
the Collector on the disputed assessment . . .
Note that the law uses the word 'decisions', not 'assessments', thus
further indicating the legislative intention to subject to judicial review
the decision of the Commissioner on the protest against an
assessment but not the assessment itself."
Verily, in cases of inaction, Section 228 of the Tax Code merely gave
the taxpayer an option: first, he may appeal to the Court of Tax
Appeals within thirty (30) days from the lapse of the one hundred
eighty (180) day period provided for under the said section, or second,
he may wait until the Commissioner decides on his protest before he
elevates his case. This Court believes that the taxpayer was given this
option so that in case his protest is not acted upon within the 180-day
period, he may be able to seek immediate relief and need not wait for
an indefinite period of time for the Commissioner to decide. But if he
chooses to wait for a positive action on the part of the Commissioner,
then the same could not result in the assessment becoming final,
executory and demandable.

87. SURIGAO ELECTRIC V. CA (CASTANEDA)

FACTS:

In November 1961 the petitioner Surigao Electric, grantee of a
legislative electric franchise, received a warrant of distraint and levy to
enforce the collection from "Mainit Electric" of a deficiency franchise
tax plus surcharge in the total amount of P718.59. In a letter to the
CIR, the petitioner contested this warrant, stating that it did not have
a franchise in Mainit, Surigao.

Thereafter the Commissioner advised the petitioner to take up the
matter with the General Auditing Office, enclosing a copy of the 4th
Indorsement of the Auditor General which indicated that the
petitioner's liability for deficiency franchise tax for the period from
September 1947 to June 1959 was P21,156.06, excluding surcharge.
Subsequently, in a letter to the Auditor General dated August 2, 1962,
the petitioner asked for reconsideration of the assessment, admitting
liability only for the 2% franchise tax and not the 5% imposed by
section 259 of the National Internal Revenue Code.

A revised assessment dated April 29, 1963 (received by the petitioner
on May 8, 1963) in the amount of P11,533.53, representing the
petitioner's deficiency franchise-tax and surcharges thereon for the
period from April 1, 1956 to June 30, 1959 was issued. The petitioner
then requested a recomputation of the revised assessment in a letter
to the Commissioner dated June 6, 1963 (sent by registered mail on
June 7, 1963). The Commissioner, however, in a letter dated June 28,
1963 (received by the petitioner on July 16, 1963), denied the request
for recomputation.

On August 1, 1963 the petitioner appealed to the CTA. The tax court
dismissed the appeal on October 1, 1965 on the ground that the
appeal was filed beyond the thirty-day period of appeal.

ISSUE:
Whether the petitioner's appeal to the Court of Tax Appeals was barred
by prescription.
(which letter of the Commissioner embodies the decision or ruling
appealable to the tax court)

HELD/RATIO:

NO. The letter of demand issued by the Commissioner on April 29,
1963 and received by the petitioner on May 8, 1963 constitutes the
definite determination of the petitioner's deficiency franchise tax
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liability or the decision on the disputed assessment and, therefore, the
decision appealable to the tax court. This letter of April 29, 1963 was
in response to the communications of the petitioner, particularly the
letter of August 2, 1962 wherein it assailed the 4th Indorsement's data
and findings on its deficiency, franchise tax liability computed at 5%
and the letter of April 24, 1963 wherein he requested for a
recomputation.

Thus, as early as August 2, 1962, the petitioner already disputed the
assessment made by the Commissioner.

Moreover, the letter of demand dated April 29, 1963 unquestionably
constitutes the final action taken by the Commissioner on the
petitioner's several requests for reconsideration and recomputation.
The tenor of the letter, specifically, the statement regarding the resort
to legal remedies, unmistakably indicates the final nature of the
determination made by the Commissioner of the petitioner's deficiency
franchise tax liability.

