tax 2 case digests part 1 remedies under the nirc of atty. lock's syllabus complete

Taxation II Case Digests based on Atty. Bobby Locks Course Outline Part I: REMEDIES UNDER THE NIRC

1 | M s . N o l a i d a A g u i r r e

ASSESSMENT OF INTERNAL REVENUE TAXES

A. DEFINITION/NATURE/EFFECT/BASIS

Commissioner of Internal Revenue vs. Sony Philippines, Inc., 635 SCRA 234, G.R. No. 178697.

November 17, 2010

Mendoza, J.

Facts:

On November 24, 1998, the CIR issued Letter of Authority No. 000019734 (LOA 19734) authorizing

certain revenue officers to examine Sonys books of accounts and other accounting records regarding

revenue taxes for the period 1997 and unverified prior years.

After the examination of said books, the CIR found out, among others, that Sony Philippines is liable for

deficiency taxes and penalties for value added tax amounting to P11,141,014.41.

Sony Philippines contested such finding as it argued that the basis used by the CIR to assess said deficiency

were the records covering the period of January 1998 through March 1998 which was a period not covered

by the letter of authority so issued. The CIR countered that the LOA phrase the period 1997 and

unverified prior years should be understood to mean the fiscal year ending on March 31, 1998.

Eventually the case reached the Court of Tax Appeals and the CTA decided agreed with Sony Philippines

on this one. So did the CTA en banc.

Issue:

Whether or not the deficiency assessments against Sony Philippines is valid?

Held:

No. The LOA issued is clear on which period is covered by the examination to be conducted. Its only

meant to cover the year 1997 and unverified prior years not the year 1998. The revenue officers who

examined the records covering the period of January to March 1998 had exceeded the jurisdiction granted

to them by the LOA.

Further, the LOA which covered 1997 and unverified prior years is in violation of the principle

that a Letter of Authority should cover a taxable period not exceeding one taxable year. If the audit of a

taxpayer shall include more than one taxable period, the other periods or years shall be specifically

indicated in the LOA (as embodied in Section C of Revenue Memorandum Order No. 43-90 dated

September 20, 1990).

CASE SYLLABI:

Taxation; Assessment; Letter of Authority (LOA); A Letter of Authority or (LOA) is the authority given

to the appropriate revenue officer assigned to perform assessment functions.Based on Section 13 of



the Tax Code, a Letter of Authority or LOA is the authority given to the appropriate revenue officer

assigned to perform assessment functions. It empowers or enables said revenue officer to examine the

books of account and other accounting records of a taxpayer for the purpose of collecting the correct

amount of tax. The very provision of the Tax Code that the CIR relies on is unequivocal with regard to its

power to grant authority to examine and assess a taxpayer.

Same; Same; Same; In the absence of such an authority, the assessment or examination is a nullity.

There must be a grant of authority before any revenue officer can conduct an examination or assessment.

Equally important is that the revenue officer so authorized must not go beyond the authority given. In the

absence of such an authority, the assessment or examination is a nullity.

Commissioner of Internal Revenue vs. Pascor Realty and Development Corporation, 309 SCRA

402, G.R. No. 128315. June 29, 1999

Panganiban, J.

Facts:

Pascor Realty and Development Corporation (PRDC) was found out to be liable for a total of P10.5 million

tax deficiency for the years 1986 and 1987. In March 1995, the Commissioner of Internal Revenue (CIR)

filed a criminal complaint against PRDC with the Department of Justice. Attached to the criminal

complaint was a joint affidavit executed by the tax examiners.

PRDC then filed a protest with the Court of Tax Appeals (CTA). PRDC averred that the affidavit attached

to the criminal complaint is tantamount to a formal assessment notice (FAN) hence can be subjected to

protest; that there is a simultaneous assessment and filing of criminal case; that the same is contrary to due

process because it is its theory that an assessment should come first before a criminal case of tax evasion

should be filed. The CIR then filed a motion to dismiss (MTD) on the ground that the CTA has no

jurisdiction over the case because the CIR has not yet issued a FAN against PRDC; that the affidavit

attached to the complaint is not a FAN; that since there is no FAN, there cannot be a valid subject of a

protest.

The CTA however denied the MTD. It ruled that the joint affidavit attached to the complaint submitted to

the DOJ constitutes an assessment; that an assessment is defined as simply the statement of the details and

the amount of tax due from a taxpayer; that therefore, the joint affidavit which contains a computation of

the tax liability of PRDC is in effect an assessment which can be the subject of a protest. This ruling was

affirmed by the Court of Appeals.

Issues:

(1) Whether or not the criminal complaint for tax evasion can be construed as an assessment.

(2) Whether or not an assessment is necessary before criminal charges for tax evasion may be instituted.

Held:

No. An assessment contains not only a computation of tax liabilities, but also a demand for payment within

a prescribed period. It also signals the time when penalties and protests begin to accrue against the taxpayer.

To enable the taxpayer to determine his remedies thereon, due process requires that it must be served on



and received by the taxpayer. Accordingly, an affidavit, which was executed by revenue officers stating the

tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an

assessment that can be questioned before the CTA. Further, such affidavit was not issued to the taxpayer, it

was submitted as an attachment to the DOJ. It must also be noted that not every document coming from the

Bureau of Internal Revenue which provides a computation of the tax liability of a taxpayer can be

considered as an assessment. An assessment is deemed made only when the CIR releases, mails or sends

such notice to the taxpayer.

Anent the issue of the filing of the criminal complaint, Section 222 of the National Internal Revenue Code

specifically states that in cases where a false or fraudulent return is submitted or in cases of failure to file a

return such as this case, proceedings in court may be commenced without an assessment. Furthermore,

Section 205 of the NIRC clearly mandates that the civil and criminal aspects of the case may be pursued

simultaneously.

CASE SYLLABI:

Courts; Taxation; National Internal Revenue Code; Section 203 of the NIRC provides that internal

revenue taxes must be assessed within three years from the last day within which to file the return.The

issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and

the period within which to protest it. Section 203 of the NIRC provides that internal revenue taxes must be

assessed within three years from the last day within which to file the return. Section 222, on the other hand,

specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of

failure to file a return. Also, Section 228 of the same law states that said assessment may be protested only

within thirty days from receipt thereof. Necessarily, the taxpayer must be certain that a specific document

constitutes an assessment. Otherwise, confusion would arise regarding the period within which to make an

assessment or to protest the same, or whether interest and penalty may accrue thereon.

Same; Same; Same; Assessment is deemed made only when the collector of internal revenue releases,

mails or sends such notice to the taxpayer.It should also be stressed that the said document is a notice

duly sent to the taxpayer. Indeed, an assessment is deemed made only when the collector of internal

revenue releases, mails or sends such notice to the taxpayer. In the present case, the revenue officers

Affidavit merely contained a computation of respondents tax liability. It did not state a demand or a period

for payment. Worse, it was addressed to the justice secretary, not to the taxpayers.

Same; Same; Same; Section 222 of the NIRC specifically states that in cases of failure to file a return,

proceedings in court may be commenced without an assessment.Private respondents maintain that the

filing of a criminal complaint must be preceded by an assessment. This is incorrect, because Section 222 of

the NIRC specifically states that in cases where a false or fraudulent return is submitted or in cases of

failure to file a return such as this case, proceedings in court may be commenced without an assessment.

Furthermore, Section 205 of the same Code clearly mandates that the civil and criminal aspects of the case

may be pursued simultaneously. In Ungab v. Cusi, petitioner therein sought the dismissal of the criminal

Complaints for being premature, since his protest to the CTA had not yet been resolved. The Court held

that such protests could not stop or suspend the criminal action which was independent of the resolution of

the protest in the CTA. This was because the commissioner of internal revenue had, in such tax evasion



cases, discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do

both.

