TAX REMEDIES: ASSESSMENT (Definition and Requisites of a Valid Assessment) P10,513,671 .00. Private respondents PRDC, et. al.

respondents PRDC, et. al. filed an Urgent Request for

Reconsideration/Reinvestigation disputing the tax assessment and tax liability.
G.R. No. 128315 June 29, 1999
On March 23, 1995, private respondents received a subpoena from the DOJ in
COMMISSIONER OF INTERNAL REVENUE, petitioner, connection with the criminal complaint filed by the Commissioner of Internal
vs. Revenue (BIR) against them.1âwphi1.nêt
PASCOR REALTY AND DEVELOPMENT CORPORATION, ROGELIO A. DIO
and VIRGINIA S. DIO, respondents. In a letter dated May 17, 1995, the CIR denied the urgent request for
reconsideration/reinvestigation of the private respondents on the ground that no
PANGANIBAN, J.: formal assessment of the has as yet been issued by the Commissioner.

An assessment contains not only a computation of tax liabilities, but also a demand for Private respondents then elevated the Decision of the CIR dated May 17, 1995 to
payment within a prescribed period. It also signals the time when penalties and protests the Court of Tax Appeals on a petition for review docketed as CTA Case No. 5271
begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies on July 21, 1995. On September 6, 1995, the CIR filed a Motion to Dismiss the
thereon, due process requires that it must be served on and received by the taxpayer. petition on the ground that the CTA has no jurisdiction over the subject matter of
Accordingly, an affidavit, which was executed by revenue officers stating the tax liabilities the petition, as there was no formal assessment issued against the petitioners. The
of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an CTA denied the said motion to dismiss in a Resolution dated January 25, 1996 and
assessment that can be questioned before the Court of Tax Appeals. ordered the CIR to file an answer within thirty (30) days from receipt of said
resolution. The CIR received the resolution on January 31, 1996 but did not file an
answer nor did she move to reconsider the resolution.
Statement of the Case
Instead, the CIR filed this petition on June 7, 1996, alleging as grounds that:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
praying for the nullification of the October 30, 1996
Decision 1 of the Court of Appeals 2 in CA-GR SP No. 40853, which effectively affirmed Respondent Court of Tax Appeals acted with grave abuse of discretion and
the January 25, 1996 Resolution 3 of the Court of Tax Appeals 4 CTA Case No. 5271. The without jurisdiction in considering the affidavit/report of the revenue officer
CTA disposed as follows: and the indorsement of said report to the secretary of justice as assessment
which may be appealed to the Court of Tax Appeals;
WHEREFORE, finding [the herein petitioner's] "Motion to Dismiss" as
UNMERITORIOUS, the same is hereby DENIED. [The CIR] is hereby given a Respondent Court Tax Appeals acted with grave abuse of discretion in
period of thirty (30) days from receipt hereof to file her answer. considering the denial by petitioner of private respondents' Motion for
Reconsideration as [a] final decision which may be appealed to the Court of
Tax Appeals.
Petitioner also seeks to nullify the February 13, 1997 Resolution 5 of the Court of Appeals
denying reconsideration.
In denying the motion to dismiss filed by the CIR, the Court of Tax Appeals stated:
The Facts
We agree with petitioners' contentions, that the criminal complaint for tax
evasion is the assessment issued, and that the letter denial of May 17, 1995
As found by the Court of Appeals, the undisputed facts of the case are as follows: is the decision properly appealable to [u]s. Respondent's ground of denial,
therefore, that there was no formal assessment issued, is untenable.
It appears that by virtue of Letter of Authority No. 001198, then BIR Commissioner
Jose U. Ong authorized Revenue Officers Thomas T. Que, Sonia T. Estorco and It is the Court's honest belief, that the criminal case for tax evasion is already an
Emmanuel M. Savellano to examine the books of accounts and other accounting assessment. The complaint, more particularly, the Joint Affidavit of Revenue
records of Pascor Realty and Development Corporation. (PRDC) for the years Examiners Lagmay and Savellano attached thereto, contains the details of the
ending 1986, 1987 and 1988. The said examination resulted in a recommendation assessment like the kind and amount of tax due, and the period covered:
for the issuance of an assessment in the amounts of P7,498,434.65 and
P3,015,236.35 for the years 1986 and 1987, respectively.
Petitioners are right, in claiming that the provisions of Republic Act No. 1125,
relating to exclusive appellate jurisdiction of this Court, do not, make any mention
On March 1, 1995, the Commissioner of Internal Revenue filed a criminal complaint of "formal assessment." The law merely states, that this Court has exclusive
before the Department of Justice against the PRDC, its President Rogelio A. Dio, appellate jurisdiction over decisions of the Commissioner of Internal Revenue
and its Treasurer Virginia S. Dio, alleging evasion of taxes in the total amount of on disputed assessments, and other matters arising under the National Internal
1
 Revenue Code, other law or part administered by the Bureau of Internal Revenue (2) Whether or not an assessment is necessary before criminal charges for tax
Code. evasion may be instituted.

As far as this Court is concerned, the amount and kind of tax due, and the period (3) Whether or not the CTA can take cognizance of the case in the absence of an
covered, are sufficient details needed for an "assessment." These details are more assessment. 9
than complete, compared to the following definitions of the term as quoted
hereunder. Thus: In the main, the Court will resolve whether the revenue officers' Affidavit-Report, which
was attached to criminal revenue Complaint filed the Department of Justice, constituted an
Assessment is laying a tax. Johnson City v. Clinchfield R. Co., 43 S.W. (2d) 386, assessment that could be questioned before the Court of Tax Appeals.
387, 163 Tenn. 332. (Words and Phrases, Permanent Edition, Vol. 4, p. 446).
The Court's Ruling
The word assessment when used in connection with taxation, may have more than
one meaning. The ultimate purpose of an assessment to such a connection is to The petition is meritorious.
ascertain the amount that each taxpayer is to pay. More commonly, the word
"assessment" means the official valuation of a taxpayer's property for purpose of
taxation. State v. New York, N.H. and H.R. Co. 22 A. 765, 768, 60 Conn. 326, 325. Main Issue: Assessment
(Ibid. p. 445)
Petitioner argues that the filing of the criminal complaint with the Department of Justice
From the above, it can be gleaned that an assessment simply states how much tax is cannot in any way be construed as a formal assessment of private respondents' tax liabilities.
due from a taxpayer. Thus, based on these definitions, the details of the tax as given This position is based on Section 205 of the National Internal Revenue Code 10 (NIRC),
in the Joint Affidavit of respondent's examiners, which was attached to the tax which provides that remedies for the collection of deficient taxes may be by either civil or
evasion complaint, more than suffice to qualify as an assessment. Therefore, this criminal action. Likewise, petitioner cites Section 223(a) of the same Code, which states
assessment having been disputed by petitioners, and there being a denial of their that in case of failure to file a return, the tax may be assessed or a proceeding in court may
letter disputing such assessment, this Court unquestionably acquired jurisdiction be begun without assessment.
over the instant petition for review. 6
Respondents, on the other hand, maintain that an assessment is not an action or proceeding
As earlier observed, the Court of Appeals sustained the CTA and dismissed the petition. for the collection of taxes, but merely a notice that the amount stated therein is due as tax
and that the taxpayer is required to pay the same. Thus, qualifying as an assessment was the
BIR examiners' Joint Affidavit, which contained the details of the supposed taxes due from
Hence, this recourse to this Court. 7 respondent for taxable years ending 1987 and 1988, and which was attached to the tax
evasion Complaint filed with the DOJ. Consequently, the denial by the BIR of private
Ruling of the Court of Appeals respondents' request for reinvestigation of the disputed assessment is properly appealable to
the CTA.
The Court of Appeals held that the tax court committed no grave abuse of discretion in
ruling that the Criminal Complaint for tax evasion filed by the Commissioner of Internal We agree with petitioner. Neither the NIRC nor the regulations governing the protest of
Revenue with the Department of Justice constituted an "assessment" of the tax due, and that assessments 11 provide a specific definition or form of an assessment. However, the NIRC
the said assessment could be the subject of a protest. By definition, an assessment is simply defines the specific functions and effects of an assessment. To consider the affidavit attached
the statement of the details and the amount of tax due from a taxpayer. Based on this to the Complaint as a proper assessment is to subvert the nature of an assessment and to set
definition, the details of the tax contained in the BIR examiners' Joint Affidavit, 8 which was a bad precedent that will prejudice innocent taxpayers.
attached to the criminal Complaint, constituted an assessment. Since the assailed Order of
the CTA was merely interlocutory and devoid of grave abuse of discretion, a petition True, as pointed out by the private respondents, an assessment informs the taxpayer that he
for certiorari did not lie. or she has tax liabilities. But not all documents coming from the BIR containing a
computation of the tax liability can be deemed assessments.
Issues
To start with, an assessment must be sent to and received by a taxpayer, and must demand
Petitioners submit for the consideration of this Court following issues: payment of the taxes described therein within a specific period. Thus, the NIRC imposes a
25 percent penalty, in addition to the tax due, in case the taxpayer fails to pay deficiency tax
(1) Whether or not the criminal complaint for tax evasion can be construed as an within the time prescribed for its payment in the notice of assessment. Likewise, an interest
assessment. of 20 percent per annum, or such higher rates as may be prescribed by rules and regulations,
is to be collected from the date prescribed for its payment until the full payment. 12

2
The issuance of an assessment is vital in determining, the period of limitation regarding its Additional Issues:
proper issuance and the period within which to protest it. Section 203 13 of the NIRC Assessment Not Necessary Before Filing of Criminal Complaint
provides that internal revenue taxes must be assessed within three years from the last day
within which to file the return. Section 222, 14 on the other hand, specifies a period of ten Private respondents maintain that the filing of a criminal complaint must be preceded by an
years in case a fraudulent return with intent to evade was submitted or in case of failure to assessment. This is incorrect, because Section 222 of the NIRC specifically states that in
file a return. Also, Section 228 15 of the same law states that said assessment may be cases where a false or fraudulent return is submitted or in cases of failure to file a return
protested only within thirty days from receipt thereof. Necessarily, the taxpayer must be such as this case, proceedings in court may be commenced without an assessment.
certain that a specific document constitutes an assessment. Otherwise, confusion would arise Furthermore, Section 205 of the same Code clearly mandates that the civil and criminal
regarding the period within which to make an assessment or to protest the same, or whether aspects of the case may be pursued simultaneously. In Ungab v. Cusi,20 petitioner therein
interest and penalty may accrue thereon. 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
It should also be stressed that the said document is a notice duly sent to the taxpayer. Indeed, the criminal action which was independent of the resolution of the protest in the CTA. This
an assessment is deemed made only when the collector of internal revenue releases, mails was because the commissioner of internal revenue had, in such tax evasion cases, discretion
or sends such notice to the taxpayer. 16 on whether to issue an assessment or to file a criminal case against the taxpayer or to do
both.
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 Private respondents insist that Section 222 should be read in relation to Section 255 of the
addressed to the justice secretary, not to the taxpayers. NLRC, 21 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
Respondents maintain that an assessment, in relation to taxation, is simply understood' to assessment is not necessary before a criminal charge can be filed. This is the general rule.
mean: 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.
A notice to the effect that the amount therein stated is due as tax and a demand for
payment thereof. 17
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.
Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for The taxpayer is then given a chance to submit position papers and documents to prove that
the proper presentation of tax rolls. 18 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
Even these definitions fail to advance private respondents' case. That the BIR examiners' assessment has been made against him or her. In contrast, the criminal charge need not go
Joint Affidavit attached to the Criminal Complaint contained some details of the tax through all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer
liabilities of private respondents does not ipso facto make it an assessment. The purpose of is notified that a criminal case had been filed against him, not that the commissioner has
the Joint Affidavit was merely to support and substantiate the Criminal Complaint for tax issued an assessment. It must be stressed that a criminal complaint is instituted not to
evasion. Clearly, it was not meant to be a notice of the tax due and a demand to the private demand payment, but to penalize the taxpayer for violation of the Tax Code.
respondents for payment thereof.
WHEREFORE, the petition is hereby GRANTED. The assailed Decision is REVERSED
The fact that the Complaint itself was specifically directed and sent to the Department of and SET ASIDE. CTA Case No. 5271 is likewise DISMISSED. No costs.
Justice and not to private respondents shows that the intent of the commissioner was to file
a criminal complaint for tax evasion, not to issue an assessment. Although the revenue SO ORDERED.
officers recommended the issuance of an assessment, the commissioner opted instead to file
a criminal case for tax evasion. What private respondents received was a notice from the
DOJ that a criminal case for tax evasion had been filed against them, not a notice that the
Bureau of Internal Revenue had made an assessment.

In addition, what private respondents sent to the commissioner was a motion for a
reconsideration of the tax evasion charges filed, not of an assessment, as shown thus:

This is to request for reconsideration of the tax evasion charges against my client, PASCOR
Realty and Development Corporation and for the same to be referred to the Appellate
Division in order to give my client the opportunity of a fair and objective hearing. 19

3
TAX REMEDIES: ASSESSMENT (Definition and Requisites of a Valid Assessment) "On June 1, 1998, a certain Felix M. Sumbillo (or ‘Sumbillo’) protested the assessment [o]n
behalf of the heirs on the ground that the subject property had already been sold by the
G.R. No. 159694 January 27, 2006 decedent sometime in 1990.

COMMISSIONER OF INTERNAL REVENUE, Petitioner, "On November 12, 1998, the Commissioner of Internal Revenue (or ‘[CIR]’) issued a
vs. preliminary collection letter to [Reyes], followed by a Final Notice Before Seizure dated
AZUCENA T. REYES, Respondent. December 4, 1998.

PANGANIBAN, CJ.: "On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the estate,
followed on February 11, 1999 by Notices of Levy on Real Property and Tax Lien against
it.
Under the present provisions of the Tax Code and pursuant to elementary due process,
taxpayers must be informed in writing of the law and the facts upon which a tax assessment
is based; otherwise, the assessment is void. Being invalid, the assessment cannot in turn be "On March 2, 1999, [Reyes] protested the notice of levy. However, on March 11, 1999, the
used as a basis for the perfection of a tax compromise. heirs proposed a compromise settlement of P1,000,000.00.

The Case "In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to pay 50% of the basic
tax due, citing the heirs’ inability to pay the tax assessment. On March 20, 2000, [the CIR]
rejected [Reyes’s] offer, pointing out that since the estate tax is a charge on the estate and
Before us are two consolidated1 Petitions for Review2 filed under Rule 45 of the Rules of not on the heirs, the latter’s financial incapacity is immaterial as, in fact, the gross value of
Court, assailing the August 8, 2003 Decision3 of the Court of Appeals (CA) in CA-GR SP the estate amounting to P32,420,360.00 is more than sufficient to settle the tax liability.
No. 71392. The dispositive portion of the assailed Decision reads as follows: Thus, [the CIR] demanded payment of the amount of P18,034,382.13 on or before April 15,
2000[;] otherwise, the notice of sale of the subject property would be published.
"WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Tax
Appeals is ANNULLED and SET ASIDE without prejudice to the action of the National "On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to pay 100% of
Evaluation Board on the proposed compromise settlement of the Maria C. Tancinco estate’s the basic tax due in the amount of P5,313,891.00. She reiterated the proposal in a letter dated
tax liability."4 May 18, 2000.

The Facts "As the estate failed to pay its tax liability within the April 15, 2000 deadline, the Chief,
Collection Enforcement Division, BIR, notified [Reyes] on June 6, 2000 that the subject
The CA narrated the facts as follows: property would be sold at public auction on August 8, 2000.

"On July 8, 1993, Maria C. Tancinco (or ‘decedent’) died, leaving a 1,292 square-meter "On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division. Assailing the
residential lot and an old house thereon (or ‘subject property’) located at 4931 Pasay Road, scheduled auction sale, she asserted that x x x the assessment, letter of demand[,] and the
Dasmariñas Village, Makati City. whole tax proceedings against the estate are void ab initio. She offered to file the
corresponding estate tax return and pay the correct amount of tax without surcharge [or]
"On the basis of a sworn information-for-reward filed on February 17, 1997 by a certain interest.
Raymond Abad (or ‘Abad’), Revenue District Office No. 50 (South Makati) conducted an
investigation on the decedent’s estate (or ‘estate’). Subsequently, it issued a Return "Without acting on [Reyes’s] protest and offer, [the CIR] instructed the Collection
Verification Order. But without the required preliminary findings being submitted, it issued Enforcement Division to proceed with the August 8, 2000 auction sale. Consequently, on
Letter of Authority No. 132963 for the regular investigation of the estate tax case. Azucena June 28, 2000, [Reyes] filed a [P]etition for [R]eview with the Court of Tax Appeals (or
T. Reyes (or ‘[Reyes]’), one of the decedent’s heirs, received the Letter of Authority on ‘CTA’), docketed as CTA Case No. 6124.
March 14, 1997.
"On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary
"On February 12, 1998, the Chief, Assessment Division, Bureau of Internal Revenue (or Injunction or Status Quo Order, which was granted by the CTA on July 26, 2000. Upon
‘BIR’), issued a preliminary assessment notice against the estate in the amount [Reyes’s] filing of a surety bond in the amount of P27,000,000.00, the CTA issued a
of P14,580,618.67. On May 10, 1998, the heirs of the decedent (or ‘heirs’) received a final [R]esolution dated August 16, 2000 ordering [the CIR] to desist and refrain from proceeding
estate tax assessment notice and a demand letter, both dated April 22, 1998, for the amount with the auction sale of the subject property or from issuing a [W]arrant of [D]istraint or
of P14,912,205.47, inclusive of surcharge and interest. [G]arnishment of [B]ank [A]ccount[,] pending determination of the case and/or unless a
contrary order is issued.