Thus, this Court has considered the following communications sent
by the Commissioner to taxpayers as embodying rulings
appealable to the tax court:

(a) a letter which stated the result of the investigation
requested by the taxpayer and the consequent modification of
the assessment;

(b) letter which denied the request of the taxpayer for
the reconsideration cancellation, or withdrawal of the original
assessment;

(c) a letter which contained a demand on the taxpayer for
the payment of the revised or reduced assessment;

and

(d) a letter which notified the taxpayer of a revision of
previous assessments

The thirty-day period prescribed by section 11 of Republic Act
1125, as amended, within which a taxpayer adversely affected by a
decision of the Commissioner of Internal Revenue should file his
appeal with the tax court, is a jurisdictional requirement,

and the
failure of a taxpayer to lodge his appeal within the prescribed period
bars his appeal and renders the questioned decision final and
executory.

88. CIR V. VILLA (IBARRA)

DOCTRINE:

FACTS: Leonardo S. Villa, a doctor of medicine, and his wife filed joint
income tax returns Subsequently, the Bureau of Internal Revenue
determined the income of the Villa spouses by the use of networth
method and accordingly issued assessments for deficiency income tax
and residence tax. Dr. Villa received the assessments. ithout
contesting the said assessments in the Bureau of Internal #evenue, he
filed on May 4, 1961 a petition for review in the Court of Tax Appeals.

The CTA decided to reverse the decision of the BIR and exonerated Dr.
Villa from paying deficiency income tax but holding him liable for his
deficiency residence tax only. The CIR appealed to the Supreme Court.

ISSUES: Whether the CTA had jurisdiction?

HELD: NO. The law conferring jurisdiction on the Court of Tax Appeals
is found in Section 7 of Republic Act 1125, the pertinent part of which
states:
Sec. 7. Jurisdiction. - The Court of Tax Appeals shall exercise
exclusive appellate jurisdiction to review by appeal as herein provided
-
(1) ecisions of the Collector of Internal Revenue in
cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, or other
matters arising under the National Internal
Revenue Code or other law or part of law
administered by the Bureau of Internal Revenue;
The word "decisions" in paragraph 1, Section 7 of Republic Act 1125,
quoted above, has been interpreted to mean the decisions of the
Commissioner of Internal Revenue on the protest of the taxpayer
against the assessments. Definitely, said word does not signify the
assessment itself.

Where a taxpayer questions an assessment and asks the Collector to
reconsider or cancel the same because he (the taxpayer) believes he is
not liable therefor, the assessment becomes a "disputed assessment"
that the Collector must decide, and the taxpayer can appeal to the
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Court of Tax Appeals only upon receipt of the decision of the Collector
on the disputed assessment.
Since in the instant case the taxpayer appealed the assessment of the
Commissioner of Internal Revenue without previously contesting the
same, the appeal was premature and the Court of Tax Appeals had no
jurisdiction to entertain said appeal.

89. ADVERTISING V. CIR (same as first batch, see CHAN)

90. DAYRIT V. CRUZ (ANTONIO)

Facts:
Petitioners are the children of the deceased Spouses Teodoro.
Thereafter, the heirs filed separate estate and inheritance tax returns
for the estates of the late spouses with the BIR. In 1972, the CIR
issued the deficiency estate and inheritance tax assessments. The
notice of deficiency assessments was received by Dayrit and she
thereafter asked for a reconsideration of the said assessments alleging
that the same are contrary to law and not supported by sufficient
evidence.

CIR filed a motion for Allowance of Claim against the estates of
spouses Teodoro and for an order of payment of taxes with the CFI
praying that petitioner Dayrit be ordered to pay the BIR the sum of
6M. Petitioners filed 2 separate oppositions alleging that the
assessments have not become final and executory.

Respondent Judge issued an order approving the claim of respondent
Commissioner and directing the payment of the estate and inheritance
taxes. Dissatisfied, petitioners filed an MR, denied. Hence this petition.

Petitioners contend that CFI Judge acted with GADLEJ in granting the
Commissioner's claim for estate and inheritance taxes against the
estates of the Teodoro spouses on the ground that due to the
pendency of their motion for reconsideration of the deficiency
assessments, said tax assessments are not yet final and executory.
Petitioners stressed that the absence of a decision on the disputed
assessments was a bar against collection of taxes.

Issue: 1) W/N BIR can claim the deficiency taxes despite pendency of
MR.
2) W/N CFI has jurisdiction to grant the claim for estate and
inheritance taxes.