Same; Same; Same; Section 222 states that an assessment is not necessary before a criminal charge can

be filed.Private respondents insist that Section 222 should be read in relation to Section 255 of the NIRC,

which penalizes failure to file a return. They add that a tax assessment should precede a criminal

indictment. We disagree. To reiterate, said Section 222 states that an assessment is not necessary before a

criminal charge can be filed. This is the general rule. Private respondents failed to show that they are

entitled to an exception. Moreover, the criminal charge need only be supported by a prima facie showing of

failure to file a required return. This fact need not be proven by an assessment.

Same; Same; Same; A criminal complaint is instituted not to demand payment, but to penalize the

taxpayer for violation of the Tax Code.The issuance of an assessment must be distinguished from the

filing of a complaint. Before an assessment is issued, there is, by practice, a pre-assessment notice sent to

the taxpayer. The taxpayer is then given a chance to submit position papers and documents to prove that the

assessment is unwarranted. If the commissioner is unsatisfied, an assessment signed by him or her is then

sent to the taxpayer informing the latter specifically and clearly that an assessment has been made against

him or her. In contrast, the criminal charge need not go through all these. The criminal charge is filed

directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed against him,

not that the commissioner has issued an assessment. It must be stressed that a criminal complaint is

instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.

Sy Po vs. Court of Tax Appeals, 164 SCRA 524, No. L-81446. August 18, 1988

Sarmeinto, J.

Facts:

Po Bien Sing was the sole proprietor of Silver Cup Wine Factory engaged in the manufacture and sale of

compounded liquors. On the basis of a denunciation against Silver Cup allegedly for tax evasion

amounting to millions of pesos, an investigation was conducted by the BIR. A subpoena duces tecum was

issued against Silver Cup requesting the production of accounting records and other related documents. Po

Bien Sing did not produce the said documents so the BIR investigation team entered the factory and seized

the different brands of alcohol products inside. On the basis of the investigation teams report, Silver Cup

was assessed deficiency income tax of P5,596,003.68 which Po Bien Sing protested. However, since he

still did not present the documents requested, the assessment remained. BIR then issued warrants of

distraint and levy. In short, the protests were denied so Po Bien Sing (represented by his wife because he

was already dead) brought the case to the Supreme Court.

Issue:

Whether or not the assessment is valid and has legal basis.

Held:

Yes. The Supreme Court ruled that the assessment was valid. One of the powers of the Commissioner of

Internal Revenue under the NIRC is to make an assessment with the available information in case the

taxpayer makes a fraudulent return or does not make a return at all. This basically speaks of the principle



of best evidence obtainable. In this case, the failure of Po Bien Sing to produce the required documents

left the Commissioner with no choice but to exercise the said power. The assessment was not arbitrary as

alleged by So Bien Sing because it was based on the number bottles of wines seized during the raid and

sworn statements of the employees.

Tax assessments by tax examiners are presumed correct and made in good faith. The burden to prove

otherwise is on the taxpayer. In the absence of proof of any irregularities in the performance of duties, an

assessment duly made by a BIR examiner and approved by his superior officers will not be disturbed. All

presumptions are in favor of the correctness of the tax.

Furthermore, the taxpayer should not only prove that the tax assessment is wrong. He must also prove

what is the correct and just liability by a full and fair disclosure of all pertinent data in is possession.

Otherwise, the tax court proceedings would settle nothing and the whole process may be repeated again if

the taxpayer does not like the subsequent assessment.

CASE SYLLABI:

Same; Same; Rule on the best evidence obtainable, when applicable.The law is specific and clear.

The rule on the best evidence obtainable applies when a tax report required by law for the purpose of

assessment is not available or when the tax report is incomplete or fraudulent.

Same; Same; The failure of the taxpayers to present their books of accounts for examination for taxable

years compelled the Commissioner of Internal Revenue to resort to the power conferred on him under

the Tax Code.In the instant case, the persistent failure of the late Po Bien Sing and the herein petitioner

to present their books of accounts for examination for the taxable years involved left the Commissioner of

Internal Revenue no other legal option except to resort to the power conferred upon him under Section 16

of the Tax Code.

Same; Same; Tax assessments; Presumption in favor of the correctness of tax assessments.Tax

assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to

prove otherwise. In the absence of proof of any irregularities in the performance of duties, an assessment

duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be

disturbed. All presumptions are in favor of the correctness of tax assessments.

Same; Same; Same; Fraudulent acts attributed to the taxpayer had not been satisfactorily rebutted.On

the whole, we find that the fraudulent acts detailed in the decision under review had not been satisfactorily

rebutted by the petitioner. There are indeed clear indications on the part of the taxpayer to deprive the

Goverment of the taxes due.

Fitness by Design, Inc. vs. Commissioner of Internal Revenue, 569 SCRA 788, G.R. No. 177982.

October 17, 2008

Carpio-Morales, J.

Facts:

Commissioner on Internal Revenue (respondent) assessed Fitness by Design, Inc. (petitioner) for

deficiency income taxes for the tax year 1995. Petitioner protested and filed a Petition for Review with



Motion to Suspend Collection of Income Tax, before the Court of Tax Appeals and raised prescription as a

defense. A preliminary hearing on the issue of prescription was conducted during which petitioners former

bookkeeper attested that certified public accountant Leonardo Sablan illegally took custody of

petitioners accounting records, invoices, and official receipts and turned them over to the BIR.

Petitioner requested for the issuance of subpoena ad testificandum to Sablan for the hearing and of

subpoena duces tecum to the BIR for the production of the Affidavit of the Informer bearing on the

assessment in question. In addition, petitioner submitted written interrogatories addressed to Sablan. The

CTA denied petitioners motion for Issuance of Subpoenas and disallowed the submission by petitioner of

written interrogatories to Sablan. The CTA found that to require Sablan to testify would violate Section 2

of Republic Act No. 2338, as implemented by Section 12 of Finance Department Order No. 46-66,

proscribing the revelation of identities of informers of violations of internal revenue laws, except when the

information is proven to be malicious or false. Petitioner filed a rule 65.

Issue:

Whether or not the of petitioners accounting records, invoices, and official receipts were obtained by the

BIR illegally?

Held:

No. Petitioner impugns the manner in which the documents in question reached the BIR, Sablan having

allegedly submitted them to the BIR without its (petitioners) consent. Petitioners lack of consent does not,

however, imply that the BIR obtained them illegally or that the information received is false or malicious.

Nor does the lack of consent preclude the BIR from assessing deficiency taxes on petitioner based on the

documents.

The law thus allows the BIR access to all relevant or material records and data in the person of the taxpayer,

and the BIR can accept documents which cannot be admitted in a judicial proceeding where the Rules of

Court are strictly observed.33 To require the consent of the taxpayer would defeat the intent of the law to

help the BIR assess and collect the correct amount of taxes.

Petitioners invocation of the rights of an accused in a criminal prosecution to cross examine the witness

against him and to have compulsory process issued to secure the attendance of witnesses and the

production of other evidence in his behalf does not lie. CTA Case No. 7160 is not a criminal prosecution,

and even granting that it is related to I.S. No. 2005-203, the respondents in the latter proceeding are the

officers and accountant of petitioner-corporation, not petitioner. From the complaint and supporting

affidavits in I.S. No. 2005-203, Sablan does not even appear to be a witness against the respondents therein.

CASE SYLLABI:

Taxation; In ascertaining the correctness of any return, or in making a return when none has been

made, or in determining the liability of any person for any internal revenue tax, or in collecting any

such liability, or in evaluating tax compliance, the Commissioner is authorized.Petitioner impugns the

manner in which the documents in question reached the BIR, Sablan having allegedly submitted them to

the BIR without its (petitioners) consent. Petitioners lack of consent does not, however, imply that the

BIR obtained them illegally or that the information received is false or malicious. Nor does the lack of



consent preclude the BIR from assessing deficiency taxes on petitioner based on the documents. Thus

Section 5 of the Tax Code provides: In ascertaining the correctness of any return, or in making a return

when none has been made, or in determining the liability of any person for any internal revenue tax, or in

collecting any such liability, or in evaluating tax compliance, the Commissioner is authorized.