4
"[The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the CTA no ‘2. Whether this compromise is covered by the provisions of Section 204 of the Tax Code
longer has jurisdiction over the case[,] because the assessment against the estate is already (CTRP) that requires approval by the BIR [NEB].’
final and executory; and (ii) that the petition was filed out of time. In a [R]esolution dated
November 23, 2000, the CTA denied [the CIR’s] motion. "Answering the Supplemental Petition, [the CIR] averred that an application for
compromise of a tax liability under RR No. 6-2000 and RMO No. 42-2000 requires the
"During the pendency of the [P]etition for [R]eview with the CTA, however, the BIR issued evaluation and approval of either the NEB or the Regional Evaluation Board (or ‘REB’), as
Revenue Regulation (or ‘RR’) No. 6-2000 and Revenue Memorandum Order (or ‘RMO’) the case may be.
No. 42-2000 offering certain taxpayers with delinquent accounts and disputed assessments
an opportunity to compromise their tax liability. "On June 14, 2001, [Reyes] filed a Motion for Judgment on the Pleadings; the motion was
granted on July 11, 2001. After submission of memoranda, the case was submitted for
"On November 25, 2000, [Reyes] filed an application with the BIR for the compromise [D]ecision.
settlement (or ‘compromise’) of the assessment against the estate pursuant to Sec. 204(A)
of the Tax Code, as implemented by RR No. 6-2000 and RMO No. 42-2000. "On June 19, 2002, the CTA rendered a [D]ecision, the decretal portion of which pertinently
reads:
"On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement of the hearing
before the CTA scheduled on January 9, 2001, citing her pending application for ‘WHEREFORE, in view of all the foregoing, the instant [P]etition for [R]eview is hereby
compromise with the BIR. The motion was granted and the hearing was reset to February DENIED. Accordingly, [Reyes] is hereby ORDERED to PAY deficiency estate tax in the
6, 2001. amount of Nineteen Million Five Hundred Twenty Four Thousand Nine Hundred Nine and
78/100 (P19,524,909.78), computed as follows:
"On January 29, 2001, [Reyes] moved for postponement of the hearing set on February 6,
2001, this time on the ground that she had already paid the compromise amount xxxxxxxxx
of P1,062,778.20 but was still awaiting approval of the National Evaluation Board (or
‘NEB’). The CTA granted the motion and reset the hearing to February 27, 2001.
‘[Reyes] is likewise ORDERED to PAY 20% delinquency interest on deficiency estate tax
due of P17,934,382.13 from January 11, 2001 until full payment thereof pursuant to Section
"On February 19, 2001, [Reyes] filed a Motion to Declare Application for the Settlement of 249(c) of the Tax Code, as amended.’
Disputed Assessment as a Perfected Compromise. In said motion, she alleged that [the CIR]
had not yet signed the compromise[,] because of procedural red tape requiring the initials
of four Deputy Commissioners on relevant documents before the compromise is signed by "In arriving at its decision, the CTA ratiocinated that there can only be a perfected and
the [CIR]. [Reyes] posited that the absence of the requisite initials and signature[s] on said consummated compromise of the estate’s tax liability[,] if the NEB has approved [Reyes’s]
documents does not vitiate the perfected compromise. application for compromise in accordance with RR No. 6-2000, as implemented by RMO
No. 42-2000.
"Commenting on the motion, [the CIR] countered that[,] without the approval of the NEB,
[Reyes’s] application for compromise with the BIR cannot be considered a perfected or "Anent the validity of the assessment notice and letter of demand against the estate, the CTA
consummated compromise. stated that ‘at the time the questioned assessment notice and letter of demand were issued,
the heirs knew very well the law and the facts on which the same were based.’ It also
observed that the petition was not filed within the 30-day reglementary period provided
"On March 9, 2001, the CTA denied [Reyes’s] motion, prompting her to file a Motion for under Sec. 11 of Rep. Act No. 1125 and Sec. 228 of the Tax Code."5
Reconsideration Ad Cautelam. In a [R]esolution dated April 10, 2001, the CTA denied the
[M]otion for [R]econsideration with the suggestion that[,] for an orderly presentation of her
case and to prevent piecemeal resolutions of different issues, [Reyes] should file a Ruling of the Court of Appeals
[S]upplemental [P]etition for [R]eview[,] setting forth the new issue of whether there was
already a perfected compromise. In partly granting the Petition, the CA said that Section 228 of the Tax Code and RR 12-99
were mandatory and unequivocal in their requirement. The assessment notice and the
"On May 2, 2001, [Reyes] filed a Supplemental Petition for Review with the CTA, followed demand letter should have stated the facts and the law on which they were based; otherwise,
on June 4, 2001 by its Amplificatory Arguments (for the Supplemental Petition for Review), they were deemed void.6 The appellate court held that while administrative agencies, like
raising the following issues: the BIR, were not bound by procedural requirements, they were still required by law and
equity to observe substantive due process. The reason behind this requirement, said the CA,
was to ensure that taxpayers would be duly apprised of -- and could effectively protest --
‘1. Whether or not an offer to compromise by the [CIR], with the acquiescence by the the basis of tax assessments against them.7Since the assessment and the demand were void,
Secretary of Finance, of a tax liability pending in court, that was accepted and paid by the the proceedings emanating from them were likewise void, and any order emanating from
taxpayer, is a perfected and consummated compromise. them could never attain finality.

5
The appellate court added, however, that it was premature to declare as perfected and In the present case, Reyes was not informed in writing of the law and the facts on which the
consummated the compromise of the estate’s tax liability. It explained that, where the basic assessment of estate taxes had been made. She was merely notified of the findings by the
tax assessed exceeded P1 million, or where the settlement offer was less than the prescribed CIR, who had simply relied upon the provisions of former Section 229 13 prior to its
minimum rates, the National Evaluation Board’s (NEB) prior evaluation and approval were amendment by Republic Act (RA) No. 8424, otherwise known as the Tax Reform Act of
the conditio sine qua non to the perfection and consummation of any compromise. 8Besides, 1997.
the CA pointed out, Section 204(A) of the Tax Code applied to all compromises, whether
government-initiated or not.9 Where the law did not distinguish, courts too should not First, RA 8424 has already amended the provision of Section 229 on protesting an
distinguish. assessment. The old requirement of merely notifying the taxpayer of the CIR’s findings was
changed in 1998 to informing the taxpayer of not only the law, but also of the facts on which
Hence, this Petition.10 an assessment would be made; otherwise, the assessment itself would be invalid.

The Issues It was on February 12, 1998, that a preliminary assessment notice was issued against the
estate. On April 22, 1998, the final estate tax assessment notice, as well as demand letter,
In GR No. 159694, petitioner raises the following issues for the Court’s consideration: was also issued. During those dates, RA 8424 was already in effect. The notice required
under the old law was no longer sufficient under the new law.
"I.
To be simply informed in writing of the investigation being conducted and of the
recommendation for the assessment of the estate taxes due is nothing but a perfunctory
Whether petitioner’s assessment against the estate is valid. discharge of the tax function of correctly assessing a taxpayer. The act cannot be taken to
mean that Reyes already knew the law and the facts on which the assessment was based. It
"II. does not at all conform to the compulsory requirement under Section 228. Moreover, the
Letter of Authority received by respondent on March 14, 1997 was for the sheer purpose of
Whether respondent can validly argue that she, as well as the other heirs, was not aware of investigation and was not even the requisite notice under the law.
the facts and the law on which the assessment in question is based, after she had opted to
propose several compromises on the estate tax due, and even prematurely acting on such The procedure for protesting an assessment under the Tax Code is found in Chapter III of
proposal by paying 20% of the basic estate tax due."11 Title VIII, which deals with remedies. Being procedural in nature, can its provision then be
applied retroactively? The answer is yes.
The foregoing issues can be simplified as follows: first, whether the assessment against the
estate is valid; and, second, whether the compromise entered into is also valid. The general rule is that statutes are prospective. However, statutes that are remedial, or that
do not create new or take away vested rights, do not fall under the general rule against the
The Court’s Ruling retroactive operation of statutes.14 Clearly, Section 228 provides for the procedure in case
an assessment is protested. The provision does not create new or take away vested rights. In
both instances, it can surely be applied retroactively. Moreover, RA 8424 does not state,
The Petition is unmeritorious. either expressly or by necessary implication, that pending actions are excepted from the
operation of Section 228, or that applying it to pending proceedings would impair vested
First Issue: rights.

Validity of the Assessment Against the Estate Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no
moment, considering that it merely implements the law.
The second paragraph of Section 228 of the Tax Code12 is clear and mandatory. It provides
as follows: A tax regulation is promulgated by the finance secretary to implement the provisions of the
Tax Code.15 While it is desirable for the government authority or administrative agency to
have one immediately issued after a law is passed, the absence of the regulation does not
"Sec. 228. Protesting of Assessment. --
automatically mean that the law itself would become inoperative.

xxxxxxxxx
At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that the
taxpayer must be informed of both the law and facts on which the assessment was based.
"The taxpayers shall be informed in writing of the law and the facts on which the assessment Thus, the CIR should have required the assessment officers of the Bureau of Internal
is made: otherwise, the assessment shall be void." Revenue (BIR) to follow the clear mandate of the new law. The old regulation governing

6
the issuance of estate tax assessment notices ran afoul of the rule that tax regulations -- old Fifth, the rule against estoppel does not apply. Although the government cannot be estopped
as they were -- should be in harmony with, and not supplant or modify, the law.16 by the negligence or omission of its agents, the obligatory provision on protesting a tax
assessment cannot be rendered nugatory by a mere act of the CIR .
It may be argued that the Tax Code provisions are not self-executory. It would be too wide
a stretch of the imagination, though, to still issue a regulation that would simply require tax Tax laws are civil in nature.22 Under our Civil Code, acts executed against the mandatory
officials to inform the taxpayer, in any manner, of the law and the facts on which an provisions of law are void, except when the law itself authorizes the validity of those
assessment was based. That requirement is neither difficult to make nor its desired results acts.23 Failure to comply with Section 228 does not only render the assessment void, but
hard to achieve. also finds no validation in any provision in the Tax Code. We cannot condone errant or
enterprising tax officials, as they are expected to be vigilant and law-abiding.
Moreover, an administrative rule interpretive of a statute, and not declarative of certain
rights and corresponding obligations, is given retroactive effect as of the date of the Second Issue:
effectivity of the statute.17 RR 12-99 is one such rule. Being interpretive of the provisions
of the Tax Code, even if it was issued only on September 6, 1999, this regulation was to Validity of Compromise
retroact to January 1, 1998 -- a date prior to the issuance of the preliminary assessment
notice and demand letter.
It would be premature for this Court to declare that the compromise on the estate tax liability
has been perfected and consummated, considering the earlier determination that the
Third, neither Section 229 nor RR 12-85 can prevail over Section 228 of the Tax Code. assessment against the estate was void. Nothing has been settled or finalized. Under Section
204(A) of the Tax Code, where the basic tax involved exceeds one million pesos or the
No doubt, Section 228 has replaced Section 229. The provision on protesting an assessment settlement offered is less than the prescribed minimum rates, the compromise shall be
has been amended. Furthermore, in case of discrepancy between the law as amended and its subject to the approval of the NEB composed of the petitioner and four deputy
implementing but old regulation, the former necessarily prevails.18 Thus, between Section commissioners.
228 of the Tax Code and the pertinent provisions of RR 12-85, the latter cannot stand
because it cannot go beyond the provision of the law. The law must still be followed, even Finally, as correctly held by the appellate court, this provision applies to all compromises,
though the existing tax regulation at that time provided for a different procedure. The whether government-initiated or not. Ubi lex non distinguit, nec nos distinguere debemos.
regulation then simply provided that notice be sent to the respondent in the form prescribed, Where the law does not distinguish, we should not distinguish.
and that no consequence would ensue for failure to comply with that form.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. No
Fourth, petitioner violated the cardinal rule in administrative law that the taxpayer be pronouncement as to costs.
accorded due process. Not only was the law here disregarded, but no valid notice was sent,
either. A void assessment bears no valid fruit.
SO ORDERED.
The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly
with tax collection without first establishing a valid assessment is evidently violative of the
cardinal principle in administrative investigations: that taxpayers should be able to present
their case and adduce supporting evidence.19 In the instant case, respondent has not been
informed of the basis of the estate tax liability. Without complying with the unequivocal
mandate of first informing the taxpayer of the government’s claim, there can be no
deprivation of property, because no effective protest can be made. 20 The haphazard shot at
slapping an assessment, supposedly based on estate taxation’s general provisions that are
expected to be known by the taxpayer, is utter chicanery.

Even a cursory review of the preliminary assessment notice, as well as the demand letter
sent, reveals the lack of basis for -- not to mention the insufficiency of -- the gross figures
and details of the itemized deductions indicated in the notice and the letter. This Court
cannot countenance an assessment based on estimates that appear to have been arbitrarily
or capriciously arrived at. Although taxes are the lifeblood of the government, their
assessment and collection "should be made in accordance with law as any arbitrariness will
negate the very reason for government itself."21

7
TAX REMEDIES: ASSESSMENT (Definition and Requisites of a Valid Assessment) filed a "Motion for Allowance of Claim and for an Order of Payment of Taxes" with the
court a quo. On January 7, 1985, Mr. Ambrosio filed a letter of protest with the Litigation
G.R. No. 155541 January 27, 2004 Division of the BIR, which was not acted upon because the assessment notice had allegedly
become final, executory and incontestable.
ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL, petitioner,
vs. On May 16, 1985, petitioner, the Estate of the decedent, through Mr. Ambrosio, filed a
COMMISSIONER OF INTERNAL REVENUE, respondent. formal opposition to the BIR’s Motion for Allowance of Claim based on the ground that
there was no proper service of the assessment and that the filing of the aforesaid claim had
already prescribed. The BIR filed its Reply, contending that service to Philippine Trust
YNARES-SANTIAGO, J.: Company was sufficient service, and that the filing of the claim against the Estate on
November 22, 1984 was within the five-year prescriptive period for assessment and
This petition for review on certiorari assails the decision of the Court of Appeals in CA- collection of taxes under Section 318 of the 1977 National Internal Revenue Code (NIRC).
G.R. CV No. 09107, dated September 30, 2002,1 which reversed the November 19, 1995
Order of Regional Trial Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, On November 19, 1985, the court a quo issued an Order denying respondent’s claim against
entitled "Testate Estate of Juliana Diez Vda. De Gabriel". The petition was filed by the the Estate,2 after finding that there was no notice of its tax assessment on the proper party. 3
Estate of the Late Juliana Diez Vda. De Gabriel, represented by Prudential Bank as its duly
appointed and qualified Administrator.
On July 2, 1986, respondent filed an appeal with the Court of Appeals, docketed as CA-
G.R. CV No. 09107,4assailing the Order of the probate court dated November 19, 1985. It
As correctly summarized by the Court of Appeals, the relevant facts are as follows: was claimed that Philtrust, in filing the decedent’s 1978 income tax return on April 5, 1979,
two days after the taxpayer’s death, had "constituted itself as the administrator of the estate
During the lifetime of the decedent, Juliana Vda. De Gabriel, her business affairs of the deceased at least insofar as said return is concerned."5 Citing Basilan Estate Inc. v.
were managed by the Philippine Trust Company (Philtrust). The decedent died on Commissioner of Internal Revenue,6 respondent argued that the legal requirement of notice
April 3, 1979. Two days after her death, Philtrust, through its Trust Officer, Atty. with respect to tax assessments7 requires merely that the Commissioner of Internal Revenue
Antonio M. Nuyles, filed her Income Tax Return for 1978. The return did not release, mail and send the notice of the assessment to the taxpayer at the address stated in
indicate that the decedent had died. the return filed, but not that the taxpayer actually receive said assessment within the five-
year prescriptive period.8 Claiming that Philtrust had been remiss in not notifying
On May 22, 1979, Philtrust also filed a verified petition for appointment as Special respondent of the decedent’s death, respondent therefore argued that the deficiency tax
Administrator with the Regional Trial Court of Manila, Branch XXXVIII, docketed as Sp. assessment had already become final, executory and incontestable, and that petitioner Estate
Proc. No. R-82-6994. The court a quo appointed one of the heirs as Special Administrator. was liable therefor.
Philtrust’s motion for reconsideration was denied by the probate court.
On September 30, 2002, the Court of Appeals rendered a decision in favor of the respondent.
On January 26, 1981, the court a quo issued an Order relieving Mr. Diez of his appointment, Although acknowledging that the bond of agency between Philtrust and the decedent was
and appointed Antonio Lantin to take over as Special Administrator. Subsequently, on July severed upon the latter’s death, it was ruled that the administrator of the Estate had failed in
30, 1981, Mr. Lantin was also relieved of his appointment, and Atty. Vicente Onosa was its legal duty to inform respondent of the decedent’s death, pursuant to Section 104 of the
appointed in his stead. National Internal Revenue Code of 1977. Consequently, the BIR’s service to Philtrust of the
demand letter and Notice of Assessment was binding upon the Estate, and, upon the lapse
of the statutory thirty-day period to question this claim, the assessment became final,
In the meantime, the Bureau of Internal Revenue conducted an administrative investigation executory and incontestable. The dispositive portion of said decision reads:
on the decedent’s tax liability and found a deficiency income tax for the year 1977 in the
amount of P318,233.93. Thus, on November 18, 1982, the BIR sent by registered mail a
demand letter and Assessment Notice No. NARD-78-82-00501 addressed to the decedent WHEREFORE, finding merit in the appeal, the appealed decision is REVERSED
"c/o Philippine Trust Company, Sta. Cruz, Manila" which was the address stated in her 1978 AND SET ASIDE. Another one is entered ordering the Administrator of the Estate
Income Tax Return. No response was made by Philtrust. The BIR was not informed that the to pay the Commissioner of Internal Revenue the following:
decedent had actually passed away.
a. The amount of P318,223.93, representing the deficiency income tax
In an Order dated September 5, 1983, the court a quo appointed Antonio Ambrosio as the liability for the year 1978, plus 20% interest per annum from November 2,
Commissioner and Auditor Tax Consultant of the Estate of the decedent. 1982 up to November 2, 1985 and in addition thereto 10% surcharge on the
basic tax of P169,155.34 pursuant to Section 51(e)(2) and (3) of the Tax
Code as amended by PD 69 and 1705; and
On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of
distraint and levy to enforce collection of the decedent’s deficiency income tax liability,
which were served upon her heir, Francisco Gabriel. On November 22, 1984, respondent b. The costs of the suit.

8
 SO ORDERED.9 Since the relationship between Philtrust and the decedent was automatically severed at the
moment of the Taxpayer’s death, none of Philtrust’s acts or omissions could bind the estate
Hence, the instant petition, raising the following issues: of the Taxpayer. Service on Philtrust of the demand letter and Assessment Notice No.
NARD-78-82-00501 was improperly done.
1. Whether or not the Court of Appeals erred in holding that the service of deficiency
tax assessment against Juliana Diez Vda. de Gabriel through the Philippine Trust It must be noted that Philtrust was never appointed as the administrator of the Estate of the
Company was a valid service in order to bind the Estate; decedent, and, indeed, that the court a quo twice rejected Philtrust’s motion to be thus
appointed. As of November 18, 1982, the date of the demand letter and Assessment Notice,
the legal relationship between the decedent and Philtrust had already been non-existent
2. Whether or not the Court of Appeals erred in holding that the deficiency tax for three years.
assessment and final demand was already final, executory and incontestable.
Respondent claims that Section 104 of the National Internal Revenue Code of 1977 imposed
Petitioner Estate denies that Philtrust had any legal personality to represent the decedent the legal obligation on Philtrust to inform respondent of the decedent’s death. The said
after her death. As such, petitioner argues that there was no proper notice of the assessment Section reads:
which, therefore, never became final, executory and incontestable.10 Petitioner further
contends that respondent’s failure to file its claim against the Estate within the proper period
prescribed by the Rules of Court is a fatal error, which forever bars its claim against the SEC. 104. Notice of death to be filed. – In all cases of transfers subject to tax or
Estate.11 where, though exempt from tax, the gross value of the estate exceeds three thousand
pesos, the executor, administrator, or any of the legal heirs, as the case may be,
within two months after the decedent’s death, or within a like period after qualifying
Respondent, on the other hand, claims that because Philtrust filed the decedent’s income tax as such executor or administrator, shall give written notice thereof to the
return subsequent to her death, Philtrust was the de facto administrator of her Commissioner of Internal Revenue.
Estate.12 Consequently, when the Assessment Notice and demand letter dated November 18,
1982 were sent to Philtrust, there was proper service on the Estate.13Respondent further
asserts that Philtrust had the legal obligation to inform petitioner of the decedent’s death, The foregoing provision falls in Title III, Chapter I of the National Internal Revenue
which requirement is found in Section 104 of the NIRC of 1977. 14 Since Philtrust did not, Code of 1977, or the chapter on Estate Tax, and pertains to "all cases of transfers
respondent contends that petitioner Estate should not be allowed to profit from this subject to tax" or where the "gross value of the estate exceeds three thousand pesos".
omission.15 Respondent further argues that Philtrust’s failure to protest the aforementioned It has absolutely no applicability to a case for deficiency income tax, such as the
assessment within the 30-day period provided in Section 319-A of the NIRC of 1977 meant case at bar. It further lacks applicability since Philtrust was never the executor,
that the assessment had already become final, executory and incontestable. 16 administrator of the decedent’s estate, and, as such, never had the legal obligation,
based on the above provision, to inform respondent of her death.
The resolution of this case hinges on the legal relationship between Philtrust and the
decedent, and, by extension, between Philtrust and petitioner Estate. Subsumed under this Although the administrator of the estate may have been remiss in his legal obligation
primary issue is the sub-issue of whether or not service on Philtrust of the demand letter and to inform respondent of the decedent’s death, the consequences thereof, as provided
Assessment Notice No. NARD-78-82-00501 was valid service on petitioner, and the issue in Section 119 of the National Internal Revenue Code of 1977, merely refer to the
of whether Philtrust’s inaction thereon could bind petitioner. If both sub-issues are answered imposition of certain penal sanctions on the administrator. These do not include the
in the affirmative, respondent’s contention as to the finality of Assessment Notice No. indefinite tolling of the prescriptive period for making deficiency tax assessments,
NARD-78-82-00501 must be answered in the affirmative. This is because Section 319-A of or the waiver of the notice requirement for such assessments.
the NIRC of 1977 provides a clear 30-day period within which to protest an assessment.
Failure to file such a protest within said period means that the assessment ipso jure becomes Thus, as of November 18, 1982, the date of the demand letter and Assessment Notice
final and unappealable, as a consequence of which legal proceedings may then be initiated No. NARD-78-82-00501, there was absolutely no legal obligation on the part of
for collection thereof. Philtrust to either (1) respond to the demand letter and assessment notice, (2) inform
respondent of the decedent’s death, or (3) inform petitioner that it had received said
We find in favor of the petitioner. demand letter and assessment notice. This lack of legal obligation was implicitly
recognized by the Court of Appeals, which, in fact, rendered its assailed decision on
grounds of "equity".17
The first point to be considered is that the relationship between the decedent and Philtrust
was one of agency, which is a personal relationship between agent and principal. Under
Article 1919 (3) of the Civil Code, death of the agent or principal automatically terminates Since there was never any valid notice of this assessment, it could not have become final,
the agency. In this instance, the death of the decedent on April 3, 1979 automatically severed executory and incontestable, and, for failure to make the assessment within the five-year
the legal relationship between her and Philtrust, and such could not be revived by the mere period provided in Section 318 of the National Internal Revenue Code of 1977, respondent’s
fact that Philtrust continued to act as her agent when, on April 5, 1979, it filed her Income claim against the petitioner Estate is barred. Said Section 18 reads:
Tax Return for the year 1978.