Held: 1) Yes. Anent petitioners' claim that the tax assessments
against the estates are not yet final, the court finds the claim
untenable. In petitioners' MR, they requested the Commissioner for
thirty (30) days within which to submit a position paper that would
embody their grounds for reconsideration. However, no position paper
was ever filed.

Such failure to file a position paper may be construed
as abandonment of the petitioners' request for reconsideration.

Petitioners' contention that the absence of a decision on their request
for reconsideration of the assessments is a bar to granting the claim
for collection is likewise without merit. This Court had occasion to rule
that a decision on a request for reinvestigation is not a condition
precedent to the filing of an action for collection of taxes already
assessed. This Court ruled that "nowhere in the Tax Code is the
Collector of Internal Revenue required to rule first on a taxpayer's
request for reconsideration before he can go to court for the purpose
of collecting the tax assessed.

From the date of receipt of the copy of the Commissioner's letter for
collection, petitioners must contest or dispute the same and, upon a
denial thereof, the petitioners have a period of thirty (30) days within
which to appeal the case to the Court of Tax Appeals.

This they failed
to avail of.

2) Yes. The petitioners' allegation that the CFI lacks jurisdiction over
the subject of the case is likewise untenable. The assessments having
become final and executory, the CFI properly acquired jurisdiction.

Neither is there merit in petitioners' claim that the exclusive
jurisdiction of the CTA applies in the case. The aforesaid exclusive
jurisdiction of the CTA arises only in cases of disputed tax
assessments. As noted earlier, petitioners' letter asking for
reconsideration of the questioned assessments cannot be considered
as one disputing the assessments because petitioners failed to
substantiate their claim that the deficiency assessments are contrary
to law. Petitioners asked for a period of thirty (30) days within which
to submit their position paper but they failed to submit the same
nonetheless. Hence, petitioners' letter for a reconsideration of the
assessments is nothing but a mere scrap of paper.

91. CIR V. CONCEPCION (MENDAME)

Facts: Respondent Jose Concepcion, administrator of the estate of
Mary H. Mitchell-Roberts, and respondent Jack F. Mitchell-Roberts,
husband of the deceased sought a refund representing estate and
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inheritance taxes on 50 shares of stock of Edward J. Nell Company
issued in the names of both spouses "as joint tenants with full rights of
survivorship and not as tenants in common." The above assessment
was made by petitioner Commissioner of Internal Revenue on the
ground that there was a transmission to the husband of one-half share
thereof upon the death of the wife, the above shares being conjugal
property. Respondents maintained on the other hand that there was
no transmission of property since under English law, ownership of all
property acquired during the marriage vests in the husband. Moreover,
the shares of stock were issued to the spouses "as joint tenants with
full rights of survivorship and not as tenants in common." Not being
agreeable to the theory entertained by petitioner Commissioner of
Internal Revenue, respondents, in a previous case, CTA Case No. 168,
appealed such a decision under Republic Act No. 1125. The Court of
Tax Appeals, however, dismissed such an appeal as the petition for
review because it was filed beyond the reglementary period of 30
days. That decision rendered on April 29, 1957, became final. So they
paid the sums in issue at the same time filing for a refund.

Petitioners cited the Reciprocity provision of Section 122 of the Tax
Code. Petitioner Commissioner of Internal Revenue, before the Court
of Tax Appeals, raised as one of its defenses the fact that respondents
were "estopped from denying the legality and correctness of the
assessment for estate and inheritance taxes in view of the fact that
they paid the same in pursuance of a decision of the Commissioner
which has become final, executory and demandable. It was the view of
the Court of Tax Appeals that with no procedural obstacle to stand in
the way and with the spouses, both non-resident English subjects,
being married in England, their property relation thus being governed
by English law, the national law of the husband, by virtue of which
there was no transmission of property from wife to husband, governs,
with the result that no tax was demandable. Petitioner Commissioner
of Internal Revenue was ordered to refund the inheritance and estate
taxes paid in the amount of P3,797.43.