Same; The law thus allows the Bureau of Internal Revenue (BIR) access to all relevant or material

records and data in the person of the taxpayer, and the Bureau of Internal Revenue (BIR) can accept

documents which cannot be admitted in a judicial proceeding where the Rules of Court are strictly

observed.The law thus allows the BIR access to all relevant or material records and data in the person of

the taxpayer, and the BIR can accept documents which cannot be admitted in a judicial proceeding where

the Rules of Court are strictly observed. To require the consent of the taxpayer would defeat the intent of

the law to help the BIR assess and collect the correct amount of taxes.

B. PERIOD TO ASSESS DEFICIENCY TAX

Republic of the Phils. vs. Ablaza, 108 Phil. 1105, No. L-14519 July 26, 1960

Labrador, J.

Facts:

The Collector of Internal Revenue assessed income taxes for the years 1945, 1946, 1947 and 1948 on the

income tax returns of defendant-appellee to a total P5,254.70.Respondent requested a reinvestigation of tax

liability which was granted by the Collector of Internal Revenue. Final assessment was fixed at P2,066.56.

Respondent protested the assessment contending 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 for the recovery of the amount assessed. The Court of First Instance upheld the

contention of Ablaza that the action to collect the said income taxes had prescribed. Thus this appeal.

Issue:

Whether or not the letter in question (Exhibit L) is a letter asking for another investigation that would

warrant the suspension of the prescriptive period.

Held:

Judgment of the lower court dismissing the action is affirmed. 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 liberally in a way conducive to

bringing about the beneficial purpose of affording protection to the taxpayers



CASE SYLLABI:

INCOME TAX, COLLECTION, LIMITATION OF ACTIONS, PURPOSE; BENEFICIAL BOTH TO

GOVERNMENT AND CITIZENS.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 properly in the making' of assessments 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 a 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.

ID.; ID.; ID.; REMEDIAL MEASURE; INTERPRETATION.The law of prescription being a remedial

measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording

protection to the taxpayer within the contemplation of the Commission which recommend the approval of

the law.

Commissioner of Internal Revenue vs. Primetown Property Group, Inc., 531 SCRA 436, G.R. No.

162155. August 28, 2007

Corona, J.

Facts:

Gilbert Yap, Vice Chair of Primetown applied on March 11, 1999 for a refund or credit of income tax

which Primetown paid in 1997. He claimed that they are entitled for a refund because they suffered losses

that year due to the increase of cost of labor and materials, etc. However, despite the losses, they still paid

their quarterly income tax and remitted creditable withholding tax from real estate sales to BIR. Hence,

they were claiming for a refund. On May 13, 1999, revenue officer Elizabeth Santos required Primetown to

submit additional documents to which Primetown complied with. However, its claim was not acted upon

which prompted it to file a petition for review in CTA on April 14, 2000. CTA dismissed the petition as it

was filed beyonf the 2-year prescriptive period for filing a judicial claim for tax refund according to Sec

229 of NIRC. According to CTA, the two-year period is equivalent to 730 days pursuant to Art 13 of NCC.

Since Primetown filed its final adjustment return on April 14, 1998 and that year 2000 was a leap year, the

petition was filed 731 days after Primetown filed its final adjusted return. Hence, beyond the reglementary

period. Primetown appealed to CA. CA reversed the decision of CTA. Hence, this appeal.

Issues:

(1) How should the two-year prescriptive period be computed?

(2) Whether or not the claim for tax refund was filed within the two-year period?

Held:

Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987

deal with the same subject matterthe computation of legal periods. Under the Civil Code, a year is



equivalent to 365 days whether it be a regular year or a leap year. Under the Administrative Code of 1987,

however, a year is composed of 12 calendar months. Needless to state, under the Administrative Code of

1987, the number of days is irrelevant.

There obviously exists a manifest incompatibility in the manner of computing legal periods under the Civil

Code and the Administrative Code of 1987. For this reason, we hold that Section 31, Chapter VIII, Book I

of the Administrative Code of 1987, being the more recent law, governs the computation of legal periods.

Lex posteriori derogat priori.

We therefore hold that respondents petition (filed on April 14, 2000) was filed on the last day of the 24th

calendar month from the day respondent filed its final adjusted return. Hence, it was filed within the

reglementary period.

CASE SYLLABI:

Taxation; Prescription; The rule is that the two-year prescriptive period is reckoned from the filing of

the final adjusted return; A year is equivalent to 365 days regardless of whether it is a regular year of a

leap year.The rule is that the two-year prescriptive period is reckoned from the filing of the final

adjusted return. But how should the two-year prescriptive period be computed? As already quoted, Article

13 of the Civil Code provides that when the law speaks of a year, it is understood to be equivalent to 365

days. In National Marketing Corporation v. Tecson, 29 SCRA 70 (1969), we ruled that a year is equivalent

to 365 days regardless of whether it is a regular year or a leap year.

Same; Words and Phrases; Calendar Month; A calendar month is a month designated in the calendar

without regard to the number of days it may contain.A calendar month is a month designated in the

calendar without regard to the number of days it may contain. It is the period of time running from the

beginning of a certain numbered day up to, but not including, the corresponding numbered day of the next

month, and if there is not a sufficient number of days in the next month, then up to and including the last

day of that month. To illustrate, one calendar month from December 31, 2007 will be from January 1,

2008 to January 31, 2008; one calendar month from January 31, 2008 will be from February 1, 2008 until

February 29, 2008.

Statutory Construction; Statutes; Repeals; A repealing clause like Sec. 27, Book VII of the

Administrative Code of 1987 is not an express repealing clause because it fails to identify or designate

the laws to be abolished; An implied repeal must have been clearly and unmistakably intended by the

legislature.A repealing clause like Sec. 27, Book VII of the Administrative Code of 1987 is not an

express repealing clause because it fails to identify or designate the laws to be abolished. Thus, the

provision above only impliedly repealed all laws inconsistent with the Administrative Code of 1987.

Implied repeals, however, are not favored. An implied repeal must have been clearly and unmistakably

intended by the legislature. The test is whether the subsequent law encompasses entirely the subject matter

of the former law and they cannot be logically or reasonably reconciled.

Same; Same; Same; Court holds that Section 31, Chapter VIII, Book I of the Administrative Code of

1987, being the more recent law, governs the computation of legal periods.Both Article 13 of the Civil

Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987 deal with the same subject

matterthe computation of legal periods. Under the Civil Code, a year is equivalent to 365 days whether it



be a regular year or a leap year. Under the Administrative Code of 1987, however, a year is composed of

12 calendar months. Needless to state, under the Administrative Code of 1987, the number of days is

irrelevant. There obviously exists a manifest incompatibility in the manner of computing legal periods

under the Civil Code and the Administrative Code of 1987. For this reason, we hold that Section 31,

Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law, governs the

computation of legal periods. Lex posteriori derogat priori.

Commissioner of Internal Revenue vs. Ayala Securities Corporation, 101 SCRA 231, No. L -29485.

November 21, 1980

Teehankee, J.

Facts:

Ayala Securities Corp. (Ayala) failed to file returns of their accumulated surplus so Ayala was

charged with 25% surtax by the Commissioner of internal Revenue. The CTA (Court of Tax Appeals)

reversed the Commissioners decision and held that the assessment made against Ayala was beyond

the 5-yr prescriptive period as provided in section 331 of the National Internal Revenue Code.

Commissioner now files a motion for reconsideration of this decision. Ayala invokes the defense of

prescription against the right of the Commissioner to assess the surtax.

Issue:

Whether or not the right to assess and collect the 25% surtax has prescribed after five years.

Held:

No. There is no such time limit on the right of the Commissioner to assess the 25% surtax since there

is no express statutory provision limiting such right or providing for its pre scription. Hence, the

collection of surtax is imprescriptible. The underlying purpose of the surtax is to avoid a situation

where the corporation unduly retains its surplus earnings instead of declaring and paying dividends to

its shareholders. SC reverses the ruling of the CTA.