9
 SEC. 318. Period of limitation upon assessment and collection. – Except as initiated in court for the collection of said tax,21 and respondent’s claim for collection, filed
provided in the succeeding section, internal revenue taxes shall be assessed within with the probate court only on November 22, 1984, was barred for having been made beyond
five years after the return was filed, and no proceeding in court without assessment the five-year prescriptive period set by law.
for the collection of such taxes shall be begun after the expiration of such period.
For the purpose of this section, a return filed before the last day prescribed by law WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-
for the filing thereof shall be considered as filed on such last day: Provided, That G.R. CV No. 09107, dated September 30, 2002, is REVERSED and SET ASIDE. The Order
this limitation shall not apply to cases already investigated prior to the approval of the Regional Trial Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, dated
of this Code. November 19, 1985, which denied the claim of the Bureau of Internal Revenue against the
Estate of Juliana Diez Vda. De Gabriel for the deficiency income tax of the decedent for the
Respondent argues that an assessment is deemed made for the purpose of giving effect to year 1977 in the amount of P318,223.93, is AFFIRMED.
such assessment when the notice is released, mailed or sent to the taxpayer to effectuate the
assessment, and there is no legal requirement that the taxpayer actually receive said notice No pronouncement as to costs.
within the five-year period.18 It must be noted, however, that the foregoing rule requires that
the notice be sent to the taxpayer, and not merely to a disinterested party. Although there is
no specific requirement that the taxpayer should receive the notice within the said period, SO ORDERED.
due process requires at the very least that such notice actually be received. In Commissioner
of Internal Revenue v. Pascor Realty and Development Corporation, 19 we had occasion to
say:

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
interests 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.

In Republic v. De le Rama,20 we clarified that, when an estate is under administration, notice

must be sent to the administrator of the estate, since it is the said administrator, as
representative of the estate, who has the legal obligation to pay and discharge all debts of
the estate and to perform all orders of the court. In that case, legal notice of the assessment
was sent to two heirs, neither one of whom had any authority to represent the estate. We
said:

The notice was not sent to the taxpayer for the purpose of giving effect to the
assessment, and said notice could not produce any effect. In the case of Bautista and
Corrales Tan v. Collector of Internal Revenue … this Court had occasion to state
that "the assessment is deemed made when the notice to this effect is released,
mailed or sent to the taxpayer for the purpose of giving effect to said assessment." It
appearing that the person liable for the payment of the tax did not receive the
assessment, the assessment could not become final and executory. (Citations
omitted, emphasis supplied.)

In this case, the assessment was served not even on an heir of the Estate, but on a completely
disinterested third party. This improper service was clearly not binding on the petitioner.

By arguing that (1) the demand letter and assessment notice were served on Philtrust, (2)
Philtrust was remiss in its obligation to respond to the demand letter and assessment notice,
(3) Philtrust was remiss in its obligation to inform respondent of the decedent’s death, and
(4) the assessment notice is therefore binding on the Estate, respondent is arguing in circles.
The most crucial point to be remembered is that Philtrust had absolutely no legal relationship
to the deceased, or to her Estate. There was therefore no assessment served on the Estate as
to the alleged underpayment of tax. Absent this assessment, no proceedings could be

10
TAX REMEDIES: ASSESSMENT (Definition and Requisites of a Valid Assessment) On September 3, 1964 the Court of Tax Appeals held that the assessments in controversy,
which allegedly did not conform with the provisions of the Department of Finance's
G.R. No. L-24213 March 13, 1968 Provincial Circular dated February 7, 1940, were merely "erroneous", rather than "illegal'
and "null and void", for which reason it was incumbent upon Victorias to prosecute its
appeal first in the Provincial Board of Assessment Appeals before resorting to the courts.
VICTORIAS MILLING CO., INC., petitioner, The Tax Court consequently dismiss the case with costs against Victorias Hence, this appeal
vs. of Victorias.
THE COURT OF TAX APPEALS, THE PROVINCIAL ASSESSOR AND THE
PROVINCIAL TREASURER OF NEGROS OCCIDENTAL, respondents.
The issue is whether or not the Court of First Instance had jurisdiction to entertain the
complaint of Victorias.
BENGZON, J.P., J.:
It is settled in our jurisdiction that where an assessment is illegal and void, the remedy of a
In 1947 the Provincial Assessor assessed for purposes of the 1948 real property tax, taxpayer, who already paid the realty tax under protest, is to court of first instance. On the
machineries belonging to Victorias Milling Co., Inc. at a value of P4,012,180.00 after other hand, where the assessment is merely erroneous, his recourse is to file an appeal in the
allowing a deduction of 50% for depreciation. In due time, Victories Milling Co., Inc. Provincial Board of Assessment Appeals within 60 days from receipt of the assessment. 3
(Victorias for short) paid under protest the corresponding tax.
Victorias maintains that the assessments in question are illegal and void because they
For the year 1949, the same machineries were assessed at P3,904,310.00, which is contravene mandatory provisions of Provincial Circular (unnumbered) dated February 7,
equivalent to the assessed value for 1948 minus 3% depreciation. Victorias again paid the 1940, of the Department of Finance, which, being a regulation promulgated pursuant to
tax under protest. Section 57 of the Assessment Law which states:

For the years 1950 through 1953 the same and other machineries were assessed. The Sec. 57. Promulgation of Rules by the Secretary of Finance. — The Secretary of
corresponding taxes due on the said machineries were paid under protest. Finance shall promulgate rules and prescribe the blank forms to be used and
procedure to be followed in carrying out the provisions of this Act.
Victorias, however, did not appeal from all the aforesaid assessments to the Provincial
Board of Assessment Appeals as required in Section 17 of the Assessment Law. Instead, on has the force and effect of law.
April 24, 1953 it filed a complaint with the Court of First Instance of Negros Occidental
against the Provincial Treasurer of Negros Occidental, alleging inter alia, that the assessor
erroneously did not follow the "straight line method" in determining the depreciation of its On the other hand, respondents contend that the assessments are simply erroneous on the
machineries as provided for by Provincial Circular (unnumbered) dated February 7, 1940 ground that the method used in depreciating the machineries was the "fixed percentage of
of the Department of Finance; that for the tax year 1948 the value of its pre-war machineries diminishing book value method", instead of the "straight line method" as dictated in the
should be depreciated at 74% 1 instead of only 50%; and that depreciation for 1949, 1950, aforecited provincial circular.
1951, 1952 and 1953 should be at 77%, 80%, 83%, 86%, and 89%, respectively. It prayed
for the refund of the sum of P134,969.70. In the "fixed percentage of diminishing book value method", the rate of yearly depreciation
remains the same but the base — the book value — upon which the rate is applied diminishes
The Court of First Instance of Negros Occidental found for Victorias and ordered refund in from year to year. For instance, the depreciation of a machinery which costs P100,000.00,
the total amount of P134,969.70. The Provincial Treasurer appealed to this Court in L-11523 depreciated at 57% is as follows:
but his appeal was dismissed on June 11, 1957 for failure to file brief.
Book Value Depreciation
On October 3, 1957, upon motion of Victorias, the Court of First Instance of Negros
Occidental issued a writ of execution, but before said writ could be enforced the Provincial First year, 5% of P100,000.00 P5,000.00
Treasurer filed with this Court a petition for certiorari prohibition and injunction with
preliminary injunction, seeking to enjoin the enforcement of the writ of execution and to
Second year, 5% of 95,000.00 4,750.00
declare null and void the judgment ordering refund.2
Third year, 5% of 90,250.00 4,512.50
On July 30, 1962 this Court set aside the aforesaid judgment for the reason that at the time
the judgment was rendered on January 24, 1956 the trial court did not have jurisdiction over
the case, jurisdiction having been transferred to the Court of Tax Appeals pursuant to
Section 22 of Republic Act 1125. Consequently, the case was remanded to the Court of Tax
Appeals for further appropriate proceedings.

11
Whereas, in the "straight-line method," the rate and the base — the cost — are constant. For
example, the depreciation of the same machinery depreciated at the same rate, will be as
follows:

Book Value Depreciation

First year, 5% of P100,000.00 P100,000.00 P5,000.00

Second year, 5% of 100,000.00 95,000.00 5,000.00

Third year, 5% of 100,000.00 90,000.00 5,000.00

An assessment is illegal and void when the assessor has no power to act at all. It is erroneous
when the assessor has the power but errs in the exercise of that power. 4

In this case, the Provincial Assessor of Negros Occidental had the power to make the
assessments in question under Section 7 of the Assessment Law. At any rate, the authority
of the assessor is not disputed by Victorias.

Since the Provincial Assessor had the power to make the assessments, but in the exercise of
such power he deviated from the procedure set down by law, in that he employed the "fixed
percentage of diminishing book value method" instead of the "straight line method" in
depreciating the machineries, logically, the assessment should be considered as erroneous.
In which event, Victoria's remedy, pursuant to Section 17 of the Assessment Law, was to
appeal to the Provincial Board of Assessment Appeals.

By the doctrine of the primacy of administrative remedy, the Provincial Board of

Assessment Appeals had jurisdiction over the dispute to the exclusion of the Court of First
Instance.5

WHEREFORE, the decision appealed from is hereby affirmed. No costs. So ordered.

12
TAX REMEDIES: ASSESSMENT (Definition and Requisites of a Valid Assessment) But the claim that freight tickets of bus companies are not “bills of lading or receipts” within
the meaning of the Documentary Stamp Tax Law is without merit. Bills of lading, in modern
[G.R. No. L-6741. January 31, 1956.] jurisprudence, are not those issued by masters of vessels alone; they now comprehend all
forms of transportation, whether by sea or land, and includes bus receipts for cargo
INTERPROVINCIAL AUTOBUS CO., INC., Petitioner, vs. COLLECTOR OF transported.
INTERNAL REVENUE, Respondent.
“The term ‘bill of lading’ is frequently defined, especially by the order authorities, as a
LABRADOR, J.: writing signed by the master of a vessel acknowledging the receipt of goods on board to be
transported to a certain part and there delivered to a designated person or on his order. This
This is an appeal by way of certiorari from a decision of the Court of Appeals reversing the
definition was formulated at a time when goods were principally transported by sea and,
judgment of the Court of First Instance of Misamis Occidental in civil case No. 1161,
while adequate in view of the conditions existing at that early day, is too narrow to suit
entitled The Interprovincial Autobus Co., Inc., Plaintiff versus Bibiano L. Meer as Collector
present conditions. As comprehending all methods of transportation, a bill of lading may be
of Internal Revenue, Defendant and absolving the Defendant- Appellant therein from the
defined as a written acknowledgment of the receipt of goods and an agreement to transport
complaint.
and to deliver them at a specified place to a person named or on his order. Such instruments
Plaintiff is a common carrier engaged in transporting passengers and freight by means of are sometimes called ‘shipping receipts,’ ‘forwarders’ receipts’ and ‘receipts for
TPU buses in Misamis Occidental and Northern Zamboanga. Sometime in the year 1941 transportation.’ The designation, however, is not material, and neither is the form of the
the provincial revenue agent for Misamis Occidental examined the stubs of the freight instrument. If it contains an acknowledgment by the carrier of the receipt of goods for
receipts that had been issued by the Plaintiff. He found that the stubs of the receipts issued transportation, it is, in legal effect, a bill of lading.” (9 Am. Jur. 662, Italics supplied.)
during the years 1936 to 1938 were not preserved; but those for the years 1939 to 1940 were
Section 227 of the National Internal Revenue Code imposes the tax on receipts for goods or
available. By referring, however, to the conductors’ daily reports for 1936 to 1938, he was
effects shipped from one port or place to another port or place in the Philippines. The use of
able to ascertain the number of receipts for those years and these, together with those for
the word place after port and of the word “receipt” shows that the receipts for goods shipped
1939 to 1940, gave a total during the 5-year period from 1936 to 1940, of 194,406 freight
on land are included.
receipts issued. Both the said daily reports of Plaintiff’s conductors and the available stubs
did not state the value of the goods transported thereunder. Pursuant, however, to sections The next claim involves the validity of Department of Finance Regulation No. 26 dated
121 and 127 of the Revised Documentary Stamp Tax Regulations of the Department of September 16, 1924, which provides:
Finance promulgated on September 16, 1924, he assumed that the value of the goods
covered by each of the above- mentioned freight receipts amounted to more than P5, and “SEC. 121. Basis of the tax and affixture of stamps. — Bills of lading are exempt from the
assessed a documentary stamp tax of P0.04 on each of the 194,406 receipts. The tax thus documentary stamp tax imposed by paragraphs (q) and (r) of section 1449 of the
assessed amounted to P7,776.24, which was collected from the deposit of the Plaintiff in the Administrative Code when the value of the goods shipped is P5 or less. Unless the bill of
Misamis Occidental branch of the Philippine National Bank. Plaintiff demanded the refund lading states that the goods are worth P5 or less, it must be held that the tax is due, and
of the amount, and upon refusal of the Defendant, Plaintiff filed the action. The Court of internal revenue officers will see to it that the tax is paid in all cases where the bill of lading
First Instance of Misamis Occidental having rendered judgment in favor of the Plaintiff, does not state that the shipment is worth P5 or less.”
the Defendant appealed to the Court of Appeals. This court reversed the decision appealed “SEC. 127. ‘Chits,’ memorandum slips, and other papers not in the usual commercial form
from and absolved the Defendant from the complaint. Hence, this appeal. of bills of lading, when used by common carriers in the transportation of merchandise or
In this Court Petitioner-Appellant presents the following propositions: (1) that the judgment goods for the collection of fees therefor are considered as bills of lading, and the original
of the Court of Appeals is null and void, because it had no jurisdiction of the case, which thereof issued or used should bear the documentary stamp as provided by paragraphs (q)
involves the validity of an assessment; (2) that the decision of the Court of Appeals is and (r) of section 1449 of the Administrative Code.”
erroneous because freight receipts are not bills of lading within the meaning of Section 1449, The above regulations were promulgated under the authority of section 79 (B) of the
sub-paragraph (r), of the Revised Administrative Code of 1917, and because the provision Administrative Code (originally section 2 of Act 2803), which expressly provides:
of section 121 of the Revised Documentary Stamp Tax Regulations, to the effect that if the
bill of lading fails to state the value of the goods shipped, it must be held that the tax is due, “The Department Head shall have power to promulgate, whenever he may see fit to do so,
is illegal; (3) that the documentary stamp tax on freight receipts should be paid by the all rules, regulations, orders, circulars, memorandums, and other instructions, not contrary
shipper of the merchandise, not by the carrier; and (4) that the collection of the tax is illegal to law, necessary to regulate the proper working and harmonious and efficient
because it was done beyond the period of limitation fixed by law for its collection. administration of each and all of the offices and dependencies of his Department, and for
the strict enforcement and proper execution of the laws relative to matters under the
The first proposition, that the Court of Appeals had no jurisdiction of the appeal from the jurisdiction of said Department; but none of said rules or orders shall prescribe penalties for
Court of First Instance, is well founded. Both the Constitution and the Judiciary Act of 1948 the violation thereof, except as expressly authorized by law.”
grant to the Supreme Court exclusive appellate jurisdiction over all cases involving the
legality of any tax, assessment, or toll, or any penalty in relation thereto. The Court of Did the Secretary of Finance infringe or violate any right of the taxpayer when he directed
Appeals in turn has no jurisdiction over cases the exclusive appellate jurisdiction of which that the tax is to be collected in all cases where the bill of lading or receipt does not state
is granted the Supreme-Court. As the legality or validity of the tax is involved in the present that the shipment is worth P5 or less, or, in the language of the Petitioner-Appellant, when
appeal the Supreme Court is the one that had jurisdiction thereof and the Court of Appeals he (Secretary) created a presumption of liability to the tax if the receipt fails to state such
had none. The decision of the Court of Appeals was, therefore, null and void. value? It cannot be denied that the regulation is merely a directive to the tax officers; it does
not purport to change or modify the law; it does not create a liability to the stamp tax when
13
the value of the goods does not appear on the face of the receipt. The practical usefulness of “The fact that an identical Treasury Regulation with regard to computation of stamp tax on
the directive becomes evident when account is taken of the fact that tax officers are in no conveyances had been in effect during several re-enactments of the statute was pursuasive
position to witness the issuance of receipts and check the value of the goods for which they evidence of congressional approval thereof..” (Railroad Federal Sav. and Loan Ass’n. vs.
are issued. If tax officers were to assess or collect the tax only when they find that the value United States, 135 F [2d], p. 290)
of the goods covered by the receipts is more than five pesos, the assessment and collection
of the tax would be well-nigh impossible, as it is impossible for tax collectors to determine “The law, I believe, is now settled that substantial re-enactment of legislation which has
from the receipts alone, if they do not contain the value of the goods, whether the goods been construed by Treasury regulations is at least strong evidence of legislative approval of
receipted for exceed P5, or not. The regulation impliedly required the statement of the value such construction. It is presumed that Congress knew of the existing administrative
of the goods in the receipts; so that the collection of the tax can be enforced. This interpretations of the statute.” (Cargill vs. United States, 46 F. Supp. 712, 716.)
the Petitioner-Appellant failed to do and he now claims the unreasonableness of the “Regulations promulgated by the Commissioner of Internal Revenue under authority of the
provision as a basis for his exemption. We find that the regulation is not only useful, Revenue Act of 1928 acquired the effect of law by substantial re-enactment of provision of
practical and necessary for the enforcement of the law on the tax on bills of lading and the 1928 Act in the 1932 Revenue Act.” (S. Slater & Sons, Inc., vs. White, etc., 33 F. Supp.
receipts, but also reasonable in its provisions. 329, 330.)
The regulation above quoted falls within the scope of the administrative power of the It is to be noted that the regulation does not purport to modify or change the law in the sense
Secretary of Finance, as authorized in Section 79 (B) of the Revised Administrative Code, that when the value of the merchandise (for which the receipt is issued) does not appear
because it is essential to the strict enforcement and proper execution of the law which it thereon the tax shall always be imposed. Such a meaning would have the effect of changing
seeks to implement. Said regulations have the force and effect of law. the law; the regulation should not be understood in this illegal or authorized sense. The
“In the very nature of things in many cases it becomes impracticable for the legislative regulation should be considered merely as a directive to internal revenue officers to assess
department of the Government to provide general regulations for the various and varying the tax and collect the same. As already adverted to, it only creates a presumption of the
details for the management of a particular department of the Government. It therefore liability of the taxpayer, which presumption, however, is not conclusive upon the taxpayer
becomes convenient for the legislative department of the Government, by Law, in a most who can adduce evidence that the tax is not collectible because the value of the merchandise
general way, to provide for the conduct, control and management of the work of the concerned does not exceed the amount of P5. It was in pursuance of this interpretation of
particular department of the Government; to authorize certain persons, in charge of the the regulation that the trial court permitted evidence to be introduced to show that
management, control, and direction of the particular department, to adopt certain rules and the Petitioner-Appellant is not subject to the tax on the receipts.
regulations providing for the detail of the management and control of such department. Such Claim is made that the evidence submitted by the Petitioner- Appellant proved that the
regulations have uniformly been held to have the force of law, whenever they are found to freight receipts covered shipment of merchandise worth not more than P5. It is argued in
be in consonance and in harmony with the general purposes and objects of the law. Many support of this claim that the said freight receipts were issued to people carrying agricultural
illustrations might be given. For instance, the Civil Service Board is given authority to produce from one place to another, perhaps from their farms to the towns or to their
examine applicants for various positions within the Government service. The law generally residences. The Court of Appeals’ decision, upon which the claim is made, does not state
provides the conditions in a most general way, authorizing the chief of such Bureau to that said receipts were actually issued for shipments the value of which was not more than
provide rules and regulations for the management of the conduct of examinations, etc. The P5 each. The decision of the Court of Appeals in fact is that the Petitioner-
law provides that the Collector of Customs shall examine persons who become applicants Appellant “merely tried to establish through his witnesses” the facts above mentioned,
to act as captains of ships for the coastwise trade, providing at the same time that the which is not a finding that the receipts covered merchandise more than P5 in value. Upon
Collector of Customs shall establish rules and regulations for such examinations. Such consideration of the claim and the testimonies with which it is supported, we are unable to
regulations, once established and found to be in conformity with the general purposes of the agree with said contention. It is a common knowledge that when barrio residents or those
law, are just as binding upon all of the parties, as if the regulations had been written in the living in farms go to town and bring along with them their daily needs on their daily produce,
original law itself. they ordinarily do not secure receipts for these baggages or cargoes but keep these under
Another reason for sustaining the validity of the regulation may be found in the principle of their seats. The common practice is for a passenger carrying cargoes of small value not to
legislative approval by re-enactment. The regulations were approved on September 16, secure receipts therefor; for convenience and economy he keeps them under his seat in the
1924. When the National Internal Revenue Code was approved on February 18, 1939, the bus so as to make them easily accessible when he goes down, and at the same time save the
same provisions on stamp tax, bills of lading and receipts were reenacted. There is a few centavos that the issuance of the receipt entails. On the other hand, receipts for valuable
presumption that the Legislature reenacted the law on the tax with full knowledge of the cargo are demanded, to insure against their loss. Our conclusion is that the receipts must
contents of the regulations then in force regarding bills of lading and receipts, and that it have been issued for shipments or merchandise in excess of P5 in value. The evidence
approved or confirmed them because they carry out the legislative purpose. submitted notwithstanding, the fact that it has not been contradicted fails to prove to our
satisfaction that the merchandise for which receipts were issued were actually worth P5 or
“Of course, the rule does not operate to freeze a meaning which is in evident conflict with less. Furthermore, the rule is that in actions for the recovery of taxes assessed and collected,
the clearly expressed legislative intent. Helvering vs. Hallock, 309 U. S. 106, 119-121, 60 the taxpayer has the burden of proving that the assessment is illegal.
S. Ct. 444, 84 L. Ed. 604 A.L.R. 1368. But where a statute is susceptible of the meaning
placed upon it by Treasury ruling and Congress thereafter reenacts the provision without “All presumptions are in favor of the correctness of tax assessments. The good faith of tax
substantial change, such action is to some extent confirmatory that the ruling carries out the assessors and the validity of their actions are presumed. They will be presumed to have
congressional purpose.” (Mead Corporation vs. Commissioner of Internal Revenue) 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 counties who have