Issue: Whether a Conception can still sue for recovery due to the
illegality of an assessment based on a CTA decision that has become
final and executory despite filing the appeal beyond the reglementary
period (30 days) for filing appeals with the CTA
Held/Ratio: No. CTA decision reversed! The taxpayer's failure to
appeal to the Court of Tax Appeal in due time made the assessment in
question final, executory and demandable. And when the action was
instituted beyond the 30 day period to enforce the deficiency
assessment in question, it was already barred from disputing the
correctness the assessment or invoking any defense that would reopen
the question of his tax liability on the merits. Otherwise, the period of
thirty days for appeal to the Court of Tax Appeals would make little
sense." Once, the matter has reached the stage of finality in view of
the failure to appeal, it logically follows, in the appropriate language of
Justice Makalintal, in Morales v. Collector of Internal #evenue, that it
"could no longer be reopened through the expedient of an appeal from
the denial of petitioner's request for cancellation of the warrant of
distraint and levy."
In other words, if you fail to appeal within the 30 day reglementary
period for appealing according to CTA rules, you forfeit the right to
question the legality of such decision since it has become final and
executory.
92. NASAID V. CTA (CALDERON)

Doctrine: CTAs finding of facts is entitled to respect. In the absence
of a showing of an abuse or improvident exercise of the authority of
the CTA, the facts as determined by it must be accorded deference.

Facts
M/V Jolo Lema had been under strict surveillance by agents of the NBI,
PC, RASAC and Davao City Police even prior to its apprehension in
Davao. During the period of Aug-Sept 1966 said, vessel was in
Indonesian waters, carrying merchandise from the Philippines to be
bartered for sacks of copra and coffee. Upon its return to Davao City,
said vessel was apprehended and the sacks of copra and coffee,
seized.

Petitioners claimed that such sacks of copra and coffee were
purchased in Cotabato and inasmuch as the said goods were not
imported, they were not legally subject to seizure and forfeiture. They
contended that forfeiture made by the Collector of Customs was invalid
because such forfeiture was based on documents and papers illegally
seized from the hotel room of the vessels charterer, a certain Tomas
Velasco. On the other hand, the Collector contended that the
Indonesian documents and papers seized were legally secured by them
hence said documents and papers were admissible in evidence in the
forfeiture proceedings instituted with respect to the sacks of copra and
coffee.

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On appeal, CTA appraised the evidence and testimonies of the
witnesses of both parties and found that evidence did not show any
motive on the part of the Collectors witnesses to falsify the truth
because they represented different agencies of the government and
that such witnesses had no personal interest over the copra and coffee
seized. Moreover, CTA found that petitioners failed to refute the vital
testimony of Fiscal Umali of the DOJ that the various Indonesian
documents duly authenticated by the Indonesian consulate, showed
that M/V Jolo Lema was in Indonesia during the period of Aug-Sept
1966. CTA, on the basis of its findings, affirmed the forfeiture made by
the Collector.

Issue
Whether the CTA erred in taking into consideration the evidence
yielded by [what petitioners alleged to be] illegal searches and
seizures.

Held
The CTA was correct in affirming the forfeiture made by the Collector
of Customs.

Its finding of facts is entitled to respect. It has been the constant
holding of the Supreme Court in various cases that in the absence of a
showing of an abuse or improvident exercise of the authority of the
CTA, the facts as determined by it must be accorded deference. They
are well-nigh conclusive.

It is one thing to assure that constitutional rights remain inviolate. But
it is an entirely different matter, one devoid of justification in law, no
less than in morals, one moreover at war with the valid state policy
against the evils of smuggling, if a constitutional right, personal in
character, could be seized upon by a third party engaged in an illegal
activity. That would be to demean a constitutional mandate. There was
no other conclusion except that the copra and coffee were smuggled.
The decree of forfeiture was correctly sustained by the CTA.