Notes: Although petitioner filed an income tax return, no return was filed covering its surplus profits

which were improperly accumulated. In fact, no return could have been filed, and the law could not

possibily require, for obvious reasons, the filing of a return covering unreasonable accumulation of

corporate surplus profits. A tax imposed upon unreasonable accumulation of surplus is in the nature of a

penalty. (Helvering v. National Grocery Co., 304 U.S. 282). It would not be proper for the law to compel a

corporation to report improper accumulation of surplus. Accordingly, Section 331 limiting the right to

assess internal revenue taxes within five years from the date the return was filed or was due does not apply.

It will be noted that Section 332 has reference to national internal revenue taxes which require the filing of

returns. This is implied from the provision that the ten-year period for assessment specified therein treats of

the filing of a false or fraudulent return or of a failure to file a return. There can be no failure or omission

to file a return where no return is required to be filed by law or by regulations. It is, therefore, our



opinion that the ten-year period for making an assessment under Section 332 does not apply to internal

revenue taxes which do not require the filing of a return.

It is well settled limitations upon the right of the government to assess and collect taxes will not be

presumed in the absence of clear legislation to the contrary. The existence of a time limit beyond which the

government may recover unpaid taxes is purely dependent upon some express statutory provision, (51 Am.

Jur. 867; 10 Mertens Law on Federal Income Taxation, par. 57. 02.). It follows that in the absence of

express statutory provision, the right of the government to assess unpaid taxes is imprescriptible. Since

there is no express statutory provision limiting the right of the Commissioner of Internal Revenue to

assess the tax on unreasonable accumulation of surplus provided in Section 25 of the Revenue Code,

said tax may be assessed at any time.

CASE SYLLABI:

Taxation; Prescription; Collection of surtax on excess profits does not prescribe there being no law

providing a prescriptive period therefor.The Court is persuaded by the fundamental principle invoked

by petitioner that limitations upon the right of the government to assess and collect taxes will not be

presumed in the absence of clear legislation to the contrary and that where the government has not by

express statutory provision provided a limitation upon its right to assess unpaid taxes, such right is

imprescriptible.

Same; Same.The Court, therefore, reconsiders its ruling in its decision under reconsideration that the

right to assess and collect the assessment in question had prescribed after five years, and instead rules that

there is no such time limit on the right of the Commissioner of Internal Revenue to assess the 25% tax on

unreasonably accumulated surplus provided in section 25 of the Tax Code, since there is no express

statutory provision limiting such right or providing for its prescription. The underlying purpose of the

additional tax in question a corporations improperly accumulated profits or surplus is as set forth in the

text of section 25 of the Tax Code itself to avoid the situation where a corporation unduly retains its surplus

earnings instead of declaring and paying dividends to its shareholders or members who would then have to

pay the income tax due on such dividends received by them. The record amply shows that respondent

corporation is a mere holding company of its shareholders through its mother company, a registered co-

partnership then set up by the individual shareholders belonging to the same family and that the prima facie

evidence and presumption set up by the Tax Code, therefore, applied without having been adequately

rebutted by the respondent corporation.

Butuan Sawmill, Inc. vs. Court of Tax Appeals, et al., 16 SCRA 277, No. L-20601. February 28,

1966.

Reyes, J.B.L., J.

Facts:

During the period from January 31, 1951 to June 8, 1953, it sold logs to Japanese firms at prices FOB

Vessel Magallanes, Agusan (in some cases FOB Vessel, Nasipit, also in Agusan); that the FOB prices

included costs of loading, wharfage stevedoring and other costs in the Philippines; that the quality, quantity



and measurement specifications of the logs were certified fry the Bureau of Forestry that 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 petitioner and payable through the Philippine National Bank or any other bank named by

it.

Upon investigation by the Bureau of Internal Revenue, it was ascertained that no sales tax return was filed

by the petitioner and neither did it pay the corresponding tax on the sales. . On the basis of agent Antonio

Moles report dated September 17, 1957, respondent, on August 27, 1958, determined against petitioner the

sum of P40,004.01 representing sales tax, surcharge and compromise penalty on its sales [tax, surcharge

and compromise penalty on its sales] of logs from January 1951 to June 1953 pursuant to Sections 183, 186

and 209 of the National Internal Revenue Code . And in consequence of a reinvestigation, respondent, on

November 6, 1958, amended the amount of the previous assessment to P38,917.74. Subsequent requests for

reconsideration of the amended assessment having been denied, petitioner filed the instant petition for

review on November 7, 1960.

Issues:

(1) Whether or not petitioner herein is liable to pay the 5% sales tax as then prescribed by Section 186

of the Tax Code on its sales of logs to the Japanese buyers; and

(2) Whether or not the assessment thereof was made within the prescriptive period provided by law

therefor.

Held:

(1) Upon the foregoing facts and authority of Bislig (Bay) Lumber Co., Inc. vs. Collector of Internal

Revenue, G.R. No. L-13186 (January 28, 1961), Misamis Lumber Co., Inc. vs. Collector of

Internal Revenue (56 Off. Gaz. 517) and Western Mindanao Lumber Development Co., Inc. vs.

Court of Tax Appeals, et al. (G.R. No. L-11710, June 30, 1958), it is clear that said export sales

had been consummated in the Philippines and were, accordingly, subject to sales tax therein.

(Taligaman Lumber Co., Inc. vs. Collector of Internal Revenue, G.R. No. L-15716, March 31,

1962).

With respect to petitioners contention that there are proofs to rebut the prima facie finding and

circumstances that the disputed sales were consummated here in the Philippines, we find that the

allegation is not borne out by the law or the evidence.

(2) 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 tho time stated in Section 332 (a) of the same Code (Bisaya Land Transportation Co., Inc.

vs. Collector of Internal Revenue & Collector of Internal Revenue vs. Bisaya Land Transportation

Co., Inc., G.R. Nos. L-12100 & L-11812, May 29, 1959). The principle enunciated in this last

cited case is applicable by analogy to the case at bar.



It being undisputed that petitioner 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.

CASE SYLLABI:

Taxation; Sales tax; Sale of logs F.O.B., Agusan.Petitioner sold logs to Japanese firms at prices FOB

Agusan. The FOB feature of the sales indicated that the parties intended the title to pass to the buyer upon

delivery of the logs in Agusan on board the vessels that took the goods to Japan. The sales being domestic

or local, they are subject to sales tax under Section 186 of the Tax Code, as amended.

Same; Title to goods deliverable to order of seller or his agent may pass upon delivery to the carrier.

The specification in the bill of lading that the goods are deliverable to the order of the seller or his agent

does not necessarily negative the passing of title to the goods upon delivery to the carrier. (Art. 1503, New

Civil Code).

Same; Prescription; Income tax return is not deemed a return for sales tax purposes.For purposes of

computing the period of prescription under Section 331 of the Tax Code, an income tax return cannot be

considered as a return for compensating tax or sales tax purposes. The taxpayer must file a return for the

particular tax required by law in order to avail himself of the benefits of the law. If he does not file such a

return, an assessment may be made within ten (10) years from and after the discovery of the omission to

file the return. (Section 332[a] of the Tax Code; Cf. Bisaya Land Transportation Co., Inc. vs. Collector of

Internal Revenue and Collector of Internal Revenue vs. Bisaya Land Transportation Co., Inc., G.R. Nos. L-

12100 & L-11812, May 29, 1959.)

Commissioner of Internal Revenue vs. Phoenix Assurance Co., Ltd., 14 SCRA 52, No. L -19727.

May 20, 1965

Bengzon, J.P., J.

Facts:

Phoenix Assurance Co., Ltd., a foreign insurance corporation organized under the laws of Great Britain, is

licensed to do business in the Philippines with head office in London. Through its head office, it entered in

London into worldwide reinsurance treaties with various foreign insurance companies. It agree to cede a

portion of premiums received on original insurances underwritten by its head office, subsidiaries, and

branch offices throughout the world, in consideration for assumption by the foreign insurance companies of

an equivalent portion of the liability from such original insurances.