14
to do with the assessment of property for taxation will knowingly violate the duties imposed
upon them by law.”
“As a logical outgrowth of the presumption in favor of the validity of assessments, when
such assessments are assailed, the burden of proof is upon the complaining party. It is
incumbent upon the property owner clearly to show that the assessment was erroneous, in
order to relieve himself from it.” (51 Am. Jur. pp. 620-621.)
“The burden is on him who seeks the recovery of a tax already paid to establish those facts
which show its invalidity. United States vs. Anderson, 269 U. S. 422, 428, 70 L. ed. 347, 46
Sup. Ct. Rep. 131; Fidelity Title & T. Co. vs. United States, 259 U. S. 304, 306, 66 L. ed.,
953, 954, 42 Sup. Ct. Rep. 514.” (Compañia General de Tabacos vs. Collector of Int. Rev.,
73 L. ed., 704, 706.)
“But the presumption is that taxes paid are rightly collected upon assessments correctly
made by the commissioner, and in a suit to recover them the burden rests upon the taxpayer
to prove all the facts necessary to establish the illegality of the collection. United States vs.
Anderson, supra. See United States vs. Rindskopt, 106 U. S. 419, 26 L. ed., ” (Niles Bement
Pond Co. vs. United States, 74 L. ed., 901, 904.)
The rule above-mentioned has not been complied with and the action for recovery must be
denied.
It is also contended that the tax should be collected from the holder of the receipt, and not
from the one who collected it, which is the transportation company. There is no merit in this
contention because the law expressly provides that the tax should be paid by the one
“making, signing, issuing, accepting, or transferring the same.” (Section 1449, Revised
Administrative Code of 1917) . The receipts were made and issued by the transportation
company; it is therefore liable for the payment of the tax thereon.
The last contention of the Petitioner-Appellant is that the tax could no longer be collectible
because the same was assessed and collected after seven years, the tax having been due in
1936-1938 and the assessment having been made in the year 1947. The period within which
a tax may be assessed is ten years after the discovery of the falsity, fraud or omission (section
332, paragraph (a), National Internal Revenue Code). Petitioner-Appellant cites, in support
of his contention, paragraph (c) of the same action. This paragraph refers to the collection
of the tax by distraint or by levy or by a proceeding in court, and the period prescribed is
within five years after the assessment of the tax.
Was the levy justified? The discovery, according to the pleadings, took place in the year
1941 and the warrant of distraint or levy was issued on September 30, 1946 (paragraphs 3
and 4 of the complaint). The pleadings do not show, neither does the evidence, the specific
date of the assessment. It is only alleged in the complaint that the examination of the books
took place in the year 1941. In order to sustain the claim of the invalidity of the levy, it is
necessary for the Plaintif fto allege and prove that the levy took place after five years from
the date of the assessments. But the date of the assessment has not been proved. This is a
material matter that the Petitioner-Appellant should have proved to assail the levy. Because
of his failure to do so the exemption from levy may not be invoked by him. Besides, the
question was not raised in the pleadings as a ground to void the collection of the amount.
The court cannot assume that the levy and distraint took place beyond the period prescribed
by law. This conclusion is supported by the presumption of the regularity of the acts of
public officers. In any event the collection was made in 1947, within ten years after the
discovery in 1941, and the liability of Petitioner-Appellant is not thereby affected.
For the foregoing considerations, the judgment of the Court of Appeals is declared void and
that of the Court of First Instance, reversed and the Respondent-Appellee absolved from the
complaint. With costs against the Petitioner-Appellant.
15
TAX REMEDIES: PRESCRIPTIVE PERIOD FOR ASSESSMENT Subsequently, the BIR also issued Letters of Authority Nos. 074420 RR and 074421 RR
and Memorandum Authority Reference No. 749157 for the purpose of examining Siltown's
G.R. No. 104171 February 24, 1999 business, income and tax liabilities. On the basis of this examination, the BIR commissioner
issued against private respondent on October 10, 1980, an assessment for deficiency in
donor's tax in the amount of P1,020,850, in relation to the previously mentioned sale of its
COMMISSIONER OF INTERNAL REVENUE, petitioner, Basilan landholdings to Siltown. Apparently, the BIR deemed the consideration for the sale
vs. insufficient, and the difference between the fair market value and the actual purchase price
B.F. GOODRICH PHILS., INC. (now SIME DARBY INTERNATIONAL TIRE a taxable donation.
CO., INC.) and THE COURT OF APPEALS, respondents.
In a letter dated November 24, 1980, private respondent contested this assessment. On April
PANGANIBAN, J.: 9, 1981, it received another assessment dated March 16, 1981, which increased to P
1,092,949 the amount demanded for the alleged deficiency donor's tax, surcharge, interest
Notwithstanding the expiration of the five-year prescriptive period, may the Bureau of and compromise penalty.
Internal Revenue (BIR) still assess a taxpayer even after the latter has already paid the tax
due, on the ground that the previous assessment was insufficient or based on a "false" return? Private respondent appealed the correctness and the legality of these last two assessments
to the CTA. After trial in due course, the CTA rendered its Decision dated March 29, 1991,
The Case the dispositive portion of which reads as follows:

This is the main question raised before us in this Petition for Review on Certiorari assailing WHEREFORE, the decision of the Commissioner of Internal Revenue assessing
the Decision 1 dated February 14, 1992, promulgated by the Court of Appeals 2 in CA-GR petitioner deficiency gift tax is MODIFIED land petitioner is ordered to pay the
SP No. 25100. The assailed Decision reversed the Court of Tax Appeals (CTA) 3 which amount of P1,311,179.01 plus 10% surcharge and 20% annual interest from March
upheld the BIR commissioner's assessments made beyond the five-year statute of 16, 1981 until fully paid provided that the maximum amount that may be collected
limitations. as interest on delinquency shall in no case exceed an amount corresponding to a
period of three years pursuant to Section 130(b)(l) and (c) of the 1977 Tax Code, as
The Facts amended by P.D. No. 1705, which took effect on August 1, 1980.

The facts undisputed. 4 Private Respondent BF Goodrich Phils., Inc. (now Sime Darby SO ORDERED. 5
International Tire Co, Inc.), was an American-owned and controlled corporation previous
to July 3, 1974. As a condition for approving the manufacture by private respondent of tires Undaunted, private respondent elevated the matter to the Court of Appeals, which reversed
and other rubber products, the Central Bank of the Philippines required that it should the CTA, as follows:
develop a rubber plantation. In compliance with this requirement, private respondent
purchased from the Philippine government in 1961, under the Public Land Act and the Parity What is involved here is not a first assessment; nor is it one within the 5-year period
Amendment to the 1935 Constitution, certain parcels of land located in Tumajubong, stated in Section 331 above. Since what is involved in this case is a multiple
Basilan, and there developed a rubber plantation. 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.
More than a decade later, on August 2, 1973, the justice secretary rendered an opinion Section 337 utilizes the very specific terms "fraud, irregularity, and mistake".
stating that, upon the expiration of the Parity Amendment on July 3, 1974, the ownership "Falsity does not appear to be included in this enumeration. Falsity suffices for an
rights of Americans over public agricultural lands, including the right to dispose or sell their assessment, which is a firstassessment made within the five-year period. When it is
real estate, would be lost. On the basis of this Opinion, private respondent sold to Siltown a subsequent assessment made beyond the five-year period, then, it may be validly
Realty Philippines, Inc. on January 21, 1974, its Basilan landholding for P500,000 payable justified only by "fraud, irregularity and mistake" on the part of the
in installments. In accord with the terms of the sale, Siltown Realty Philippines, Inc. leased taxpayer.6
the said parcels of land to private respondent for a period of 25 years, with an extension of
another 25 years at the latter's option. Hence, this Petition for Review under Rule 45 of the Rules of Court. 7

Based on the BIR's Letter of Authority No. 10115 dated April 14, 1975, the books and The Issues
accounts of private respondent were examined for the purpose of determining its tax liability
for taxable year 1974. The examination resulted in the April 23, 1975 assessment of private
respondent for deficiency income tax in the amount of P6,005.35, which it duly paid. Before us, petitioner raises the following issues:

16
 Whether or not petitioner's right to assess herein deficiency donor's tax has indeed is the income of the petitioner for the year 1974, the returns for which were required
prescribed as ruled by public respondent Court of Appeals 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 —
II 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
Whether or not the herein deficiency donor's tax assessment for 1974 is valid and in modified, by that of March 16, 1981, was made beyond the period expressly set in
accordance with law Section 331 of the National Internal Revenue Code . . . . 10

Prescription is the crucial issue in the resolution of this case. Petitioner relies on the CTA ruling, the salient portion of which reads:

The Court's Ruling Falsity is what we have here, and for that matter, we hasten to add that the second
assessment (March 16, 1981) of the Commissioner was well-advised having been
The petition has no merit. made in contemplation of his power under Section 15 of the 1974 Code (now
Section 16, of NIRC) to assess the proper tax on the best evidence obtainable "when
Main Issue: Prescription there is reason to believe that a report of a taxpayer is false, incomplete or erroneous.
More, when there is falsity with intent to evade tax as in this case, the ordinary
period of limitation upon assessment and collection does not apply so that contrary
The petitioner contends that the Court of Appeals erred in reversing the CTA on the issue to the averment of petitioner, the right to assess respondent has not prescribed.
of prescription, because its ruling was based on factual findings that should have been left
undisturbed on appeal, in the absence of any showing that it had been tainted with gross
error or grave abuse of discretion. 8 The Court is not persuaded. What is the considered falsity? The transfer through sale of the parcels of land in
Tumajubong, Lamitan, Basilan in favor of Siltown Realty for the sum of
P500,000.00 only whereas said lands had been sworn to under Presidential Decree
True, the factual findings of the CTA are generally not disturbed on appeal when supported No. 76 (Dec. 6, 1972) as having a value of P2,683,467 (P2,475,467 + P207,700)
by substantial evidence and in the absence of gross error or grave abuse of discretion. (see Declaration of Real Property form, p. 28, and p. 15, no. 5, BIR Record). 11
However, the CTA's application of the law to the facts of this controversy is an altogether
different matter, for it involves a legal question. There is a question of law when the issue
is the application of the law to a given set of facts. On the other hand, a question of fact For the purpose of safeguarding taxpayers from any unreasonable examination,
involves the truth or falsehood of alleged facts.9 In the present case, the Court of Appeals investigation or assessment, our tax law provides a statute of limitations in the collection of
ruled not on the truth or falsity of the facts found by the CTA, but on the latter's application taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed
of the law on prescription. in order to afford such protection. 12 As a corollary, the exceptions to the law on prescription
should perforce be strictly construed.

Sec. 331 of the National Internal Revenue Code provides:

Sec. 15 of the NIRC, on the other hand, provides that "[w]hen a report required by law as a
basis for the assessment of any national internal revenue tax shall not be forthcoming within
Sec. 331. Period of limitation upon assessment and collection. — Except as the time fixed by law or regulation, or when there is reason to believe that any such report
provided in the succeeding section, internal-revenue taxes shall be assessed within is false, incomplete, or erroneous, the Commissioner of Internal Revenue shall assess the
five years after the return was filed, and no proceeding in court without assessment proper tax on the best evidence obtainable." Clearly, Section 15 does not provide an
for the collection of such taxes shall be begun after expiration of such period. For exception to the statute of limitations on the issuance of an assessment, by allowing the
the purposes of this section, a return filed before the last day prescribed by law for initial assessment to be made on the basis of the best evidence available. Having made its
the filing thereof shall be considered as filed on such last day: Provided, That this initial assessment in the manner prescribed, the commissioner could not have been
limitation shall not apply to cases already investigated prior to the approval of this authorized to issue, beyond the five-year prescriptive period, the second and the third
Code. assessments under consideration before us.

Applying this provision of law to the facts at hand, it is clear that the October 16, 1980 and Nor is petitioner's claim of falsity sufficient to take the questioned assessments out of the
the March 1981 assessments were issued by the BIR beyond the five-year statute of ambit of the statute of limitations. The relevant part of then Section 332 of the NIRC, which
limitations. The Court has thoroughly studied the records of this case and found no basis to enumerates the exceptions to the period of prescription, provides:
disregard the five-year period of prescription. As succinctly pronounced by the Court of
Appeals:
Sec. 332. Exceptions 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
The subsequent assessment made by the respondent Commissioner on October 40, failure to file a return, the tax may be assessed, or a proceeding in court for the
1980, modified by that of March 16, 1981, violates the law. Involved in this petition

17
 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 fair market value. This fact alone did not constitute a false
return which contains wrong information due to mistake, carelessness or ignorance. 13 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 "arm's length" transaction. In the
present case, the private respondent was compelled to sell the property even at a price less
than its market value, because it would have lost all ownership rights over it upon the
expiration of the parity amendment. In other words, private respondent 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 private respondent sold its real property for a price less than its
declared fair market value did not by itself justify a finding of false return. Indeed, private
respondent declared the sale in its 1974 return submitted to the BIR. 14 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. Equally significant was its failure to prove respondent's intent
to evade the payment of the correct amount of tax.

Ineludibly, the BIR failed to show that private respondent's 1974 return was filed
fraudulently with intent to evade the payment of the correct amount of tax. 15 Moreover,
even though a donor's tax, which is defined as "a tax on the privilege of transmitting one's
property or property rights to another or others without adequate and full valuable
consideration," 16 is different from capital gains tax, a tax on the gain from the sale of the
taxpayer's property forming part of capital assets, 17 the tax return filed by private
respondent to report its income for the year 1974 was sufficient compliance with the legal
requirement to file a return. In other words, the fact that the sale transaction may have partly
resulted in a donation does not change the fact that private respondent already reported its
income for 1974 by filing an income tax return.

Since the BIR failed to demonstrate clearly that private respondent had filed a fraudulent
return with the intent to evade tax, or that it had failed to file a return at all, the period for
assessments has obviously prescribed. Such instances of negligence or oversight on the part
of the BIR cannot prejudice taxpayers, considering that the prescriptive period was precisely
intended to give them peace of mind.

Based on the foregoing, a discussion of the validity and legality of the assailed assessments
has become moot and unnecessary.

WHEREFORE, the Petition for Review is DENIED and the assailed Decision of the Court
of Appeals is AFFIRMED. No costs.

SO ORDERED.

18
TAXPAYER’S REMEDIES: PROTESTING AN ASSESSMENT On May 3, 2004, the CTA Second Division rendered a Resolution 15 denying petitioner’s
Petition for Relief from Judgment.lawph!l.net
G.R. No. 168498 June 16, 2006
Petitioner’s motion for reconsideration was denied in a Resolution dated November 5,
RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, 2004,16 hence it filed a petition for review with the CTA En Banc, docketed as C.T.A. EB
vs. No. 50, which affirmed the assailed Resolutions of the CTA Second Division in a Decision
COMMISSIONER OF INTERNAL REVENUE, Respondent. dated June 7, 2005.