93. DBP V. CA (PAGKALINAWAN)

Doctrine: CA now has exclusive appellate jurisdiction over final
judgments of the CTA pursuant to BP # 129.
Facts:
DBP imported IBM computer equipment from the U.S. and paid
compensating taxes & import fees to the Bureau of Customs in the
aggregate sum of P5.5 M. Later, DBP asked for a refund invoking E.O.
No. 1087. The customs commissioner refused to grant this and said
that the customs duties, taxes and fees were correctly imposed and
collected. DBP appealed to the CTA and the CTA ruled in DBPs favor,
ordering the customs commissioner to refund the P5.5 M. customs
commissioner appealed to the SC by Certiorari. The SC referred the
case to the CA reasoning that such cases emanating from the
CTA now fall within the exclusive jurisdiction of the CA under
Sec.9 of BP 129. The CA annulled and set aside the ruling of the CTA,
& held that CTA was without jurisdiction to decide the controversy
between DBP and the Commissioner of Customs. The CTA relied on RA
1125 for its actions but the CA held that this RA had already been
superseded by a latter statute, PD 242, and that the controversy
should have been decided in accordance with the mode of settlement
and adjudication set forth in the said law. Its a settled rule of
statutory construction that where there is irreconcilable repugnancy
between two statutes anent the same subject matter, the one of late
enactment, being the latest expression of the legislative will, should
prevail over the other which is of earlier enactment. DBP filed an
action for certiorari after it Motion for reconsideration was denied.

Issue: w/n CA now has exclusive appellate jurisdiction over the CTA
and other quasi -judicial agencies, oards and commissions?

Held: Yes. DBPs petition denied, CAs decision affirmed.

Its true that originally, appeals from the CTA could be taken to the SC,
as per RA 1125. Before there were 2 ways of elevating the case to the
SC: 1) by filing in the Court a quo a notice of appeal and with the SC a
petition for review, and 2) by casuing a ruling, order r decision of the
CTA likewise reviewed by the SC upon a writ of certiorari in proper
cases. But this is no longer controlling.

In view of the comprehensive provisions of BP#129 granting to the CA
"exclusive appellate jurisdiction over all final judgments, decisions,
resolutions, orders or awards of RTC and quasi-judicial agencies,
instrumentalities, boards or commissions, except those falling within
the appellate jurisdiction of the SC in accordance with the Constitution,
the provisions of this Act, and of the Judiciary Act of 1948. DBP argues
the fact that the CTA is not among the agencies reorganized by said
BP 129 is of no moment. What is essential, and indisputable, is that
the law did not deal only with "Changes in the rules on procedures;"
and that not only was the CA reorganized, but its jurisdiction and
powers were also broadened by Section 9 of the Batas. Its original
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jurisdiction to issue writs of mandamus, prohibition, certiorari and
habeas corpus, which could be exercised only in aid of its appellate
jurisdiction, was expanded by (1) extending it so as to include the
writ of quo warranto, and also (2) empowering it to issue all said
extraordinary writs "whether or not in aid of its appellate jurisdiction. "
Its appellate jurisdiction was also extended to cover not only
final judgments of RTC's, but also "all final judgments,
decisions, resolutions, orders or awards of ... quasi-judicial
agencies, istrumentalities, boards or commmissions, except
those falling within the appellate jurisdiction of the Supreme
Court in accordance with the Constitution, the provisions of this
Act, and of sub-paragraph (1) of the third paragraph and
subparagraph (4) of the fourth paragraph of Section 17 of the
Judiciary Act of 1948.
The intention to expand the original and appellate jurisdiction of the
CA over quasi-judicial agencies, instrumentalities, boards, or
commissions, is further stressed by the last paragraph of Section 9
which excludes from its provisions, only the "decisions and
interlocutory orders issued under the Labor Code of the Philippines and
by the Central Board of Assessment Appeals.

Since final judgments or decrees of the CTA are now within the
exclusive appellate jurisdiction of the CA, and since appeals by
certiorari may properly be taken only to this Court, it follows that the
mode of appeal from the CTA to the CA should be by notice of appeal
cum petition for review, consistently with mode of appeal from other
quasi-judicial bodies and agencies prescribed by RA 5434 and that
formerly provided for by RA 1125. Appeals to the CA from quasi-
judicial bodies shall continue to be governed by the provisions of RA
5434 insofar as the same is not inconsistent with the provisions of BP
# 129.

94. LIM V. CA & PEOPLE (LOVERIA)

The five-year prescriptive period under Sec. 354 [now Sec. 281] of the
Tax Code should be reckoned from the date the final notice and
demand was served on the taxpayer. In addition to the fact of
discovery, there must be a judicial proceeding for the investigation and
punishment of the tax offense before the five-year limiting period
begins to run.