On August 1, 1958 the Bureau of Internal Revenue deficiency assessment on income tax for the years 1952

and 1954 against Phoenix Assurance Co, Ltd. The assessment resulted from the disallowance of a portion

of the deduction claimed by Phoenix Assurance Co., Ltd. as head office expenses allocable to its business

in the Philippines fixed by the Commissioner at 5% of the net Philippine income instead of 5% of the gross

Philippine income as claimed in the returns.



Phoenix Assurance Co., Ltd. protested against the aforesaid assessments for withholding tax and deficiency

income tax. However, the Commissioner of Internal Revenue denied such protest. Subsequently, Phoenix

Assurance Co., Ltd. appealed to the Court of Tax Appeals. In a decision dated February 14, 1962, the Court

of Tax Appeals allowed in full the decision claimed by Phoenix Assurance Co., Ltd. for 1950 as net

addition to marine insurance reserve; determined the allowable head office expenses allocable to Philippine

business to be 5% of the net income in the Philippines; declared the right of the Commissioner of Internal

Revenue to assess deficiency income tax for 1952 to have prescribed; absolved Phoenix Assurance Co., Ltd.

from payment of the statutory penalties for non-filing of withholding tax return.

Issues:

(1) Whether or not reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines

pursuant to reinsurance contracts executed abroad are subject to withholding tax;

(2) Whether or not the right of the Commissioner of Internal Revenue to assess deficiency income tax for

the year 1952 against Phoenix Assurance Co., Ltd. has prescribed;

Held:

The question of whether or not reinsurance premiums ceded to foreign reinsurers not doing business in the

Philippines pursuant to contracts executed abroad are income from sources within the Philippines subject to

withholding tax under Sections 53 and 54 of the Tax Code has already been resolved in the affirmative in

British Traders Insurance Co., Ltd. v. Commissioner of Internal Revenue, L-20501, April 30, 1965.1

Notes:

The question is: Should the running of the prescriptive period commence from the filing of the original or

amended return?

xxx the deficiency income tax in question could not possibly be determined, or assessed, on the basis of

the original return filed on April 1, 1953, for considering that the declared loss amounted to P199,583.93,

the mere disallowance of part of the head office expenses could not possibly result in said loss being

completely wiped out and Phoenix being liable to deficiency tax. Not until the amended return was filed on

August 30, 1955 could the Commissioner assess the deficiency income tax in question.

Accordingly, he would wish to press for the counting of the prescriptive period from the filing of the

amended return.

Considering that the deficiency assessment was based on the amended return which, as aforestated, is

substantially different from the original return, the period of limitation of the right to issue the same should

be counted from the filing of the amended income tax return. From August 30, 1955, when the amended

return was filed, to July 24, 1958, when the deficiency assessment was issued, less than five years elapsed.

The right of the Commissioner to assess the deficiency tax on such amended return has not prescribed.

CASE SYLLABI:

Taxation; Income tax; Reinsurance premiums subject to withholding tax.Reinsurance premiums ceded

to foreign reinsurers not doing business in the Philippines pursuant to reinsurance contracts executed



abroad are income from sources within the Philippines subject to withholding tax under Sections 53 and 54

of the Tax Code.

Same; Same; Period of prescription to assess deficiency income tax commences from filing of amended

return.Where the deficiency assessment is based on the amended return, which is substantially different

from the original return, the period of prescription of the right to issue the same should be counted from the

filing of the amended, not the original income tax return.

Same; Same; Taxpayer may claim lesser deduction than allowed by law.For income tax purposes a

taxpayer is free to deduct from its gross income a lesser amount, or not to claim any deduction at all. What

is prohibited by the income tax law is to claim a deduction beyond the amount authorized therein.

Same; Same; Items of income not belonging to Philippines excluded in determining expenses allocable

to Philippines.Since the items of income not belonging to its Philippine business are not taxable to its

Philippine branch, they should be excluded in determining the head expenses allocable to a Philpine branch

of a foreign corporation.

Same; Same; Interest on taxes unpaid due to Commissioners opinion imposed only from failure to

comply with courts final judgment.Where the taxpayers failure to pay the withholding tax was due to

the Commissioners opinion that no withholding tax was due, the taxpayer can be held liable for the

payment; of statutory penalties only upon its failure to comply with the Courts final judgment.

Commissioner of Internal Revenue vs. Gonzales, 18 SCRA 757, No. L-19495. November 24, 1966

Bengzon, J.P., J.

Facts:

In 1948, Matias Yusay died leaving behind two heirs, namely, Jose Yusay and Lilia Yusay Gonzales. Jose

was appointed as administrator. He filed an estate and inheritance tax return in 1949. The Bureau of

Internal Revenue (BIR) conducted a tax audit and the BIR found that there was an under-declaration in the

return filed. In 1953 however, a project of partition between the two heirs was submitted to the BIR. The

estate was to be divided as follows: 1/3 for Gonzales and 2/3 for Jose. The BIR then conducted another

investigation in July 1957 with the same result there was a huge under-declaration. In February 1958, the

Commissioner of Internal Revenue issued a final assessment notice (FAN) against the entire estate. In

November 1959, Gonzales questioned the validity of the FAN issued in 1958. She averred that it was

issued way beyond the prescriptive period of 5 years (under the old tax code). The return was filed by Jose

in 1949 and so the CIRs right to make an assessment has already prescribed in 1958.

Issue: Whether or not the state and inheritance tax return file by Jose Yusay was defective and hence the

right of the CIR to make an assessment has not prescribe.

Held:

It was found that Jose filed a return which was so defective that the CIR cannot make a correct computation

on the taxes due. When a tax return is so defective, it is as if there is no return filed, hence, it is considered

that the taxpayer omitted to file a return. As such, the five year prescriptive period to make an assessment



(NOTE: Under the National Internal Revenue Code of 1997, prescriptive period for normal assessment is 3

years) is extended to 10 years. And the counting of the prescriptive period shall run from the discovery of

the omission (or fraud or falsity in appropriate cases). In the case at bar, the omission was deemed to be

discovered in the re-investigation conducted in July 1957. Hence, the FAN issued in February 1958 was

well within the ten year prescriptive period. Gonzales was adjudged to pay the deficiency tax in the FAN,

without prejudice to her right to ask reimbursement from Joses estate (Jose already died).

CASE SYLLABI:

Taxation; Evidence of fraud.Fraud is a question of fact. The circumstances constituting it must be

alleged and proved in the Court of Tax Appeals. And the finding of said court as to its existence or

nonexistence is final unless clearly shown to be erroneous. (Gutierrez vs. Court of Tax Appeals, 101 Phil.

713). As the court 'a quo found that no fraud was alleged and proven therein, the Commissioner's assertion

that the return was fraudulent cannot be entertained.

Same; When tax return is considered sufficient.A return need not be complete in all particulars. It is

sufficient if it complies substantially with the law. There is substantial compliance (1) when the return is

made in good faith and is not false or fraudulent; (2) when it covers the entire period involved; and (3)

when it contains information as to the various items of income, deductions and credits with such

definiteness as to permit the computation and assessment of the tax. (Mertens, Jr., 10 Law of Federal

Income Taxation, 1958 ed., Sec. 57.13).

Same; Sufficiency of estate and inheritance tax return. An estate and inheritance tax return was

substantially defective when it was incomplete; it declared only ninety-three parcels of land, representing

about 400 hectares, and left out ninety-two parcels covering 503 hectares and said huge underdeclaration

could not have been the result 01 an oversight or mistake. Moreover, the return mentioned no heir. Thus,

no inheritance tax could be assessed. As a matter of law, on the basis of the return, there would be no

occasion for the imposition of estate and inheritance taxes. When there is no heir, the estate is escheated to

the State. The State does not tax itself.