YNARES-SANTIAGO, J.: Hence, this petition for review based on the following grounds:

This is a petition for review under Rule 45 of the Rules of Court assailing the Decision 1 of I.
the Court of Tax Appeals (CTA) En Banc dated June 7, 2005 in C.T.A. EB No. 50 which
affirmed the Resolutions of the CTA Second Division dated May 3, 2004 2 and November THE HONORABLE CTA AND CTA EN BANC GRAVELY ERRED IN
5, 20043 in C.T.A. Case No. 6475 denying petitioner’s Petition for Relief from Judgment DENYING PETITIONER’S PETITION FOR RELIEF, WITHOUT FIRST
and the Motion for Reconsideration thereof, respectively. AFFORDING IT THE OPPORTUNITY TO ADDUCE EVIDENCE TO
ESTABLISH THE FACTUAL ALLEGATIONS CONSTITUTING ITS
The undisputed facts are as follows: ALLEGED EXCUSABLE NEGLIGENCE, IN CLEAR VIOLATION OF
PETITIONER’S BASIC RIGHT TO DUE PROCESS.
On July 5, 2001, petitioner Rizal Commercial Banking Corporation received a Formal Letter
of Demand dated May 25, 2001 from the respondent Commissioner of Internal Revenue for II.
its tax liabilities particularly for Gross Onshore Tax in the amount of P53,998,428.29 and
Documentary Stamp Tax for its Special Savings Placements in the amount of CONSIDERING THAT THE SUBJECT ASSESSMENT, INSOFAR AS IT
P46,717,952.76, for the taxable year 1997.4 INVOLVES ALLEGED DEFICIENCY DOCUMENTARY STAMP TAXES ON
SPECIAL SAVINGS ACCOUNTS, IS AN ISSUE AFFECTING ALL MEMBERS
On July 20, 2001, petitioner filed a protest letter/request for reconsideration/reinvestigation OF THE BANKING INDUSTRY, PETITIONER, LIKE ALL OTHER BANKS,
pursuant to Section 228 of the National Internal Revenue Code of 1997 (NIRC). 5 SHOULD BE AFFORDED AN EQUAL OPPORTUNITY TO FULLY LITIGATE
THE ISSUE, AND HAVE THE CASE DETERMINED BASED ON ITS MERITS,
RATHER THAN ON A MERE TECHNICALITY.17
As the protest was not acted upon by the respondent, petitioner filed on April 30, 2002 a
petition for review with the CTA for the cancellation of the assessments which was docketed
as C.T.A. Case No. 6475.6 Relief from judgment under Rule 38 of the Rules of Court is a legal remedy that is allowed
only in exceptional cases whereby a party seeks to set aside a judgment rendered against
him by a court whenever he was unjustly deprived of a hearing or was prevented from taking
On July 15, 2003, respondent filed a motion to resolve first the issue of CTA’s an appeal, in either case, because of fraud, accident, mistake or excusable neglect. 18
jurisdiction,7 which was granted by the CTA in a Resolution dated September 10,
2003.8 The petition for review was dismissed because it was filed beyond the 30-day period
following the lapse of 180 days from petitioner’s submission of documents in support of its Petitioner argues that it was denied due process when it was not given the opportunity to be
protest, as provided under Section 228 of the NIRC and Section 11 of R.A. No. 1125, heard to prove that its failure to file a motion for reconsideration or appeal from the dismissal
otherwise known as the Law Creating the Court of Tax Appeals. of its petition for review was due to the failure of its employee to forward the copy of the
September 10, 2003 Resolution which constitutes excusable negligence.
Petitioner did not file a motion for reconsideration or an appeal to the CTA En Banc from
the dismissal of its petition for review. Consequently, the September 10, 2003 Resolution Petitioner’s argument lacks merit.
became final and executory on October 1, 2003 and Entry of Judgment was made on
December 1, 2003.9 Thereafter, respondent sent a Demand Letter to petitioner for the It is basic that as long as a party is given the opportunity to defend his interests in due course,
payment of the deficiency tax assessments. he would have no reason to complain, for it is this opportunity to be heard that makes up the
essence of due process.19 In Batongbakal v. Zafra,20 the Court held that:
On February 20, 2004, petitioner filed a Petition for Relief from Judgment10 on the ground
of excusable negligence of its counsel’s secretary who allegedly misfiled and lost the There is no question that the "essence of due process is a hearing before conviction and
September 10, 2003 Resolution. The CTA Second Division set the case for hearing on April before an impartial and disinterested tribunal" but due process as a constitutional precept
2, 200411 during which petitioner’s counsel was present.12 Respondent filed an does not, always and in all situations, require a trial-type proceeding. The essence of due
Opposition13 while petitioner submitted its Manifestation and Counter-Motion.14 process is to be found in the reasonable opportunity to be heard and submit any evidence

19
one may have in support of one’s defense. "To be heard" does not only mean verbal SEC. 228. Protesting of Assessment.- x x x.
arguments in court; one may be heard also through pleadings. Where opportunity to
be heard, either through oral arguments or pleadings, is accorded, there is no denial Within a period to be prescribed by implementing rules and regulations, the taxpayer shall
of procedural due process. (Emphasis supplied) be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or
his duly authorized representative shall issue an assessment based on his findings.
As correctly pointed by the Office of the Solicitor General (OSG), the CTA Second Division
set the case for hearing on April 2, 2004 after the filing by the petitioner of its petition for Such assessment may be protested administratively by filing a request for reconsideration
relief from judgment. Petitioner’s counsel was present on the scheduled hearing and in fact or reinvestigation within thirty (30) days from receipt of the assessment in such form and
orally argued its petition. manner as may be prescribed by implementing rules and regulations. Within sixty (60) days
from filing of the protest, all relevant supporting documents shall have been submitted;
Moreover, after the CTA Second Division dismissed the petition for relief from judgment otherwise, the assessment shall become final.
in a Resolution dated May 3, 2004, petitioner filed a motion for reconsideration and the
court further required both parties to file their respective memorandum. Indeed, petitioner If the protest is denied in whole or in part, or is not acted upon within one hundred
was not denied its day in court considering the opportunities given to argue its claim. 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
Relief cannot be granted on the flimsy excuse that the failure to appeal was due to the neglect receipt of the said decision, or from the lapse of the one hundred eighty (180)-day
of petitioner’s counsel.21 Otherwise, all that a losing party would do to salvage his case period; otherwise the decision shall become final, executory and
would be to invoke neglect or mistake of his counsel as a ground for reversing or setting demandable. (Emphasis supplied)
aside the adverse judgment, thereby putting no end to litigation. 22
The CTA Second Division held:
Negligence to be "excusable" must be one which ordinary diligence and prudence could not
have guarded against and by reason of which the rights of an aggrieved party have probably Following the periods provided for in the aforementioned laws, from July 20, 2001, that is,
been impaired.23 Petitioner’s former counsel’s omission could hardly be characterized as the date of petitioner’s filing of protest, it had until September 18, 2001 to submit relevant
excusable, much less unavoidable. documents and from September 18, 2001, the Commissioner had until March 17, 2002 to
issue his decision. As admitted by petitioner, the protest remained unacted by the
The Court has repeatedly admonished lawyers to adopt a system whereby they can always Commissioner of Internal Revenue. Therefore, it had until April 16, 2002 within which to
receive promptly judicial notices and pleadings intended for them.24 Apparently, elevate the case to this court. Thus, when petitioner filed its Petition for Review on April
petitioner’s counsel was not only remiss in complying with this admonition but he also failed 30, 2002, the same is outside the thirty (30) period.27
to check periodically, as an act of prudence and diligence, the status of the pending case
before the CTA Second Division. The fact that counsel allegedly had not renewed the As provided in Section 228, the failure of a taxpayer to appeal from an assessment on time
employment of his secretary, thereby making the latter no longer attentive or focused on her rendered the assessment final, executory and demandable. Consequently, petitioner is
work, did not relieve him of his responsibilities to his client. It is a problem personal to him precluded from disputing the correctness of the assessment.
which should not in any manner interfere with his professional commitments.
In Ker & Company, Ltd. v. Court of Tax Appeals,28 the Court held that while the right to
In exceptional cases, when the mistake of counsel is so palpable that it amounts to gross appeal a decision of the Commissioner to the Court of Tax Appeals is merely a statutory
negligence, this Court affords a party a second opportunity to vindicate his right. But this remedy, nevertheless the requirement that it must be brought within 30 days is jurisdictional.
opportunity is unavailing in the case at bar, especially since petitioner had squandered the If a statutory remedy provides as a condition precedent that the action to enforce it must be
various opportunities available to it at the different stages of this case. Public interest commenced within a prescribed time, such requirement is jurisdictional and failure to
demands an end to every litigation and a belated effort to reopen a case that has already comply therewith may be raised in a motion to dismiss.
attained finality will serve no purpose other than to delay the administration of justice. 25
In fine, the failure to comply with the 30-day statutory period would bar the appeal and
Since petitioner’s ground for relief is not well-taken, it follows that the assailed judgment deprive the Court of Tax Appeals of its jurisdiction to entertain and determine the
stands.lavvphil.ñe+ Assuming ex gratia argumenti that the negligence of petitioner’s correctness of the assessment.29
counsel is excusable, still the petition must fail. As aptly observed by the OSG, even if the
petition for relief from judgment would be granted, petitioner will not fare any better if the
case were to be returned to the CTA Second Division since its action for the cancellation of WHEREFORE, in view of the foregoing, the Decision of the Court of Tax Appeals En
its assessments had already prescribed.26 Banc dated June 7, 2005 in C.T.A. EB No. 50 affirming the Resolutions of the Court of Tax
Appeals Second Division dated May 3, 2004 and November 5, 2004 in C.T.A. Case No.
6475 denying petitioner’s Petition for Relief from Judgment and Motion for
Petitioner protested the assessments pursuant to Section 228 of the NIRC, which provides: Reconsideration, respectively, is AFFIRMED.

20
TAXPAYER’S REMEDIES: PROTESTING AN ASSESSMENT 7. That after having bought the above-mentioned real properties the petitioners had
the same rented or leases to various tenants;
G.R. No. L-9996 October 15, 1957
8. That from the month of March, 1945 up to an including December, 1945, the total
EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA amount collected as rents on their real properties was P9,599.00 while the expenses
EVANGELISTA, petitioners, amounted to P3,650.00 thereby leaving them a net rental income of P5,948.33;
vs.
THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX 9. That on 1946, they realized a gross rental income of in the sum of P24,786.30,
APPEALS, respondents. out of which amount was deducted in the sum of P16,288.27 for expenses thereby
leaving them a net rental income of P7,498.13;
CONCEPCION, J.:
10. That in 1948, they realized a gross rental income of P17,453.00 out of the which
This is a petition filed by Eufemia Evangelista, Manuela Evangelista and Francisca amount was deducted the sum of P4,837.65 as expenses, thereby leaving them a net
Evangelista, for review of a decision of the Court of Tax Appeals, the dispositive part of rental income of P12,615.35.
which reads:
It further appears that on September 24, 1954 respondent Collector of Internal Revenue
FOR ALL THE FOREGOING, we hold that the petitioners are liable for the income demanded the payment of income tax on corporations, real estate dealer's fixed tax and
tax, real estate dealer's tax and the residence tax for the years 1945 to 1949, corporation residence tax for the years 1945-1949, computed, according to assessment made
inclusive, in accordance with the respondent's assessment for the same in the total by said officer.
amount of P6,878.34, which is hereby affirmed and the petition for review filed by
petitioner is hereby dismissed with costs against petitioners. Said letter of demand and corresponding assessments were delivered to petitioners on
December 3, 1954, whereupon they instituted the present case in the Court of Tax Appeals,
It appears from the stipulation submitted by the parties: with a prayer that "the decision of the respondent contained in his letter of demand dated
September 24, 1954" be reversed, and that they be absolved from the payment of the taxes
in question, with costs against the respondent.
1. That the petitioners borrowed from their father the sum of P59,1400.00 which
amount together with their personal monies was used by them for the purpose of
buying real properties,. After appropriate proceedings, the Court of Tax Appeals the above-mentioned decision for
the respondent, and a petition for reconsideration and new trial having been subsequently
denied, the case is now before Us for review at the instance of the petitioners.
2. That on February 2, 1943, they bought from Mrs. Josefina Florentino a lot with
an area of 3,713.40 sq. m. including improvements thereon from the sum of
P100,000.00; this property has an assessed value of P57,517.00 as of 1948; The issue in this case whether petitioners are subject to the tax on corporations provided for
in section 24 of Commonwealth Act. No. 466, otherwise known as the National Internal
Revenue Code, as well as to the residence tax for corporations and the real estate dealers
3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of land fixed tax. With respect to the tax on corporations, the issue hinges on the meaning of the
with an aggregate area of 3,718.40 sq. m. including improvements thereon for terms "corporation" and "partnership," as used in section 24 and 84 of said Code, the
P130,000.00; this property has an assessed value of P82,255.00 as of 1948; pertinent parts of which read:

4. That on April 28, 1944 they purchased from the Insular Investments Inc., a lot of SEC. 24. Rate of tax on corporations.—There shall be levied, assessed, collected,
4,353 sq. m. including improvements thereon for P108,825.00. This property has an and paid annually upon the total net income received in the preceding taxable year
assessed value of P4,983.00 as of 1948; from all sources by every corporation organized in, or existing under the laws of the
Philippines, no matter how created or organized but not including duly registered
5. That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of 8,371 sq. general co-partnerships (compañias colectivas), a tax upon such income equal to the
m. including improvements thereon for P237,234.34. This property has an assessed sum of the following: . . .
value of P59,140.00 as of 1948;
SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or
6. That in a document dated August 16, 1945, they appointed their brother Simeon organized, joint-stock companies, joint accounts (cuentas en participacion),
Evangelista to 'manage their properties with full power to lease; to collect and associations or insurance companies, but does not include duly registered general
receive rents; to issue receipts therefor; in default of such payment, to bring suits copartnerships. (compañias colectivas).
against the defaulting tenants; to sign all letters, contracts, etc., for and in their
behalf, and to endorse and deposit all notes and checks for them; Article 1767 of the Civil Code of the Philippines provides:
21
 By the contract of partnership two or more persons bind themselves to contribute Although, taken singly, they might not suffice to establish the intent necessary to constitute
money, properly, or industry to a common fund, with the intention of dividing the a partnership, the collective effect of these circumstances is such as to leave no room for
profits among themselves. doubt on the existence of said intent in petitioners herein. Only one or two of the
aforementioned circumstances were present in the cases cited by petitioners herein, and,
Pursuant to the article, the essential elements of a partnership are two, namely: (a) an hence, those cases are not in point.
agreement to contribute money, property or industry to a common fund; and (b) intent to
divide the profits among the contracting parties. The first element is undoubtedly present in Petitioners insist, however, that they are mere co-owners, not copartners, for, in
the case at bar, for, admittedly, petitioners have agreed to, and did, contribute money and consequence of the acts performed by them, a legal entity, with a personality independent
property to a common fund. Hence, the issue narrows down to their intent in acting as they of that of its members, did not come into existence, and some of the characteristics of
did. Upon consideration of all the facts and circumstances surrounding the case, we are fully partnerships are lacking in the case at bar. This pretense was correctly rejected by the Court
satisfied that their purpose was to engage in real estate transactions for monetary gain and of Tax Appeals.
then divide the same among themselves, because:
To begin with, the tax in question is one imposed upon "corporations", which, strictly
1. Said common fund was not something they found already in existence. It was not speaking, are distinct and different from "partnerships". When our Internal Revenue Code
property inherited by them pro indiviso. They created it purposely. What is more includes "partnerships" among the entities subject to the tax on "corporations", said Code
they jointly borrowed a substantial portion thereof in order to establish said must allude, therefore, to organizations which are not necessarily "partnerships", in the
common fund. technical sense of the term. Thus, for instance, section 24 of said Code exempts from the
aforementioned tax "duly registered general partnerships which constitute precisely one of
2. They invested the same, not merely not merely in one transaction, but in the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section
a series of transactions. On February 2, 1943, they bought a lot for P100,000.00. On 84(b) of said Code, "the term corporation includes partnerships, no matter how created or
April 3, 1944, they purchased 21 lots for P18,000.00. This was soon followed on organized." This qualifying expression clearly indicates that a joint venture need not be
April 23, 1944, by the acquisition of another real estate for P108,825.00. Five (5) undertaken in any of the standard forms, or in conformity with the usual requirements of the
days later (April 28, 1944), they got a fourth lot for P237,234.14. The number of law on partnerships, in order that one could be deemed constituted for purposes of the tax
lots (24) acquired and transactions undertaken, as well as the brief interregnum on corporations. Again, pursuant to said section 84(b), the term "corporation" includes,
between each, particularly the last three purchases, is strongly indicative of a pattern among other, joint accounts, (cuentas en participation)" and "associations," none of which
or common design that was not limited to the conservation and preservation of the has a legal personality of its own, independent of that of its members. Accordingly, the
aforementioned common fund or even of the property acquired by the petitioners in lawmaker could not have regarded that personality as a condition essential to the existence
February, 1943. In other words, one cannot but perceive a character of habitually of the partnerships therein referred to. In fact, as above stated, "duly registered general
peculiar to business transactions engaged in the purpose of gain. copartnerships" — which are possessed of the aforementioned personality — have been
expressly excluded by law (sections 24 and 84 [b] from the connotation of the term
"corporation" It may not be amiss to add that petitioners' allegation to the effect that their
3. The aforesaid lots were not devoted to residential purposes, or to other personal liability in connection with the leasing of the lots above referred to, under the management
uses, of petitioners herein. The properties were leased separately to several persons, of one person — even if true, on which we express no opinion — tends to increase the
who, from 1945 to 1948 inclusive, paid the total sum of P70,068.30 by way of similarity between the nature of their venture and that corporations, and is, therefore, an
rentals. Seemingly, the lots are still being so let, for petitioners do not even suggest additional argument in favor of the imposition of said tax on corporations.
that there has been any change in the utilization thereof.
Under the Internal Revenue Laws of the United States, "corporations" are taxed differently
4. Since August, 1945, the properties have been under the management of one from "partnerships". By specific provisions of said laws, such "corporations" include
person, namely Simeon Evangelista, with full power to lease, to collect rents, to "associations, joint-stock companies and insurance companies." However, the term
issue receipts, to bring suits, to sign letters and contracts, and to indorse and deposit "association" is not used in the aforementioned laws.
notes and checks. Thus, the affairs relative to said properties have been handled as
if the same belonged to a corporation or business and enterprise operated for profit.
. . . in any narrow or technical sense. It includes any organization, created for the
transaction of designed affairs, or the attainment of some object, which like a
5. The foregoing conditions have existed for more than ten (10) years, or, to be corporation, continues notwithstanding that its members or participants change, and
exact, over fifteen (15) years, since the first property was acquired, and over twelve the affairs of which, like corporate affairs, are conducted by a single individual, a
(12) years, since Simeon Evangelista became the manager. committee, a board, or some other group, acting in a representative capacity. It is
immaterial whether such organization is created by an agreement, a declaration of
6. Petitioners have not testified or introduced any evidence, either on their purpose trust, a statute, or otherwise. It includes a voluntary association, a joint-stock
in creating the set up already adverted to, or on the causes for its continued existence. corporation or company, a 'business' trusts a 'Massachusetts' trust, a 'common law'
They did not even try to offer an explanation therefor. trust, and 'investment' trust (whether of the fixed or the management type), an
interinsuarance exchange operating through an attorney in fact, a partnership
association, and any other type of organization (by whatever name known) which is

22
 not, within the meaning of the Code, a trust or an estate, or a partnership. (7A 'Real estate dealer' includes any person engaged in the business of buying, selling,
Mertens Law of Federal Income Taxation, p. 788; emphasis supplied.). exchanging, leasing, or renting property or his own account as principal and
holding himself out as a full or part time dealer in real estate or as an owner of
Similarly, the American Law. rental property or properties rented or offered to rent for an aggregate amount of
three thousand pesos or more a year. . . (emphasis supplied.)
. . . provides its own concept of a partnership, under the term 'partnership 'it includes
not only a partnership as known at common law but, as well, a syndicate, group, Wherefore, the appealed decision of the Court of Tax appeals is hereby affirmed with costs
pool, joint venture or other unincorporated organizations which carries on any against the petitioners herein. It is so ordered.
business financial operation, or venture, and which is not, within the meaning of
the Code, a trust, estate, or a corporation. . . (7A Merten's Law of Federal Income BAUTISTA ANGELO, J., concurring:
taxation, p. 789; emphasis supplied.)
I agree with the opinion that petitioners have actually contributed money to a common fund
The term 'partnership' includes a syndicate, group, pool, joint venture or other with express purpose of engaging in real estate business for profit. The series of transactions
unincorporated organization, through or by means of which any business, financial which they had undertaken attest to this. This appears in the following portion of the
operation, or venture is carried on, . . .. ( 8 Merten's Law of Federal Income decision:
Taxation, p. 562 Note 63; emphasis supplied.) .
2. They invested the same, not merely in one transaction, but in a series of
For purposes of the tax on corporations, our National Internal Revenue Code, includes these transactions. On February 2, 1943, they bought a lot for P100,000. On April 3,
partnerships — with the exception only of duly registered general copartnerships — within 1944, they purchase 21 lots for P18,000. This was soon followed on April 23,
the purview of the term "corporation." It is, therefore, clear to our mind that petitioners 1944, by the acquisition of another real state for P108,825. Five (5) days later
herein constitute a partnership, insofar as said Code is concerned and are subject to the (April 28, 1944), they got a fourth lot for P237,234.14. The number of lots (24)
income tax for corporations. acquired and transactions undertaken, as well as the brief interregnum between
each, particularly the last three purchases, is strongly indicative of a pattern or
As regards the residence of tax for corporations, section 2 of Commonwealth Act No. 465 common design that was not limited to the conservation and preservation of the
provides in part: aforementioned common fund or even of the property acquired by the petitioner
in February, 1943, In other words, we cannot but perceive a character
of habitually peculiar to business transactions engaged in for purposes of gain.
Entities liable to residence tax.-Every corporation, no matter how created or
organized, whether domestic or resident foreign, engaged in or doing business in the
Philippines shall pay an annual residence tax of five pesos and an annual additional I wish however to make to make the following observation:
tax which in no case, shall exceed one thousand pesos, in accordance with the
following schedule: . . . Article 1769 of the new Civil Code lays down the rule for determining when a transaction
should be deemed a partnership or a co-ownership. Said article paragraphs 2 and 3, provides:
The term 'corporation' as used in this Act includes joint-stock
company, partnership, joint account (cuentas en participacion), association or (2) Co-ownership or co-possession does not of itself establish a partnership, whether
insurance company, no matter how created or organized. (emphasis supplied.) such co-owners or co-possessors do or do not share any profits made by the use of
the property;
Considering that the pertinent part of this provision is analogous to that of section 24 and
84 (b) of our National Internal Revenue Code (commonwealth Act No. 466), and that the (3) The sharing of gross returns does not of itself establish partnership, whether or
latter was approved on June 15, 1939, the day immediately after the approval of said not the person sharing them have a joint or common right or interest in any property
Commonwealth Act No. 465 (June 14, 1939), it is apparent that the terms "corporation" and from which the returns are derived;
"partnership" are used in both statutes with substantially the same meaning. Consequently,
petitioners are subject, also, to the residence tax for corporations. From the above it appears that the fact that those who agree to form a co-ownership shared
or do not share any profits made by the use of property held in common does not convert
Lastly, the records show that petitioners have habitually engaged in leasing the properties their venture into a partnership. Or the sharing of the gross returns does not of itself establish
above mentioned for a period of over twelve years, and that the yearly gross rentals of said a partnership whether or not the persons sharing therein have a joint or common right or
properties from June 1945 to 1948 ranged from P9,599 to P17,453. Thus, they are subject interest in the property. This only means that, aside from the circumstance of profit, the
to the tax provided in section 193 (q) of our National Internal Revenue Code, for "real estate presence of other elements constituting partnership is necessary, such as the clear intent to
dealers," inasmuch as, pursuant to section 194 (s) thereof: form a partnership, the existence of a judicial personality different from that of the
individual partners, and the freedom to transfer or assign any interest in the property by one

23
with the consent of the others (Padilla, Civil Code of the Philippines Annotated, Vol. I, 1953
ed., pp. 635- 636).