FACTS: Petitioner-spouses Emilio Lim, Sr. and Antonia Sun Lim were
engaged in the dealership of various household appliances. They filed
income tax returns for 1958 and 1959. On October 5, 1959 the NBI
and BIR raided the petitioners business address in Manila and their
premises in Quezon City. Business and accounting records were
seized. On September 30, 1964, Senior Revenue Examiner Raphael
Daet submitted a memorandum stating that the income tax returns
filed by petitioners for 1958 and 1959 were "false or fraudulent. The
then Acting Commissioner of the BIR informed petitioners that they
had deficiency income taxes amounting to P922,913.04. Emilio Lim
requested a reinvestigation. The BIR replied that it was willing to grant
the request provided that within ten days from notice, Lim would
accomplish a waiver of defense of prescription under the Statute of
Limitations and that half of the deficiency income tax would be
deposited with the BIR and the other half secured by a surety bond.
Emilio refused. Then on January 31, 1967, the BIR Commissioner
informed petitioners that their deficiency income tax liabilities for 1958
and 1959 had been assessed at P934,000.54 including interest and
compromise penalty for late payment. Petitioners protested the latest
assessment and repeated their request for reinvestigation. On October
10, 1967, the BIR rendered a final decision upholding its assessment
and requiring petitioners to pay P1,237,190.55 inclusive of interest,
surcharges and compromise penalty for late payment. The final notice
and demand for payment was served on petitioners through their
daughter-in-law on July 3, 1968. Petitioners did not pay. So on
September 1, 1969, the BIR referred the matter to the Manila Fiscals
Office for investigation and prosecution. Four criminal informations
were filed against petitioners before the CFI of Manila. Both the CFI
and CA found petitioners guilty. After Emilio Lim, Sr. died, petitioners
filed an MR with the CA. The CA resolved that Emilios criminal liability
had been extinguished but his heirs should substitute him for the civil
aspect. Petitioners then went to SC on a petition for review by
certiorari.

ISSUE: When should the five-year period, stated in Sec. 354 (now
Sec. 281) of the tax code, commence?

HELD: Relative to Criminal Cases Nos. 1788 and 1789, petitioners
maintain that the five-year period of limitation under Sec. 354 should
be reckoned from April 7, 1965, the date of the original assessment
while the Government insists that it should be counted from July 3,
1968 when the final notice and demand was served on the petitioners
daughter-in-law. Inasmuch as the final notice and demand for
payment of the deficiency taxes was served on petitioners on July 3,
1968, it was only then that the cause of action on the part of the BIR
accrued. This is so because prior to the receipt of the letter-
assessment, no violation had yet been committed by the taxpayers.
The offense was committed only after receipt was coupled with the
wilful refusal to pay the taxes due within the allotted period. The two
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9f
criminal informations, having been filed on June 23, 1970, are well-
within the five-year prescriptive period.

With regard to Criminal Cases Nos. 1790 and 1791 which dealt with
petitioners filing of fraudulent consolidated income tax returns with
intent to evade the assessment decreed by law, petitioners contend
that the said crimes have likewise prescribed. They hold that the five-
year period should be counted from the date of discovery of the
alleged fraud which, at the latest, should have been October 15, 1964,
the date stated by the Appellate Court in its resolution of April 4, 1978
as the date the fraudulent nature of the returns was known. The SC
took the Solicitor Generals view that Sec. 354 requires not only
discovery of the fraud but also institution of judicial proceedings. This
is because of the conjunctive word "and between the phrases "the
discovery thereof and "the institution of judicial proceedings for its
investigation and proceedings. The final decision of the BIR was not
enough to start the prescriptive period until it had indorsed to the
Fiscals Office, on September 1, 1969, the criminal cases against the
petitioners.

"As sec. 354 stands in the statute book... it would indeed seem that
tax cases, such as the present ones, are practically imprescriptible for
as long as the period from the discovery and institution of judicial
proceedings for its investigation and punishment, up to the filing of the
information in court does not exceed five years.

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