Same; Sufficient tax return; Prescription.Where the return was made on the wrong form, it was held

that the filing thereof did not start the running of the period of limitations, and where the return was very

deficient, there was no return at all as required in Section 93 of the Tax Code. If the taxpayer failed to

observe the law, Section 332 of the Tax Code, which grants the Commissioner of Internal Revenue ten

years period within which to bring an action "f or tax collection, applies. Section 94 of the Tax Code

obligates him to make a return or amend one already filed based on his own knowledge and information

obtained through testimony or otherwise, and subsequently to assess thereon the taxes due. The running of

the period of limitations under Section 332(a) of the Tax Code should be reckoned "from the date the

"fraud was discovered.

Republic vs. Ret, 4 SCRA 783, No. L-13754. March 31, 1962

Paredes, J.

Facts:



On February 23, 1949, Damian Ret filed with the Bureau of Internal Revenue his Income Tax Return for

the year 1948, where he made it appear that his net income was only P2,252.53 with no income tax liability

at all. The BIR found out later that the return was fraudulent since Ret's income, derived from his sales of

office supplies to different provincial government offices, totaled P94,198.76. Defendant Ret failed to file

his Income Tax return for 1949, notwithstanding the fact that he earned a net income of P150,447.32, also

from sale of office supplies. The BIR assessed him P34,907.33 and P68,338.40 as deficiency income tax,

inclusive of the 50% surcharge for rendering a false and/or fraudulent return for the 1948 and 1949

respectively.

On January 13, 1951, the Collector of Internal Revenue demanded from Ret the payment of the above sums,

but he failed and/or refused to pay said amounts. Upon recommendation of the Collector, Ret was

prosecuted for a violation of Sections 45[a], 51 [d] and 72, of the N.I.R.C. penalized under Sec. 73, thereof

After his conviction, on September 21, 1957, the Republic filed the present complaint for the recovery of

Ret's deficiency taxes in the total sum of P103,245.73, plus 5% surcharge and 1% monthly interest. Instead

of answering, he presented a Motion to Dismiss on February 8, 1958, claiming that the "cause of action had

already prescribed".

Issue:

Whether or not appellant's right to collect the income taxes due from appellee through judicial action has

already prescribed.

Held:

The answer is in the affirmative. After going over the law and jurisprudence pertinent to the issues raised,

the Court have come to the conclusion that the cause of action has already prescribed.

Section 332 of the Tax Code provides: "the running of the statutory limitation xxx 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". As heretofore stated, the

plaintiff-appellant was not prohibited by any order of the court or by any law from commencing or filing a

proceeding in court. In the instant case, there is no such written agreement, and there was nothing to agree

about. The letter of demand by the Collector on January 13, 1951, was made prior to the issuance of the

assessment notice to the defendant-appellee, made on January 20, 1951, from which date, the 5-year period

was to be counted, The letter of demand could not suspend something that started to run only on January 20,

1951.

CASE SYLLABI

Taxation; Income taxes; Prescription of judicial action; Section 332 of Tax Code not applicable if

collection of income taxes will be made by summary proceedings.Section 332 of the Tax Code does not

apply in the collection of income by summary proceedings. But when the collection of income taxes is to

be effected by court action, said provision is controlling.

Same; Same; Same; Alternatives of Collector under Section 332(a) of Tax Code; Effect of assessment

against taxpayer.Under Section 332 (a) of the Tax Code, the Collector is given two alternatives: (1) to

assess the tax within 10 years from the discovery of the falsity, fraud or omission, or (2) to file an action in



court for the collection of such tax without assessment also within 10 years from the discovery of the

falsity, fraud or omission. An assessment against the taxpayer takes the case out of the realms of the

provisions of the said section and places it under the mandate of section 332(c).

Same; Same; Same; Theory of prescriptibility supported by Sections 331, 332 and 393 of Tax Code.

Sections 331, 332, and 333 of the Tax Code support the theory of prescriptibility of a judicial action to

collect income tax. To hold otherwise would render said provisions idle and useless.

Same; Same; Section 1, Rule 107, Rules of Court not applicable if complaint is not for recovery of civil

liability arising from criminal offense.Where the complaint against the taxpayer is not for the recovery

of civil liability arising from the offense of falsification, but for the collection of deficiency income tax, the

provisions of Section 1, Rule 107, Rules of Court, that "after a criminal action has been commenced, no

civil action arising from the same offense can be prosecuted" will not apply.

Bank of the Philippine Islands vs. Commissioner of Internal Revenue, 473 SCRA 205, G.R. No.

139736. October 17, 2005

Chico-Nazario, J.

Facts:

Petitioner BPI is a commercial banking corporation organized and existing under the laws of the

Philippines. On two separate occasions, particularly on 06 June 1985 and 14 June 1985, it sold United

States (US) $500,000.00 to the Central Bank of the Philippines (Central Bank), for the total sales amount of

US$1,000,000.00.

On 10 October 1989, the Bureau of Internal Revenue (BIR) issued assessment notice finding petitioner BPI

liable for deficiency DST on its afore-mentioned sales of foreign bills of exchange to the Central Bank.

Petitioner BPI received the Assessment, together with the attached Assessment Notice, on 20 October 1989.

Petitioner BPI, through its counsel, protested the Assessment in a letter dated 16 November 1989, and filed

with the BIR on 17 November 1989. Petitioner BPI did not receive any immediate reply to its protest letter.

However, on 15 October 1992, the BIR issued a Warrant of Distraint and/or Levy against BPI only on 23

October 1992

Then again, petitioner BPI did not hear from the BIR until 11 September 1997, when its counsel received a

letter, dated 13 August 1997, signed by then BIR Commissioner Liwayway Vinzons-Chato, denying its

request for reconsideration,.

Upon receipt of the above-cited letter from the BIR, petitioner BPI proceeded to file a Petition for Review

with the CTA on 10 October 1997

Petitioner BPI raised in its Petition for Review before the CTA, in addition to the arguments presented in

its protest letter, dated 16 November 1989, the defense of prescription of the right of respondent BIR

Commissioner to enforce collection of the assessed amount. It alleged that respondent BIR Commissioner

only had three years to collect on Assessment No. FAS-5-85-89-002054, but she waited for seven years

and nine months to deny the protest.



The CTA held that the statute of limitations for respondent BIR Commissioner to collect on the

Assessment had not yet prescribed. In resolving the issue of prescription, the CTA reasoned that

In the case of Commissioner of Internal Revenue vs. Wyeth Suaco Laboratories, Inc., G.R.

No. 76281, September 30, 1991, 202 SCRA 125, the Supreme Court laid to rest the first

issue. It categorically ruled that a protest is to be treated as request for reinvestigation or

reconsideration and a mere request for reexamination or reinvestigation tolls the

prescriptive period of the Commissioner to collect on an assessment. . .

The CA affirmed the decision of the CTA. Hence, the instant case.

Issues:

1. Whether or not the right of respondent BIR Commissioner to collect from petitioner BPI the

alleged deficiency DST for taxable year 1985 had prescribed; and

2. Whether or not a request for reconsideration tolls the prescriptive period of the CIR to collect on

an assessment;

Held:

There is no valid ground for suspending the running of the prescriptive period for collection of the

deficiency DST assessed against petitioner BPI.

Anent the question of prescription, this Court disagrees in the Decisions of the CTA and the Court of

Appeals, and herein determines the statute of limitations on collection of the deficiency DST in Assessment

No. FAS-5-85-89-002054 had already prescribed.

The statute of limitations on assessment and collection of taxes is for the protection of the taxpayer and,

thus, shall be construed liberally in his favor.

Though the statute of limitations on assessment and collection of national internal revenue taxes benefits

both the Government and the taxpayer, it principally intends to afford protection to the taxpayer against

unreasonable investigation. The protest filed by petitioner BPI did not constitute a request for

reinvestigation, granted by the respondent BIR Commissioner, which could have suspended the running of

the statute of limitations on collection of the assessed deficiency DST under Section 224 of the Tax Code

of 1977, as amended.