It is evident that an isolated transaction whereby two or more persons contribute funds to
buy certain real estate for profit in the absence of other circumstances showing a contrary
intention cannot be considered a partnership.

Persons who contribute property or funds for a common enterprise and agree to
share the gross returns of that enterprise in proportion to their contribution, but who
severally retain the title to their respective contribution, are not thereby rendered
partners. They have no common stock or capital, and no community of interest as
principal proprietors in the business itself which the proceeds derived. (Elements of
the law of Partnership by Floyd R. Mechem, 2n Ed., section 83, p. 74.)

A joint venture purchase of land, by two, does not constitute a copartnership in

respect thereto; nor does not agreement to share the profits and loses on the sale of
land create a partnership; the parties are only tenants in common. (Clark vs.
Sideway, 142 U.S. 682, 12 S Ct. 327, 35 L. Ed., 1157.)

Where plaintiff, his brother, and another agreed to become owners of a single tract
of reality, holding as tenants in common, and to divide the profits of disposing of it,
the brother and the other not being entitled to share in plaintiff's commissions, no
partnership existed as between the parties, whatever relation may have been as to
third parties. (Magee vs. Magee, 123 N. E. 6763, 233 Mass. 341.)

In order to constitute a partnership inter sese there must be: (a) An intent to form
the same; (b) generally a participating in both profits and losses; (c) and such a
community of interest, as far as third persons are concerned as enables each party
to make contract, manage the business, and dispose of the whole property.
(Municipal Paving Co. vs Herring, 150 P. 1067, 50 Ill. 470.)

The common ownership of property does not itself create a partnership between the
owners, though they may use it for purpose of making gains; and they may, without
becoming partners, agree among themselves as to the management and use of such
property and the application of the proceeds therefrom. (Spurlock vs. Wilson, 142
S. W. 363, 160 No. App. 14.)

This is impliedly recognized in the following portion of the decision: "Although, taken
singly, they might not suffice to establish the intent necessary to constitute a partnership,
the collective effect of these circumstances (referring to the series of transactions) such as
to leave no room for doubt on the existence of said intent in petitioners herein."

24
TAXPAYER’S REMEDIES: PROTESTING AN ASSESSMENT In a second indorsement to the Chief of the Prosecution Division, dated December 12, 1974,
the Commissioner of Internal Revenue approved the prosecution of the petitioner. 3
G.R. No. L-41919-24 May 30, 1980
Thereafter, State Prosecutor Jesus Acebes who had been designated to assist all Provincial
QUIRICO P. UNGAB, petitioner, and City Fiscals throughout the Philippines in the investigation and prosecution, if the
vs. evidence warrants, of all violations of the National Internal Revenue Code, as amended, and
HON. VICENTE N. CUSI, JR., in his capacity as Judge of the Court of First other related laws, in Administrative Order No. 116 dated December 5, 1974, and to whom
Instance, Branch 1, 16TH Judicial District, Davao City, THE COMMISSIONER OF the case was assigned, conducted a preliminary investigation of the case, and finding
INTERNAL REVENUE, and JESUS N. ACEBES, in his capacity as State probable cause, filed six (6) informations against the petitioner with the Court of First
Prosecutor, respondents. Instance of Davao City, to wit: têñ.£îhqwâ£

CONCEPCION JR., J: (1) Criminal Case No. 1960 — Violation of Sec. 45, in relation to Sec. 72 of the
National Internal-Revenue Code, for filing a fraudulent income tax return for the
calendar year ending December 31, 1973; 4
Petition for certiorari and prohibition with preliminary injunction and restraining order to
annul and set aside the informations filed in Criminal Case Nos. 1960, 1961, 1962, 1963,
1964, and 1965 of the Court of First Instance of Davao, all entitled: "People of the (2) Criminal Case No. 1961 — Violation of Sec. 182 (a), in relation to Secs. 178,
Philippines, plaintiff, versus Quirico Ungab, accused;" and to restrain the respondent Judge 186, and 208 of the National Internal Revenue Code, for engaging in business as
from further proceeding with the hearing and trial of the said cases. producer of saplings, from January, 1973 to December, 1973, without first paying
the annual fixed or privilege tax thereof; 5
It is not disputed that sometime in July, 1974, BIR Examiner Ben Garcia examined the
income tax returns filed by the herein petitioner, Quirico P. Ungab, for the calendar year (3) Criminal Case No. 1962 — Violation of Sec. 183 (a), in relation to Secs. 186
ending December 31, 1973. In the course of his examination, he discovered that the and 209 of the National Internal Revenue Code, for failure to render a true and
petitioner failed to report his income derived from sales of banana saplings. As a result, the complete return on the gross quarterly sales, receipts and earnings in his business as
BIR District Revenue Officer at Davao City sent a "Notice of Taxpayer" to the petitioner producer of banana saplings and to pay the percentage tax due thereon, for the
informing him that there is due from him (petitioner) the amount of P104,980.81, quarter ending December 31, 1973; 6
representing income, business tax and forest charges for the year 1973 and inviting
petitioner to an informal conference where the petitioner, duly assisted by counsel, may (4) Criminal Case No. 1963 — Violation of Sec. 183 (a), in relation to Secs. 186
present his objections to the findings of the BIR Examiner. 1 Upon receipt of the notice, the and 209 of the National Internal Revenue Code, for failure to render a true and
petitioner wrote the BIR District Revenue Officer protesting the assessment, claiming that complete return on the gross quarterly sales receipts and earnings in his business as
he was only a dealer or agent on commission basis in the banana sapling business and that producer of saplings, and to pay the percentage tax due thereon, for the quarter
his income, as reported in his income tax returns for the said year, was accurately stated. ending on March 31, 1973; 7
BIR Examiner Ben Garcia, however, was fully convinced that the petitioner had filed a
fraudulent income tax return so that he submitted a "Fraud Referral Report," to the Tax (5) Criminal Case No. 1964 — Violation of Sec. 183 (a), in relation to Secs. 186
Fraud Unit of the Bureau of Internal Revenue. After examining the records of the case, the and 209 of the National Internal Revenue Code, for failure to render a true and
Special Investigation Division of the Bureau of Internal Revenue found sufficient proof that complete return on the gross quarterly sales, receipts and earnings in his business as
the herein petitioner is guilty of tax evasion for the taxable year 1973 and recommended his producer of banana saplings for the quarter ending on June 30, 1973, and to pay the
prosecution: têñ.£îhqw⣠percentage tax due thereon; 8

(1) For having filed a false or fraudulent income tax return for 1973 with intent to (6) Criminal Case No. 1965 — Violation of Sec. 183 (a), in relation to Secs. 186
evade his just taxes due the government under Section 45 in relation to Section 72 and 209 of the National Internal Revenue Code, for failure to render a true and
of the National Internal Revenue Code; complete return on the gross quarterly sales, receipts and earnings as producer of
banana saplings, for the quarter ending on September 30, 1973, and to pay the
(2) For failure to pay a fixed annual tax of P50.00 a year in 1973 and 1974, or a total percentage tax due thereon. 9
of unpaid fixed taxes of P100.00 plus penalties of 175.00 or a total of P175.00, in
accordance with Section 183 of the National Internal Revenue Code; On September 16, 1975, the petitioner filed a motion to quash the informations upon the
grounds that: (1) the informations are null and void for want of authority on the part of the
(3) For failure to pay the 7% percentage tax, as a producer of banana poles or State Prosecutor to initiate and prosecute the said cases; and (2) the trial court has no
saplings, on the total sales of P129,580.35 to the Davao Fruit Corporation, depriving jurisdiction to take cognizance of the above-entitled cases in view of his pending protest
thereby the government of its due revenue in the amount of P15,872.59, inclusive against the assessment made by the BIR Examiner. 10 However, the trial court denied the
of surcharge. 2 motion on October 22, 1975. 11 Whereupon, the petitioner filed the instant recourse. As

25
prayed for, a temporary restraining order was issued by the Court, ordering the respondent amended, and other related laws, graciously allowed the respondent State Prosecutor to
Judge from further proceeding with the trial and hearing of Criminal Case Nos. 1960, 1961, conduct the investigation of said cases, and in fact, said investigation was conducted in the
1962, 1963, 1964, and 1965 of the Court of First Instance of Davao, all entitled: "People of office of the City Fiscal. 13
the Philippines, plaintiff, versus Quirico Ungab, accused."
The petitioner also claims that the filing of the informations was precipitate and premature
The petitioner seeks the annulment of the informations filed against him on the ground that since the Commissioner of Internal Revenue has not yet resolved his protests against the
the respondent State Prosecutor is allegedly without authority to do so. The petitioner argues assessment of the Revenue District Officer; and that he was denied recourse to the Court of
that while the respondent State Prosecutor may initiate the investigation of and prosecute Tax Appeals.
crimes and violations of penal laws when duly authorized, certain requisites, enumerated by
this Court in its decision in the case of Estrella vs. Orendain, 12 should be observed before The contention is without merit. What is involved here is not the collection of taxes where
such authority may be exercised; otherwise, the provisions of the Charter of Davao City on the assessment of the Commissioner of Internal Revenue may be reviewed by the Court of
the functions and powers of the City Fiscal will be meaningless because according to said Tax Appeals, but a criminal prosecution for violations of the National Internal Revenue
charter he has charge of the prosecution of all crimes committed within his jurisdiction; and Code which is within the cognizance of courts of first instance. While there can be no civil
since "appropriate circumstances are not extant to warrant the intervention of the State action to enforce collection before the assessment procedures provided in the Code have
Prosecution to initiate the investigation, sign the informations and prosecute these cases, been followed, there is no requirement for the precise computation and assessment of the
said informations are null and void." The ruling adverted to by the petitioner reads, as tax before there can be a criminal prosecution under the Code. têñ.£îhqwâ£
follows: têñ.£îhqwâ£
The contention is made, and is here rejected, that an assessment of the deficiency
In view of all the foregoing considerations, it is the ruling of this Court that under tax due is necessary before the taxpayer can be prosecuted criminally for the charges
Sections 1679 and 1686 of the Revised Administrative Code, in any instance where preferred. The crime is complete when the violator has, as in this case, knowingly
a provincial or city fiscal fails, refuses or is unable, for any reason, to investigate or and willfully filed fraudulent returns with intent to evade and defeat a part or all of
prosecute a case and, in the opinion of the Secretary of Justice it is advisable in the the tax. 14
public interest to take a different course of action, the Secretary of Justice may either
appoint as acting provincial or city fiscal to handle the investigation or prosecution
exclusively and only of such case, any practicing attorney or some competent officer An assessment of a deficiency is not necessary to a criminal prosecution for willful
of the Department of Justice or office of any city or provincial fiscal, with complete attempt to defeat and evade the income tax. A crime is complete when the violator
authority to act therein in all respects as if he were the provincial or city fiscal has knowingly and willfuly filed a fraudulent return with intent to evade and defeat
himself, or appoint any lawyer in the government service, temporarily to assist such the tax. The perpetration of the crime is grounded upon knowledge on the part of
city of provincial fiscal in the discharge of his duties, with the same complete the taxpayer that he has made an inaccurate return, and the government's failure to
authority to act independently of and for such city or provincial fiscal provided that discover the error and promptly to assess has no connections with the commission
no such appointment may be made without first hearing the fiscal concerned and of the crime. 15
never after the corresponding information has already been filed with the court by
the corresponding city or provincial fiscal without the conformity of the latter, Besides, it has been ruled that a petition for reconsideration of an assessment may affect the
except when it can be patently shown to the court having cognizance of the case that suspension of the prescriptive period for the collection of taxes, but not the prescriptive
said fiscal is intent on prejudicing the interests of justice. The same sphere of period of a criminal action for violation of law. 16Obviously, the protest of the petitioner
authority is true with the prosecutor directed and authorized under Section 3 of against the assessment of the District Revenue Officer cannot stop his prosecution for
Republic Act 3783, as amended and/or inserted by Republic Act 5184. The violation of the National Internal Revenue Code. Accordingly, the respondent Judge did not
observation in Salcedo vs. Liwag, supra, regarding the nature of the power of the abuse his discretion in denying the motion to quash filed by the petitioner.
Secretary of Justice over fiscals as being purely over administrative matters only
was not really necessary, as indicated in the above relation of the facts and WHEREFORE, the petition should be, as it is hereby dismissed. The temporary restraining
discussion of the legal issues of said case, for the resolution thereof. In any event, order heretofore issued is hereby set aside. With costs against the petitioner.
to any extent that the opinion therein may be inconsistent herewith the same is
hereby modified.
SO ORDERED.
The contention is without merit. Contrary to the petitioner's claim, the rule therein
established had not been violated. The respondent State Prosecutor, although believing that
he can proceed independently of the City Fiscal in the investigation and prosecution of these
cases, first sought permission from the City Fiscal of Davao City before he started the
preliminary investigation of these cases, and the City Fiscal, after being shown
Administrative Order No. 116, dated December 5, 1974, designating the said State
Prosecutor to assist all Provincial and City fiscals throughout the Philippines in the
investigation and prosecution of all violations of the National Internal Revenue Code, as

26
TAXPAYER’S REMEDIES: PROTESTING AN ASSESSMENT On June 22, 2004, the BIR rendered a final Decision6 on the matter, requesting the
immediate payment of the tax liabilities.
G.R. No. 178087 May 5, 2010
Ruling of the Court of Tax Appeals, Second Division
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs. Believing that the government’s right to assess taxes had prescribed, respondent filed on
KUDOS METAL CORPORATION, Respondent. August 27, 2004 a Petition for Review7 with the CTA. Petitioner in turn filed his Answer.8

DEL CASTILLO, J.: On April 11, 2005, respondent filed an "Urgent Motion for Preferential Resolution of the
Issue on Prescription."9
The prescriptive period on when to assess taxes benefits both the government and the
taxpayer.1 Exceptions extending the period to assess must, therefore, be strictly construed. On October 4, 2005, the CTA Second Division issued a Resolution10 canceling the
assessment notices issued against respondent for having been issued beyond the prescriptive
This Petition for Review on Certiorari seeks to set aside the Decision2 dated March 30, period. It found the first Waiver of the Statute of Limitations incomplete and defective for
2007 of the Court of Tax Appeals (CTA) affirming the cancellation of the assessment failure to comply with the provisions of Revenue Memorandum Order (RMO) No. 20-90.
notices for having been issued beyond the prescriptive period and the Resolution 3 dated May Thus:
18, 2007 denying the motion for reconsideration.
First, the Assistant Commissioner is not the revenue official authorized to sign the waiver,
Factual Antecedents as the tax case involves more than ₱1,000,000.00. In this regard, only the Commissioner is
authorized to enter into agreement with the petitioner in extending the period of assessment;
On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income Tax
Return (ITR) for the taxable year 1998. Secondly, the waiver failed to indicate the date of acceptance. Such date of acceptance is
necessary to determine whether the acceptance was made within the prescriptive period;
Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal Revenue
(BIR) served upon respondent three Notices of Presentation of Records. Respondent failed Third, the fact of receipt by the taxpayer of his file copy was not indicated on the original
to comply with these notices, hence, the BIR issued a Subpeona Duces Tecum dated copy. The requirement to furnish the taxpayer with a copy of the waiver is not only to give
September 21, 2006, receipt of which was acknowledged by respondent’s President, Mr. notice of the existence of the document but also of the acceptance by the BIR and the
Chan Ching Bio, in a letter dated October 20, 2000. perfection of the agreement.

A review and audit of respondent’s records then ensued. The subject waiver is therefore incomplete and defective. As such, the three-year
prescriptive period was not tolled or extended and continued to run. x x x11
On December 10, 2001, Nelia Pasco (Pasco), respondent’s accountant, executed a Waiver
of the Defense of Prescription,4 which was notarized on January 22, 2002, received by the Petitioner moved for reconsideration but the CTA Second Division denied the motion in a
BIR Enforcement Service on January 31, 2002 and by the BIR Tax Fraud Division on Resolution12 dated April 18, 2006.
February 4, 2002, and accepted by the Assistant Commissioner of the Enforcement Service,
Percival T. Salazar (Salazar). Ruling of the Court of Tax Appeals, En Banc

This was followed by a second Waiver of Defense of Prescription 5 executed by Pasco on On appeal, the CTA En Banc affirmed the cancellation of the assessment notices. Although
February 18, 2003, notarized on February 19, 2003, received by the BIR Tax Fraud Division it ruled that the Assistant Commissioner was authorized to sign the waiver pursuant to
on February 28, 2003 and accepted by Assistant Commissioner Salazar. Revenue Delegation Authority Order (RDAO) No. 05-01, it found that the first waiver was
still invalid based on the second and third grounds stated by the CTA Second Division.
On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable year Pertinent portions of the Decision read as follows:
1998 against the respondent. This was followed by a Formal Letter of Demand with
Assessment Notices for taxable year 1998, dated September 26, 2003 which was received While the Court En Banc agrees with the second and third grounds for invalidating the first
by respondent on November 12, 2003. waiver, it finds that the Assistant Commissioner of the Enforcement Service is authorized
to sign the waiver pursuant to RDAO No. 05-01, which provides in part as follows:
Respondent challenged the assessments by filing its "Protest on Various Tax Assessments"
on December 3, 2003 and its "Legal Arguments and Documents in Support of Protests A. For National Office cases
against Various Assessments" on February 2, 2004.
27
Designated Revenue Official Petitioner argues that the government’s right to assess taxes is not barred by prescription as
the two waivers executed by respondent, through its accountant, effectively tolled or
1. Assistant Commissioner (ACIR), For tax fraud and policy Enforcement Service cases extended the period within which the assessment can be made. In disputing the conclusion
of the CTA that the waivers are invalid, petitioner claims that respondent is estopped from
adopting a position contrary to what it has previously taken. Petitioner insists that by
2. ACIR, Large Taxpayers Service For large taxpayers cases other than those cases falling acquiescing to the audit during the period specified in the waivers, respondent led the
under Subsection B hereof government to believe that the "delay" in the process would not be utilized against it. Thus,
respondent may no longer repudiate the validity of the waivers and raise the issue of
3. ACIR, Legal Service For cases pending verification and awaiting resolution of certain prescription.
legal issues prior to prescription and for issuance/compliance of Subpoena Duces Tecum
Respondent’s Arguments
4. ACIR, Assessment Service (AS) For cases which are pending in or subject to review or
approval by the ACIR, AS Respondent maintains that prescription had set in due to the invalidity of the waivers
executed by Pasco, who executed the same without any written authority from it, in clear
Based on the foregoing, the Assistant Commissioner, Enforcement Service is authorized to violation of RDAO No. 5-01. As to the doctrine of estoppel by acquiescence relied upon by
sign waivers in tax fraud cases. A perusal of the records reveals that the investigation of the petitioner, respondent counters that the principle of equity comes into play only when the
subject deficiency taxes in this case was conducted by the National Investigation Division law is doubtful, which is not present in the instant case.
of the BIR, which was formerly named the Tax Fraud Division. Thus, the subject assessment
is a tax fraud case. Our Ruling

Nevertheless, the first waiver is still invalid based on the second and third grounds stated by The petition is bereft of merit.
the Court in Division. Hence, it did not extend the prescriptive period to assess.
Section 20315 of the National Internal Revenue Code of 1997 (NIRC) mandates the
Moreover, assuming arguendo that the first waiver is valid, the second waiver is invalid for government to assess internal revenue taxes within three years from the last day prescribed
violating Section 222(b) of the 1997 Tax Code which mandates that the period agreed upon by law for the filing of the tax return or the actual date of filing of such return, whichever
in a waiver of the statute can still be extended by subsequent written agreement, provided comes later. Hence, an assessment notice issued after the three-year prescriptive period is
that it is executed prior to the expiration of the first period agreed upon. As previously no longer valid and effective. Exceptions however are provided under Section 222 16 of the
discussed, the exceptions to the law on prescription must be strictly construed. NIRC.