The Tax Code of 1977, as amended, also recognizes instances when the running of the statute of limitations

on the assessment and collection of national internal revenue taxes could be suspended, even in the absence

of a waiver,

Of particular importance to the present case is one of the circumstances enumerated in Section 224 of the

Tax Code of 1977, as amended, wherein the running of the statute of limitations on assessment and

collection of taxes is considered suspended when the taxpayer requests for a reinvestigation which is

granted by the Commissioner.

This Court gives credence to the argument of petitioner BPI that there is a distinction between a request for

reconsideration and a request for reinvestigation. Revenue Regulations (RR) No. 12-85, issued on 27



November 1985 by the Secretary of Finance, upon the recommendation of the BIR Commissioner, governs

the procedure for protesting an assessment and distinguishes between the two types of protest, as follows

(a)Request for reconsideration.refers to a plea for a reevaluation of an assessment on

the basis of existing records without need of additional evidence. It may involve both a

question of fact or of law or both.

(b)Request for reinvestigation.refers to a plea for reevaluation of an assessment on the

basis of newly-discovered or additional evidence that a taxpayer intends to present in the

reinvestigation. It may also involve a question of fact or law or both.

It bears to emphasize that under Section 224 of the Tax Code of 1977, as amended, the running of the

prescriptive period for collection of taxes can only be suspended by a request for reinvestigation, not a

request for reconsideration. Undoubtedly, a reinvestigation, which entails the reception and evaluation of

additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited

to the evidence already at hand; this justifies why the former can suspend the running of the statute of

limitations on collection of the assessed tax, while the latter cannot.

Add Notes as Emphasized by Atty. Lock:

In the case of Wyeth Suaco, taxpayer Wyeth Suaco was assessed for failing to remit withholding taxes on

royalties and dividend declarations, as well as, for deficiency sales tax. The BIR issued two assessments,

dated 16 December 1974 and 17 December 1974, both received by taxpayer Wyeth Suaco on 19 December

1974. Taxpayer Wyeth Suaco, through its tax consultant, SGV & Co., sent to the BIR two letters, dated 17

January 1975 and 08 February 1975, protesting the assessments and requesting their cancellation or

withdrawal on the ground that said assessments lacked factual or legal basis. On 12 September 1975, the

BIR Commissioner advised taxpayer Wyeth Suaco to avail itself of the compromise settlement being

offered under Letter of Instruction No. 308. Taxpayer Wyeth Suaco manifested its conformity to paying a

compromise amount, but subject to certain conditions; though, apparently, the said compromise amount

was never paid. On 10 December 1979, the BIR Commissioner rendered a decision reducing the

assessment for deficiency withholding tax against taxpayer Wyeth Suaco, but maintaining the assessment

for deficiency sales tax. It was at this point when taxpayer Wyeth Suaco brought its case before the CTA to

enjoin the BIR from enforcing the assessments by reason of prescription. Although the CTA decided in

favor of taxpayer Wyeth Suaco, it was reversed by this Court when the case was brought before it on

appeal. According to the decision of this Court

Settled is the rule that 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. . .

. . .

Although the protest letters prepared by SGV & Co. in behalf of private respondent did not categorically

state or use the words reinvestigation and reconsideration, the same are to be treated as letters of

reinvestigation and reconsideration



These letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to collect the

deficiency taxes. The Bureau of Internal Revenue, after having reviewed the re cords of Wyeth Suaco, in

accordance with its request for rein vestigation, rendered a final assessment It was only upon receipt by

Wyeth Suaco of this final assessment that the five-year prescriptive period started to run again.

The foremost criticism of petitioner BPI of the Wyeth Suaco decision is directed at the statement made

therein that, settled is the rule that 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. It would seem that both petitioner BPI and respondent BIR

Commissioner, as well as, the CTA and Court of Appeals, take the statement to mean that the filing alone

of the request for reconsideration or reinvestigation can already interrupt or suspend the running of the

prescriptive period on collection. This Court therefore takes this opportunity to clarify and qualify this

statement made in the Wyeth Suaco case. While it is true that, by itself, such statement would appear to be

a generalization of the exceptions to the statute of limitations on collection, it is best interpreted in

consideration of the particular facts of the Wyeth Suaco case and previous jurisprudence.

The Wyeth Suaco case cannot be in conflict with the Suyoc case because there are substantial differences

in the factual backgrounds of the two cases. The Suyoc case refers to a situation where there were repeated

requests or positive acts performed by the taxpayer that convinced the BIR to delay collection of the

assessed tax. This Court pronounced therein that the repeated requests or positive acts of the taxpayer

prevented or estopped it from setting up the defense of prescription against the Government when the latter

attempted to collect the assessed tax. In the Wyeth Suaco case, taxpayer Wyeth Suaco filed a request for

reinvestigation, which was apparently granted by the BIR and, consequently, the prescriptive period was

indeed suspended as provided under Section 224 of the Tax Code of 1977, as amended.

To reiterate, Section 224 of the Tax Code of 1977, as amended, identifies specific circumstances when the

statute of limitations on assessment and collection may be interrupted or suspended, among which is a

request for reinvestigation that is granted by the BIR Commissioner. The act of filing a request for

reinvestigation alone does not suspend the period; such request must be granted. The grant need not be

express, but may be implied from the acts of the BIR Commissioner or authorized BIR officials in response

to the request for reinvestigation.

This Court found in the Wyeth Suaco case that the BIR actually conducted a reinvestigation, in accordance

with the request of the taxpayer Wyeth Suaco, which resulted in the reduction of the assessment originally

issued against it. Taxpayer Wyeth Suaco was also aware that its request for reinvestigation was granted, as

written by its Finance Manager in a letter dated 01 July 1975, addressed to the Chief of the Tax Accounts

Division, wherein he admitted that, [a]s we understand, the matter is now undergoing review and

consideration by your Manufacturing Audit Division The statute of limitations on collection, then,

started to run only upon the issuance and release of the reduced assessment.

The Wyeth Suaco case, therefore, is correct in declaring that the prescriptive period for collection is

interrupted or suspended when the taxpayer files a request for reinvestiga-tion, provided that, as clarified

and qualified herein, such request is granted by the BIR Commissioner.

Thus, this Court finds no compelling reason to abandon its decision in the Wyeth Suaco case. It also now

rules that the said case is not applicable to the Petition at bar because of the distinct facts involved herein.



As already heretofore determined by this Court, the protest filed by petitioner BPI was a request for

reconsideration, which merely required a review of existing evidence and the legal basis for the assessment.

Respondent BIR Commissioner did not require, neither did petitioner BPI offer, additional evidence on the

matter. After petitioner BPI filed its request for reconsideration, there was no other communication

between it and respondent BIR Commissioner or any of the authorized representatives of the latter. There

was no showing that petitioner BPI was informed or aware that its request for reconsideration was granted

or acted upon by the BIR.

CASE SYLLABI:

Taxation; Distraint; Levy; The Bureau of Internal Revenue (BIR) has three years, counted from the

date of actual filing of the return or from the last date prescribed by law for the filing of such return,

whichever comes later, to assess a national internal revenue tax or to begin a court proceeding for the

collection thereof without an assessment.The BIR has three years, counted from the date of actual filing

of the return or from the last date prescribed by law for the filing of such return, whichever comes later, to

assess a national internal revenue tax or to begin a court proceeding for the collection thereof without an

assessment. In case of a false or fraudulent return with intent to evade tax or the failure to file any return at

all, the prescriptive period for assessment of the tax due shall be 10 years from discovery by the BIR of the

falsity, fraud, or omission. When the BIR validly issues an assessment, within either the three-year or ten-

year period, whichever is appropriate, then the BIR has another three years after the assessment within

which to collect the national internal revenue tax due thereon by distraint, levy, and/or court proceeding.

The assessment of the tax is deemed made and the three-year period for collection of the assessed tax

begins to run on the date the assessment notice had been released, mailed or sent by the BIR to the taxpayer.