In the case at bar, the period agreed upon in the subject first waiver expired on December The waivers executed by respondent’s accountant did not extend the period within which
31, 2002. The second waiver in the instant case which was supposed to extend the period to the assessment can be made
assess to December 31, 2003 was executed on February 18, 2003 and was notarized on
February 19, 2003. Clearly, the second waiver was executed after the expiration of the first
period agreed upon. Consequently, the same could not have tolled the 3-year prescriptive Petitioner does not deny that the assessment notices were issued beyond the three-year
period to assess.13 prescriptive period, but claims that the period was extended by the two waivers executed by
respondent’s accountant.
Petitioner sought reconsideration but the same was unavailing.
We do not agree.
Issue
Section 222 (b) of the NIRC provides that the period to assess and collect taxes may only
be extended upon a written agreement between the CIR and the taxpayer executed before
Hence, the present recourse where petitioner interposes that: the expiration of the three-year period. RMO 20-9017 issued on April 4, 1990 and RDAO
05-0118 issued on August 2, 2001 lay down the procedure for the proper execution of the
THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT THE waiver, to wit:
GOVERNMENT’S RIGHT TO ASSESS UNPAID TAXES OF RESPONDENT
PRESCRIBED.14 1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase
"but not after ______ 19 ___", which indicates the expiry date of the period agreed
Petitioner’s Arguments upon to assess/collect the tax after the regular three-year period of prescription,
should be filled up.

28
 2. The waiver must be signed by the taxpayer himself or his duly authorized and not on the assessment of taxes, as the BIR was able to make an assessment within the
representative. In the case of a corporation, the waiver must be signed by any of its prescribed period. More important, there was a finding that the taxpayer made several
responsible officials. In case the authority is delegated by the taxpayer to a requests or positive acts to convince the government to postpone the collection of taxes, viz:
representative, such delegation should be in writing and duly notarized.
It appears that the first assessment made against respondent based on its second final return
3. The waiver should be duly notarized. filed on November 28, 1946 was made on February 11, 1947. Upon receipt of this
assessment respondent requested for at least one year within which to pay the amount
4. The CIR or the revenue official authorized by him must sign the waiver indicating assessed although it reserved its right to question the correctness of the assessment before
that the BIR has accepted and agreed to the waiver. The date of such acceptance by actual payment. Petitioner granted an extension of only three months. When it failed to pay
the BIR should be indicated. However, before signing the waiver, the CIR or the the tax within the period extended, petitioner sent respondent a letter on November 28, 1950
revenue official authorized by him must make sure that the waiver is in the demanding payment of the tax as assessed, and upon receipt of the letter respondent asked
prescribed form, duly notarized, and executed by the taxpayer or his duly authorized for a reinvestigation and reconsideration of the assessment. When this request was denied,
representative. respondent again requested for a reconsideration on April 25, 1952, which was denied on
May 6, 1953, which denial was appealed to the Conference Staff. The appeal was heard by
the Conference Staff from September 2, 1953 to July 16, 1955, and as a result of these
5. Both the date of execution by the taxpayer and date of acceptance by the Bureau various negotiations, the assessment was finally reduced on July 26, 1955. This is the ruling
should be before the expiration of the period of prescription or before the lapse of which is now being questioned after a protracted negotiation on the ground that the
the period agreed upon in case a subsequent agreement is executed. collection of the tax has already prescribed.

6. The waiver must be executed in three copies, the original copy to be attached to It is obvious from the foregoing that petitioner refrained from collecting the tax by distraint
the docket of the case, the second copy for the taxpayer and the third copy for the or levy or by proceeding in court within the 5-year period from the filing of the second
Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy amended final return due to the several requests of respondent for extension to which
must be indicated in the original copy to show that the taxpayer was notified of the petitioner yielded to give it every opportunity to prove its claim regarding the correctness
acceptance of the BIR and the perfection of the agreement. 19 of the assessment. Because of such requests, several reinvestigations were made and a
hearing was even held by the Conference Staff organized in the collection office to consider
A perusal of the waivers executed by respondent’s accountant reveals the following claims of such nature which, as the record shows, lasted for several months. After inducing
infirmities: petitioner to delay collection as he in fact did, it is most unfair for respondent to now take
advantage of such desistance to elude his deficiency income tax liability to the prejudice of
1. The waivers were executed without the notarized written authority of Pasco to the Government invoking the technical ground of prescription.
sign the waiver in behalf of respondent.
While we may agree with the Court of Tax Appeals that a mere request for reexamination
2. The waivers failed to indicate the date of acceptance. or reinvestigation may not have the effect of suspending the running of the period of
limitation for in such case there is need of a written agreement to extend the period between
the Collector and the taxpayer, there are cases however where a taxpayer may be prevented
3. The fact of receipt by the respondent of its file copy was not indicated in the from setting up the defense of prescription even if he has not previously waived it in writing
original copies of the waivers. as when by his repeated requests or positive acts the Government has been, for good reasons,
persuaded to postpone collection to make him feel that the demand was not unreasonable or
Due to the defects in the waivers, the period to assess or collect taxes was not extended. that no harassment or injustice is meant by the Government. And when such situation comes
Consequently, the assessments were issued by the BIR beyond the three-year period and are to pass there are authorities that hold, based on weighty reasons, that such an attitude or
void. behavior should not be countenanced if only to protect the interest of the Government.

Estoppel does not apply in this case This case has no precedent in this jurisdiction for it is the first time that such has risen, but
there are several precedents that may be invoked in American jurisprudence. As Mr. Justice
Cardozo has said: "The applicable principle is fundamental and unquestioned. ‘He who
We find no merit in petitioner’s claim that respondent is now estopped from claiming
prevents a thing from being done may not avail himself of the nonperformance which he
prescription since by executing the waivers, it was the one which asked for additional time
has himself occasioned, for the law says to him in effect "this is your own act, and therefore
to submit the required documents.
you are not damnified."’ "(R. H. Stearns Co. vs. U.S., 78 L. ed., 647). Or, as was aptly said,
"The tax could have been collected, but the government withheld action at the specific
In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,20 the doctrine of request of the plaintiff. The plaintiff is now estopped and should not be permitted to raise
estoppel prevented the taxpayer from raising the defense of prescription against the efforts the defense of the Statute of Limitations." [Newport Co. vs. U.S., (DC-WIS), 34 F. Supp.
of the government to collect the assessed tax. However, it must be stressed that in the said 588].21
case, estoppel was applied as an exception to the statute of limitations on collection of taxes

29
Conversely, in this case, the assessments were issued beyond the prescribed period. Also,
there is no showing that respondent made any request to persuade the BIR to postpone the
issuance of the assessments.

The doctrine of estoppel cannot be applied in this case as an exception to the statute of
limitations on the assessment of taxes considering that there is a detailed procedure for the
proper execution of the waiver, which the BIR must strictly follow. As we have often said,
the doctrine of estoppel is predicated on, and has its origin in, equity which, broadly defined,
is justice according to natural law and right.22 As such, the doctrine of estoppel cannot give
validity to an act that is prohibited by law or one that is against public policy.23 It should be
resorted to solely as a means of preventing injustice and should not be permitted to defeat
the administration of the law, or to accomplish a wrong or secure an undue advantage, or to
extend beyond them requirements of the transactions in which they originate.24 Simply put,
the doctrine of estoppel must be sparingly applied.

Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure to comply
with RMO 20-90 and RDAO 05-01, which the BIR itself issued. As stated earlier, the BIR
failed to verify whether a notarized written authority was given by the respondent to its
accountant, and to indicate the date of acceptance and the receipt by the respondent of the
waivers. Having caused the defects in the waivers, the BIR must bear the consequence. It
cannot shift the blame to the taxpayer. To stress, a waiver of the statute of limitations, being
a derogation of the taxpayer’s right to security against prolonged and unscrupulous
investigations, must be carefully and strictly construed.25

As to the alleged delay of the respondent to furnish the BIR of the required documents, this
cannot be taken against respondent. Neither can the BIR use this as an excuse for issuing
the assessments beyond the three-year period because with or without the required
documents, the CIR has the power to make assessments based on the best evidence
obtainable.26

WHEREFORE, the petition is DENIED. The assailed Decision dated March 30, 2007 and
Resolution dated May 18, 2007 of the Court of Tax Appeals are hereby AFFIRMED.

SO ORDERED.

30
TAXPAYER’S REMEDIES: PROTESTING AN ASSESSMENT 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%
G.R. No. L-21609 September 29, 1966 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. Subsequently, the Republic of the Philippines filed on March 27, 1962 a complaint
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, with the Court of First Instance of Manila seeking collection of the aforesaid deficiency
vs. income tax for the years 1947, 1948, 1949 and 1950. The complaint did not allege fraud in
KER & COMPANY, LTD., defendant-appellant. the filing of any of the income tax returns for the years involved, nor did it pray for the
payment of the corresponding 50% surcharge, but it prayed for the payment of 5% surcharge
BENGZON, J.P., J.: for late payment and interest of 1% per month without however specifying from what date
interest started to accrue.
Ker & Co., Ltd., a domestic corporation, filed its income tax returns for the years 1947,
1948, 1949 and 1950 on the following dates: Summons was served not on the defendant taxpayer but upon Messrs. Leido and Associates,
its counsel in the proceedings before the Bureau of Internal Revenue and the Court of Tax
Appeals.
Year Date Filed
1947 April 12, 1948 On April 14, 1962 Ker & Co., Ltd. through its counsel, Leido, Andrada, Perez & Associates,
1948 April 30, 1949 moved for the dismissal of the complaint on the ground that the court did not acquire
1949 May 15, 1950 jurisdiction over the person of the defendant and that plaintiff's cause of action has
1950 May 9, 1951 prescribed. This motion was denied and defendant filed a motion for reconsideration.
Resolution on said motion, however, was deferred until trial of the case on the merits.

It amended its income tax returns for 1948 and 1949 on May 11, 1949 and June 30, 1950, On May 18, 1962, Ker & Co., Ltd. filed its answer to the complaint interposing therein the
respectively. defense set up in its motion to dismiss of April 14, 1962.

In 1953 the Bureau of Internal Revenue examined and audited Ker & Co., Ltd.'s returns and On September 18, 1962 the Republic of the Philippines amended its complaint, in answer
books of accounts and subsequently issued the following assessments for deficiency income to which Ker & Co., Ltd. adopted the same answer which it had filed on May 18, 1962.
tax:
On January 30, 1963 the Court of First Instance rendered judgment, the dispositive portion
Year Amount Date Assessed of which states:
1947 P42,342.30 July 25, 1953
1948 18,651.87 Feb. 16, 1953 WHEREFORE, this Court dismisses the claim for the collection of deficiency
1949 139.67 Feb. 16, 1953 income taxes for 1947, but orders defendant taxpayer to pay the deficiency income
taxes for 1948, 1949 and 1950, in the amounts of P18,651.87, P139.67 and
1950 12,813.00 Feb. 16, 1953 P8,542.00, respectively, plus 5% surcharge thereon on each amount and interest of
1% a month computed from March 27, 1962 and until full payment thereof is made,
due and payable on dates indicated in the accompanying notices of assessment. The plus the costs of suit.
assessments for 1948 and 1950 carried the surcharge of 50% authorized under Section 72
of the Tax Code for the filing of fraudulent returns. On February 20, 1963 the Republic of the Philippines filed a motion for reconsideration
contending that the right of the Commissioner of Internal Revenue to collect the deficiency
Upon request of Ker & Co., Ltd., through Atty. Jose Leido, its counsel, the Bureau of assessment for 1947 has not prescribed by a lapse of merely five years and three months,
Internal Revenue reduced the assessments for the year 1947 from P42,342.30 to P27,026.28 because the taxpayer's income tax return was fraudulent in which case prescription sets in
and for the year 1950 from P12,813.00 to P8,542.00, imposed the 50% surcharge for the ten years from October 31, 1951, the date of discovery of the fraud, pursuant to Section 332
year 1947 and eliminated the same surcharge from the assessment for the year 1950. The (a) of the Tax Codes and that the payment of delinquency interest of 1% per month should
assessments for years 1948 and 1949 remained the same. commence from the date it fell due as indicated in the assessment notices instead of on the
date the complaint was filed.
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 On March 6, 1963 Ker & Co., Ltd. also filed a motion for reconsideration reiterating its
the appeal for having been instituted beyond the 30-day period provided for in Section 11 assertion that the Court of First Instance did not acquire jurisdiction over its person, and
of Republic Act 1125. We affirmed the order of dismissal of L-12396. 1 maintaining that since the complaint was filed nine years, one month and eleven days after

31
the deficiency assessments for 1948, 1949 and 1950 were made and since the filing of its the ground that plaintiff's cause of action has prescribed. By interposing such second ground
petition for review in the Court of Tax Appeals did not stop the running of the period of in its motion to dismiss, Ker & Co., Ltd. availed of an affirmative defense on the basis of
limitations, the right of the Commissioner of Internal Revenue to collect the tax in question which it prayed the court to resolve controversy in its favor. For the court to validly decide
has prescribed. the said plea of defendant Ker & Co., Ltd., it necessarily had to acquire jurisdiction upon
the latter's person, who, being the proponent of the affirmative defense, should be deemed
The two motions for reconsideration having been denied, both parties appealed directly to to have abandoned its special appearance and voluntarily submitted itself to the jurisdiction
this Court. of the court.3

The issues in this case are: Voluntary appearance cures defects of summons, if any.4 Such defect, if any, was further
cured when defendant filed its answer to the complaint.5 A defendant can not be permitted
to speculate upon the judgment of the court by objecting to the court's jurisdiction over its
1. Did the Court of First Instance acquire jurisdiction over the person of defendant person if the judgment is adverse to it, and acceding to jurisdiction over its person if and
Ker & Co., Ltd.? . when the judgment sustains its defenses.

2. Did the right of the Commissioner of Internal Revenue to assess deficiency Second Issue
income tax for the year 1947 prescribe? .
Ker & Co., Ltd. contends that under Section 331 of the Tax Code the right of the
3. Did the filing of a petition for review by the taxpayer in the Court of Tax Appeals Commissioner of Internal Revenue to assess against it a deficiency income tax for the year
suspend the running of the statute of limitations to collect the deficiency income for 1947 has prescribed because the assessment was issued on July 25, 1953 after a lapse of five
the years 1948, 1949 and 1950? years, three months and thirteen days from the date (April 12, 1948) it filed its income tax
return. On the other hand, the Republic of the Philippines insists that the taxpayer's income
4. When did the delinquency interest on the deficiency income tax for the years tax return was fraudulent, therefore the Commissioner of Internal Revenue may assess the
1948, 1949 and 1950 accrue? tax within ten years from discovery of the fraud on October 31, 1951 pursuant to Section
322(a) of the Tax Code.
First Issue
The stand of the Republic of the Philippines hinges on whether or not taxpayer's income tax
Ker & Co., Ltd. maintains that the court a quo did not acquire jurisdiction over its person return for 1947 was fraudulent.
inasmuch as summons was not served upon it but upon Messrs. Leido and Associates who
do not come under any of the class of persons upon whom summons should be served as The court a quo, confining itself to determining whether or not the assessment of the tax for
enumerated in Section 13, Rule 7 of the Rules of Court, 2 which reads: 1947 was issued within the five-year period provided for in Section 331 of the Tax Code,
ruled that the right of the Commissioner of Internal Revenue to assess the tax has prescribed.
SEC. 13. Service upon private domestic corporation or partnership.—If the Said the lower court:
defendant is a corporation formed under the laws of the Philippines or a partnership
duly registered, service may be made on the president, manager, secretary, cashier, The Court resolves the second issue in the negative, because Section 331 of the
agent, or any of its directors. Revenue Code explicitly provides, in mandatory terms, that "Internal Revenue taxes
shall be assessed within 5 years after the return was filed, and no proceedings in
Messrs. Leido and Associates acted as counsel for Ker Co., Ltd. when this tax case was in court without assessment, for the collection of such taxes, shall be begun after
its administrative stage. The same counsel represented Ker & Co., Ltd., when it appealed expiration of such period. The attempt by the Commissioner of Internal Revenue to
said case to the Court of Tax Appeals and later to this Court. Subsequently, when the Deputy make an assessment on July 25, 1953, on the basis of a return filed on April 12,
Commissioner of Internal Revenue, by letter dated March 15, 1962, demanded the payment 1948, is an exercise of authority against the aforequoted explicit and mandatory
of the deficiency income tax in question, it was Messrs. Leido, Andrada, Perez & Associates limitations of statutory law. Settled in our system is the rule that acts committed
who replied in behalf of Ker & Co., Ltd. in two letters, dated March 28, 1962 and April 10, against the provisions of mandatory or prohibitory laws shall be void (Art. 5, New
1962, both after the complaint in this case was filed. At least therefore on April 2, 1962 Civil Code). . . .
when Messrs. Leido and Associates received the summons, they were still acting for and in
behalf of Ker & Co., Ltd. in connection with its tax liability involved in this case. Perforce, Said court resolved the issue without touching upon fraudulence of the return. The reason
they were the taxpayer's agent when summons was served. Under Section 13 of Rule 7, is that the complaint alleged no fraud, nor did the plaintiff present evidence to prove fraud.
aforequoted, service upon the agent of a corporation is sufficient.
In reply to the lower court's conclusion, the Republic of the Philippines maintains in its brief
We observe that the motion to dismiss filed on April 14, 1962, aside from disputing the that Ker & Co., Ltd. filed a false return and since the fraud penalty of 50% surcharge was
lower court's jurisdiction over defendant's person, prayed for dismissal of the complaint on imposed in the deficiency income tax assessment, which has become final and executory,