Same; Same; Same; Statute of Limitations; Statutes; Under Section 223(c) of the Tax Code of 1977, as

amended, it is not essential that the Warrant of Distraint and/or Levy be fully executed so that it can

suspend the running of the statute of limitations on the collection of the tax.Under Section 223(c) of

the Tax Code of 1977, as amended, it is not essential that the Warrant of Distraint and/or Levy be fully

executed so that it can suspend the running of the statute of limitations on the collection of the tax. It is

enough that the proceedings have validly began or commenced and that their execution has not been

suspended by reason of the voluntary desistance of the respondent BIR Commissioner. Existing

jurisprudence establishes that distraint and levy proceedings are validly begun or commenced by the

issuance of the Warrant and service thereof on the taxpayer. It is only logical to require that the Warrant of

Distraint and/or Levy be, at the very least, served upon the taxpayer in order to suspend the running of the

prescriptive period for collection of an assessed tax, because it may only be upon the service of the Warrant

that the taxpayer is informed of the denial by the BIR of any pending protest of the said taxpayer, and the

resolute intention of the BIR to collect the tax assessed.

Same; Same; Same; Same; Though the statute of limitations on assessment and collection of national

internal revenue taxes benefits both the Government and the taxpayer, it principally intends to afford

protection to the taxpayer against unreasonable investigation.Though the statute of limitations on

assessment and collection of national internal revenue taxes benefits both the Government and the taxpayer,

it principally intends to afford protection to the taxpayer against unreasonable investigation. The indefinite

extension of the period for assessment is unreasonable because it deprives the said taxpayer of the



assurance that he will no longer be subjected to further investigation for taxes after the expiration of a

reasonable period of time.

Same; Same; Same; Same; Statutes; The Tax Code of 1977, as amended, identifies specifically in

Sections 223 and 224 the circumstances when the prescriptive periods for assessing and collecting taxes

could be suspended or interrupted.In order to provide even better protection to the taxpayer against

unreasonable investigation, the Tax Code of 1977, as amended, identifies specifically in Sections 223 and

224 thereof the circumstances when the prescriptive periods for assessing and collecting taxes could be

suspended or interrupted.

Same; Same; Same; Same; Same; Paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as

amended, the prescriptive periods for assessment and collection of national internal revenue taxes,

respectively, could be waived by agreement.According to paragraphs (b) and (d) of Section 223 of the

Tax Code of 1977, as amended, the prescriptive periods for assessment and collection of national internal

revenue taxes, respectively, could be waived by agreement, to witSEC. 223. Exceptions as to period of

limitation of assessment and collection of taxes.x x x (b) If before the expiration of the time prescribed in

the preceding section for the assessment of the tax, both the Commissioner and the taxpayer have agreed in

writing to its assessment after such time the tax may be assessed within the period agreed upon. The period

so agreed upon may be extended by subsequent written agreement made before the expiration of the period

previously agreed upon. . . . (d) Any internal revenue tax which has been assessed within the period agreed

upon as provided in paragraph (b) hereinabove may be collected by distraint or levy or by a proceeding in

court within the period agreed upon in writing before the expiration of the three-year period. The period so

agreed upon may be extended by subsequent written agreements made before the expiration of the period

previously agreed upon. The agreements so described in the afore-quoted provisions are often referred to as

waivers of the statute of limitations. The waiver of the statute of limitations, whether on assessment or

collection, should not be construed as a waiver of the right to invoke the defense of prescription but, rather,

an agreement between the taxpayer and the BIR to extend the period to a date certain, within which the

latter could still assess or collect taxes due. The waiver does not mean that the taxpayer relinquishes the

right to invoke prescription unequivocally.

Same; Same; Same; Same; Same; RMO No. 20-90 mandates that the procedure for execution of the

waiver shall be strictly followed, and any revenue official who fails to comply therewith resulting in the

prescription of the right to assess and collect shall be administratively dealt with.A valid waiver of the

statute of limitations under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended,

must be: (1) in writing; (2) agreed to by both the Commissioner and the taxpayer; (3) before the expiration

of the ordinary prescriptive periods for assessment and collection; and (4) for a definite period beyond the

ordinary prescriptive periods for assessment and collection. The period agreed upon can still be extended

by subsequent written agreement, provided that it is executed prior to the expiration of the first period

agreed upon. The BIR had issued Revenue Memorandum Order (RMO) No. 20-90 on 04 April 1990 to lay

down an even more detailed procedure for the proper execution of such a waiver. RMO No. 20-90

mandates that the procedure for execution of the waiver shall be strictly followed, and any revenue official

who fails to comply therewith resulting in the prescription of the right to assess and collect shall be

administratively dealt with.



Same; Same; Same; Same; The Supreme Court had consistently ruled in a number of cases that a

request for reconsideration or reinvestigation by the taxpayer, without a valid waiver of the prescriptive

periods for the assessment and collection of tax, as required by the Tax Code and implementing rules,

will not suspend the running thereof.This Court had consistently ruled in a number of cases that a

request for reconsideration or reinvestigation by the taxpayer, without a valid waiver of the prescriptive

periods for the assessment and collection of tax, as required by the Tax Code and implementing rules, will

not suspend the running thereof.

Same; Same; Same; Same; Statutes; The Tax Code of 1977, as amended, also recognizes instances

when the running of the statute of limitations on the assessment and collection of national internal

revenue taxes could be suspended, even in the absence of a waiver. The Tax Code of 1977, as amended,

also recognizes instances when the running of the statute of limitations on the assessment and collection of

national internal revenue taxes could be suspended, even in the absence of a waiver, under Section 224

thereof, which readsSEC. 224. Suspension of running of statute.The running of the statute of

limitation provided in Section[s] 203 and 223 on the making of assessment 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 Commissioner is prohibited from making the assessment or beginning distraint or levy or

a proceeding in court and for sixty days thereafter; when the taxpayer requests for a reinvestigation which

is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the

return filed upon which a tax is being assessed or collected: Provided, That, if the taxpayer informs the

Commissioner of any change in address, the running of the statute of limitations will not be suspended;

when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or a

member of his household with sufficient discretion, and no property could be located; and when the

taxpayer is out of the Philippines.

Same; Same; Same; Same; Same; Under Section 224 of the Tax Code of 1977, as amended, the running

of the prescriptive period for collection of taxes can only be suspended by a request for reinvestigation,

not a request for reconsideration.With the issuance of RR No. 12-85 on 27 November 1985 providing

the above-quoted distinctions between a request for reconsideration and a request for reinvestigation, the

two types of protest can no longer be used interchangeably and their differences so lightly brushed aside. It

bears to emphasize that under Section 224 of the Tax Code of 1977, as amended, the running of the

prescriptive period for collection of taxes can only be suspended by a request for reinvestigation, not a

request for reconsideration. Undoubtedly, a reinvestigation, which entails the reception and evaluation of

additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited

to the evidence already at hand; this justifies why the former can suspend the running of the statute of

limitations on collection of the assessed tax, while the latter cannot.

Same; Same; Same; Same; That the BIR Commissioner must first grant the request for reinvestigation

as a requirement for suspension of the statute of limitations is even supported by existing

jurisprudence.That the BIR Commissioner must first grant the request for reinvestigation as a

requirement for suspension of the statute of limitations is even supported by existing jurisprudence. In the

case of Republic of the Philippines v. Gancayco, taxpayer Gancayco requested for a thorough

reinvestigation of the assessment against him and placed at the disposal of the Collector of Internal

Revenue all the evidences he had for such purpose; yet, the Collector ignored the request, and the records



and documents were not at all examined. Considering the given facts, this Court pronounced that. . . The

act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in

order to effect suspension. (Collector vs. Suyoc Consolidated, supra; also Republic vs. Ablaza, supra).

Moreover, the Collector gave appellee until April 1, 1949, within which to submit his evidence, which the

latter did one day before. There were no impediments on the part of the Collector to file the collection case

fr

tax 2 case digests part 1 remedies under the nirc of atty. lock's syllabus complete

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