32
the finding of the Commissioner of Internal Revenue as to the existence of the fraud has Did the pendency of the taxpayer's appeal in the Court of Tax Appeals and in the Supreme
also become final and need not be proved. This contention suffers from a flaw in that it fails Court have the effect of legally preventing the Commissioner of Internal Revenue from
to consider the well-settled principle that fraud is a question of fact 6 which must be alleged instituting an action in the Court of First Instance for the collection of the tax? Our view is
and proved.7 Fraud is a serious charge and, to be sustained, it must be supported by clear that it did.
and convincing proof.8 Accordingly, fraud should have been alleged and proved in the lower
court. On these premises We therefore sustain the ruling of the lower court upon the point From March 1, 1956 when Ker & Co., Ltd. filed a petition for review in the Court of Tax
of prescription. 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
It would be worth mentioning that since the assessment for deficiency income tax for 1947 recognized in this Court's ruling in Ledesma, et al. v. Court of Tax Appeals, 10 from filing
has become final and executory, Ker & Co., Ltd. may not anymore raise defenses which go an ordinary action in the Court of First Instance to collect the tax. Besides, to do so would
into the merits of the assessment, i.e., prescription of the Commissioner's right to assess the be to violate the judicial policy of avoiding multiplicity of suits and the rule on lis
tax. Such was our ruling in previous cases.9 In this case however, Ker & Co., Ltd. raised the pendens. 11
defense of prescription in the proceedings below and the Republic of the Philippines, instead
of questioning the right of the defendant to raise such defense, litigated on it and submitted It would be interesting to note that when the Commissioner of Internal Revenue issued the
the issue for resolution of the court. By its actuation, the Republic of the Philippines should final deficiency assessments on January 5, 1954, he had already lost, by prescription, the
be considered to have waived its right to object to the setting up of such defense. right to collect the tax (except that for 1950) by the summary method of warrant of distraint
and levy. Ker & Co., Ltd. immediately thereafter requested suspension of the collection of
Third Issue the tax without penalty incident to late payment pending the filing of a memorandum in
support of its views. As requested, no tax was collected. On May 22, 1954 the projected
Ker & Co., Ltd. impresses upon Us that since the Republic of the Philippines filed the memorandum was filed, but as of that date the Commissioner's right to collect by warrant
complaint for the collection of the deficiency income tax for the years 1948, 1949 and 1950 of distraint and levy the deficiency tax for 1950 had already prescribed. So much so, that on
only on March 27, 1962, or nine years, one month and eleven days from February 16, 1953, March 1, 1956 when Ker & Co., Ltd. filed a petition for review in the Court of Tax Appeals,
the date the tax was assessed, the right to collect the same has prescribed pursuant to Section the Commissioner of Internal Revenue had but one remedy left to collect the tax, that is, by
332 (c) of the Tax Code. The Republic of the Philippines however contends that the running judicial action. 12 However, as stated, an independent ordinary action in the Court of First
of the prescriptive period was interrupted by the filing of the taxpayer's petition for review Instance was not available to the Commissioner pursuant to Our ruling in Ledesma, et al. v.
in the Court of Tax Appeals on March 1, 1956. Court of Tax Appeals, supra, in view of the pendency of the taxpayer's petition for review
in the Court of Tax Appeals. Precisely he urgently filed a motion to dismiss the taxpayer's
petition for review with a view to terminating therein the proceedings in the shortest possible
If the period during which the case was pending in the Court of Tax Appeals and in the time in order that he could file a collection case in the Court of First Instance before his
Supreme Court were not counted in reckoning the prescriptive period, less than five years right to do so is cut off by the passage of time. As moved, the Tax Court dismissed the case
would have elapsed, hence, the right to collect the tax has not prescribed. and Ker & Co., Ltd. appealed to the Supreme Court. By the time the Supreme Court affirmed
the order of dismissal of the Court of Tax Appeals in L-12396 on January 31, 1962 more
The taxpayer counters that the filing of the petition for review in the Court of Tax Appeals than five years had elapsed since the final assessments were made on January 5, 1954.
could not have stopped the running of the prescriptive period to collect because said court Thereafter, the Commissioner of Internal Revenue demanded extra-judicially the payment
did not have jurisdiction over the case, the appeal having been interposed beyond the 30- of the deficiency tax in question and in reply the taxpayer, by its letter dated March 28,
day period set forth in Section 11 of Republic Act 1125. Precisely, it adds, the Tax Court 1962, advised the Commissioner of Internal Revenue that the right to collect the tax has
dismissed the appeal for lack of jurisdiction and said dismissal was affirmed by the Supreme prescribed pursuant to Section 332 (c) of the Tax Code.1awphîl.nèt
Court in L-12396 aforementioned.
Thus, did the taxpayer produce the effect of temporarily staying the hands of the
Under Section 333 of the Tax Code, quoted hereunder: 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
SEC. 333. Suspension of running of statute.—The running of the statute of taxes in the hope of ultimately avoiding the same.
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 Under the circumstances, the Commissioner of Internal Revenue was in effect prohibited
collection, in respect of any deficiency, shall be suspended for the period during from collecting the tax in question. This being so, the provisions of Section 333 of the Tax
which the Collector of Internal Revenue is prohibited from making the assessment Code will apply.
or beginning distraint or levy or a proceeding in court, and for sixty days thereafter.
Fourth Issue
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 The Republic of the Philippines maintains that the delinquency interest on the deficiency
and levy or instituting a proceeding in court, and for sixty days thereafter. income tax for 1948, 1949 and 1950 accrued and should commence from the date of the

33
assessments as shown in the assessment notices, pursuant to Section 51(e) of the Tax Code,
instead of from the date the complaint was filed as determined in the decision appealed
from.

Section 51 (e) of the Tax Code states:

SEC. 51(e). Surcharge and interest in case of delinquency.—To any sum or sums
due and unpaid after the dates prescribed in subsections (b), (c) and (d) for the
payment of the same, there shall be added the sum of five per centum on the amount
of tax unpaid and interest at the rate of one per centum a month upon said tax from
the time the same became due, except from the estates of insane, deceased, or
insolvent persons. (emphasis supplied)

Exhibit "F" — the letter of assessment — shows that the deficiency income tax for 1948
and 1949 became due on March 15, 1953 and that for 1950 accrued on February 15, 1954
in accordance with Section 51(d) of the Tax Code. Since the tax in question remained
unpaid, delinquency interest accrued and became due starting from said due dates. The
decision appealed from should therefore be modified accordingly.

WHEREFORE, the decision appealed from is affirmed with the modification that the
delinquency interest at the rate of 1% per month shall be computed from March 15, 1953
for the deficiency income tax for 1948 and 1949 and from February 15, 1954 for the
deficiency income tax for 1950. With costs against Ker & Co., Ltd. So ordered.

34
TAXPAYER’S REMEDIES: PROTESTING AN ASSESSMENT The Commissioner of Internal Revenue
Quezon City
G.R. No. 139736 October 17, 2005 Attention of: Mr. Pedro C. Aguillon
Asst. Commissioner for Collection
BANK OF THE PHILIPPINE ISLANDS, Petitioner,
vs. Sir:
COMMISSIONER OF INTERNAL REVENUE, Respondent.
On behalf of our client, Bank of the Philippine Islands (BPI), we have the honor to protest
CHICO-NAZARIO, J.: your assessment against it for deficiency documentary stamp tax for the year 1985 in the
amount of ₱28,020.00, arising from its sale to the Central Bank of U.S. $500,000.00 on June
6, 1985 and another U.S. $500,000.00 on June 14, 1985.
This Petition for Review on Certiorari, under Rule 45 of the 1997 Rules of Civil Procedure,
assails the Decision of the Court of Appeals in CA-G.R. SP No. 51271, dated 11 August
1999,1 which reversed and set aside the Decision of the Court of Tax Appeals (CTA), dated 1. Under established market practice, the documentary stamp tax on telegraphic transfers or
02 February 1999,2 and which reinstated Assessment No. FAS-5-85-89-002054 requiring sales of foreign exchange is paid by the buyer. Thus, when BPI sells to any party, the cost
petitioner Bank of the Philippine Islands (BPI) to pay the amount of ₱28,020.00 as of documentary stamp tax is added to the total price or charge to the buyer and the seller
deficiency documentary stamp tax (DST) for the taxable year 1985, inclusive of the affixes the corresponding documentary stamp on the document. Similarly, when the Central
compromise penalty. Bank sells foreign exchange to BPI, it charges BPI for the cost of the documentary stamp
on the transaction.
There is hardly any controversy as to the factual antecedents of this Petition.
2. In the two transactions subject of your assessment, no documentary stamps were affixed
because the buyer,
Petitioner BPI is a commercial banking corporation organized and existing under the laws Central Bank of the Philippines, was exempt from such tax. And while it is true that under
of the Philippines. On two separate occasions, particularly on 06 June 1985 and 14 June P.D. 1994, a proviso was added to sec. 222 (now sec. 186) of the Tax Code "that whenever
1985, it sold United States (US) $500,000.00 to the Central Bank of the Philippines (Central one party to a taxable document enjoys exemption from the tax herein imposed, the other
Bank), for the total sales amount of US$1,000,000.00. party thereto who is not exempt shall be the one directly liable for the tax," this proviso (and
the other amendments of P.D. 1994) took effect only on January 1, 1986, according to sec.
On 10 October 1989, the Bureau of Internal Revenue (BIR) issued Assessment No. FAS-5- 49 of P.D. 1994. Hence, the liability for the documentary stamp tax could not be shifted to
85-89-002054,3 finding petitioner BPI liable for deficiency DST on its afore-mentioned the seller.
sales of foreign bills of exchange to the Central Bank, computed as follows –
In view of the foregoing, we request that the assessment be revoked and cancelled.
1985 Deficiency Documentary Stamp Tax
Foreign Bills of Exchange………………………….. Very truly yours,
P 18,480,000.00
Tax Due Thereon: PADILLA
27,720.00LAW OFFICE
By:
(signed)
₱18,480,000.00 x ₱0.30 (Sec. 182 NIRC). SABINO PADILLA, JR.5

₱200.00 Petitioner BPI did not receive any immediate reply to its protest letter. However, on 15
Add: Suggested compromise penalty………….…… 300.00 1992, the BIR issued a Warrant of Distraint and/or Levy6 against petitioner BPI for
October
TOTAL AMOUNT DUE AND COLLECTIBLE…. the
P assessed
28,020.00deficiency DST for taxable year 1985, in the amount of ₱27,720.00 (excluding
the compromise penalty of ₱300.00). It served the Warrant on petitioner BPI only on 23
October 1992.7
Petitioner BPI received the Assessment, together with the attached Assessment Notice,4 on
20 October 1989.
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
Petitioner BPI, through its counsel, protested the Assessment in a letter dated 16 November Liwayway Vinzons-Chato, denying its "request for reconsideration," and addressing the
1989, and filed with the BIR on 17 November 1989. The said protest letter is reproduced in points raised by petitioner BPI in its protest letter, dated 16 November 1989, thus –
full below –
In reply, please be informed that after a thorough and careful study of the facts of the case
November 16, 1989 as well as the law and jurisprudence pertinent thereto, this Office finds the above argument

35
to be legally untenable. It is admitted that while industry practice or market convention has whether or not the sales of US$1,000,000.00 on 06 June 1985 and 14 June 1985 by petitioner
the force of law between the members of a particular industry, it is not binding with the BIR BPI to the Central Bank were subject to DST.
since it is not a party thereto. The same should, therefore, not be allowed to prejudice the
Bureau of its lawful task of collecting revenues necessary to defray the expenses of the The CTA answered the first issue in the negative and held that the statute of limitations for
government. (Art. 11 in relation to Art. 1306 of the New Civil Code.) respondent BIR Commissioner to collect on the Assessment had not yet prescribed. In
resolving the issue of prescription, the CTA reasoned that –
Moreover, let it be stated that even before the amendment of Sec. 222 (now Sec. 173) of the
Tax Code, as amended, the same was already interpreted to hold that the other party who is In the case of Commissioner of Internal Revenue vs. Wyeth Suaco Laboratories, Inc.,
not exempt from the payment of documentary stamp tax liable from the tax. This G.R. No. 76281, September 30, 1991, 202 SCRA 125, the Supreme Court laid to rest the
interpretation was further strengthened by the following BIR Rulings which in substance first issue. It categorically ruled that a "protest" is to be treated as request for reinvestigation
state: or reconsideration and a mere request for reexamination or reinvestigation tolls the
prescriptive period of the Commissioner to collect on an assessment. . .
1. BIR Unnumbered Ruling dated May 30, 1977 –
...
"x x x Documentary stamp taxes are payable by either person, signing, issuing, accepting,
or transferring the instrument, document or paper. It is now settled that where one party to In the case at bar, there being no dispute that petitioner filed its protest on the subject
the instrument is exempt from said taxes, the other party who is not exempt should be liable." assessment on November 17, 1989, there can be no conclusion other than that said protest
stopped the running of the prescriptive period of the Commissioner to collect.
2. BIR Ruling No. 144-84 dated September 3, 1984 –
Section 320 (now 223) of the Tax Code, clearly states that a request for reinvestigation
"x x x Thus, where one party to the contract is exempt from said tax, the other party, who is which is granted by the Commissioner, shall suspend the prescriptive period to collect. The
not exempt, shall be liable therefore. Accordingly, since A.J.L. Construction Corporation, underscored portion above does not mean that the Commissioner will cancel the subject
the other party to the contract and the one assuming the payment of the expenses incidental assessment but should be construed as when the same was entertainedby the Commissioner
to the registration in the vendee’s name of the property sold, is not exempt from said tax, by not issuing any warrant of distraint or levy on the properties of the taxpayer or any action
then it is the one liable therefore, pursuant to Sec. 245 (now Sec. 196), in relation to Sec. prejudicial to the latter unless and until the request for reinvestigation is finally given due
222 (now Sec. 173), both of the Tax Code of 1977, as amended." course. Taking into consideration this provision of law and the aforementioned ruling of the
Supreme Court in Wyeth Suaco which specifically and categorically states that a protest
Premised on all the foregoing considerations, your request for reconsideration is hereby could be considered as a request for reinvestigation, We rule that prescription has not set in
DENIED.8 against the government.11

Upon receipt of the above-cited letter from the BIR, petitioner BPI proceeded to file a The CTA had likewise resolved the second issue in the negative. Referring to its own
Petition for Review with the CTA on 10 October 1997;9 to which respondent BIR decision in an earlier case, Consolidated Bank & Trust Co. v. The Commissioner of Internal
Commissioner, represented by the Office of the Solicitor General, filed an Answer on 08 Revenue,12 the CTA reached the conclusion that the sales of foreign currency by petitioner
December 1997.10 BPI to the Central Bank in taxable year 1985 were not subject to DST –

Petitioner BPI raised in its Petition for Review before the CTA, in addition to the arguments From the abovementioned decision of this Court, it can be gleaned that the Central Bank,
presented in its protest letter, dated 16 November 1989, the defense of prescription of the during the period June 11, 1984 to March 9, 1987 enjoyed tax exemption privilege,
right of respondent BIR Commissioner to enforce collection of the assessed amount. It including the payment of documentary stamp tax (DST) pursuant to Resolution No. 35-85
alleged that respondent BIR Commissioner only had three years to collect on Assessment dated May 3, 1985 of the Fiscal Incentive Review Board. As such, the Central Bank, as
No. FAS-5-85-89-002054, but she waited for seven years and nine months to deny the buyer of the foreign currency, is exempt from paying the documentary stamp tax for the
protest. In her Answer and subsequent Memorandum, respondent BIR Commissioner period above-mentioned. This Court further expounded that said tax exemption of the
merely reiterated her position, as stated in her letter to petitioner BPI, dated 13 August 1997, Central Bank was modified beginning January 1, 1986 when Presidential Decree (P.D.)
which denied the latter’s protest; and remained silent as to the expiration of the prescriptive 1994 took effect. Under this decree, the liability for DST on sales of foreign currency to the
period for collection of the assessed deficiency DST. Central Bank is shifted to the seller.

After due trial, the CTA rendered a Decision on 02 February 1999, in which it identified Applying the above decision to the case at bar, petitioner cannot be held liable for DST on
two primary issues in the controversy between petitioner BPI and respondent BIR its 1985 sales of foreign currencies to the Central Bank, as the latter who is the purchaser of
Commissioner: (1) whether or not the right of respondent BIR Commissioner to collect from the subject currencies is the one liable thereof. However, since the Central Bank is exempt
petitioner BPI the alleged deficiency DST for taxable year 1985 had prescribed; and (2) from all taxes during 1985 by virtue of Resolution No. 35-85 of the Fiscal Incentive Review
Board dated March 3, 1985, neither the petitioner nor the Central Bank is liable for the

36
payment of the documentary stamp tax for the former’s 1985 sales of foreign currencies to section, a return filed before the last day prescribed by law for the filing thereof shall be
the latter. This aforecited case of Consolidated Bank vs. Commissioner of Internal Revenue considered as filed on such last day.16
was affirmed by the Court of Appeals in its decision dated March 31, 1995, CA-GR Sp. No.
35930. Said decision was in turn affirmed by the Supreme Court in its resolution denying The three-year period of limitations on the assessment and collection of national internal
the petition filed by Consolidated Bank dated November 20, 1995 with the Supreme Court revenue taxes set by Section 203 of the Tax Code of 1977, as amended, can be affected,
under Entry of Judgment dated March 1, 1996.13 adjusted, or suspended, in accordance with the following provisions of the same Code –

In sum, the CTA decided that the statute of limitations for respondent BIR Commissioner SEC. 223. – Exceptions as to period of limitation of assessment and collection of taxes. –
to collect on Assessment No. FAS-5-85-89-002054 had not yet prescribed; nonetheless, it (a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a
still ordered the cancellation of the said Assessment because the sales of foreign currency return, the tax may be assessed, or a proceeding in court for the collection of such tax may
by petitioner BPI to the Central Bank in taxable year 1985 were tax-exempt. be begun without assessment, at any time within ten years after the discovery of the falsity,
fraud, or omission: Provided, That in a fraud assessment which has become final and
Herein respondent BIR Commissioner appealed the Decision of the CTA to the Court of executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal
Appeals. In its Decision dated 11 August 1999,14 the Court of Appeals sustained the finding action for the collection thereof.
of the CTA on the first issue, that the running of the prescriptive period for collection on
Assessment No. FAS-5-85-89-002054 was suspended when herein petitioner BPI filed a (b) If before the expiration of the time prescribed in the preceding section for the assessment
protest on 17 November 1989 and, therefore, the prescriptive period for collection on the of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment
Assessment had not yet lapsed. In the same Decision, however, the Court of Appeals after such time the tax may be assessed within the period agreed upon. The period so agreed
reversed the CTA on the second issue and basically adopted the position of the respondent upon may be extended by subsequent written agreement made before the expiration of the
BIR Commissioner that the sales of foreign currency by petitioner BPI to the Central Bank period previously agreed upon.
in taxable year 1985 were subject to DST. The Court of Appeals, thus, ordered the
reinstatement of Assessment No. FAS-5-85-89-002054 which required petitioner BPI to pay
the amount of ₱28,020.00 as deficiency DST for taxable year 1985, inclusive of the (c) Any internal revenue tax which has been assessed within the period of limitation above-
compromise penalty. prescribed may be collected by distraint or levy or by a proceeding in court within three
years following the assessment of the tax.
Comes now petitioner BPI before this Court in this Petition for Review on Certiorari,
seeking resolution of the same two legal issues raised and discussed in the courts below, to (d) Any internal revenue tax which has been assessed within the period agreed upon as
reiterate: (1) whether or not the right of respondent BIR Commissioner to collect from provided in paragraph (b) hereinabove may be collected by distraint or levy or by a
petitioner BPI the alleged deficiency DST for taxable year 1985 had prescribed; and (2) proceeding in court within the period agreed upon in writing before the expiration of the
whether or not the sales of US$1,000,000.00 on 06 June 1985 and 14 June 1985 by petitioner three-year period. The period so agreed upon may be extended by subsequent written
BPI to the Central Bank were subject to DST. agreements made before the expiration of the period previously agreed upon.

I (e) Provided, however, That nothing in the immediately preceding section and paragraph (a)
hereof shall be construed to authorize the examination and investigation or inquiry into any
tax returns filed in accordance with the provisions of any tax amnesty law or decree. 17
The efforts of respondent Commissioner to collect on Assessment No. FAS-5-85-89-002054
were already barred by prescription.
SEC. 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
Anent the question of prescription, this Court disagrees in the Decisions of the CTA and the distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall
Court of Appeals, and herein determines the statute of limitations on collection of the be suspended for the period during which the Commissioner is prohibited from making the
deficiency DST in Assessment No. FAS-5-85-89-002054 had already prescribed. 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
The period for the BIR to assess and collect an internal revenue tax is limited to three years Commissioner; when the taxpayer cannot be located in the address given by him in the
by Section 203 of the Tax Code of 1977, as amended, 15 which provides that – 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
SEC. 203. Period of limitation upon assessment and collection. – Except as provided in the will not be suspended; when the warrant of distraint and levy is duly served upon the
succeeding section, internal revenue taxes shall be assessed within three years after the last taxpayer, his authorized representative, or a member of his household with sufficient
day prescribed by law for the filing of the return, and no proceeding in court without discretion, and no property could be located; and when the taxpayer is out of the
assessment for the collection of such taxes shall be begun after the expiration of such period: Philippines.18
Provided, That in a case where a return is filed beyond the period prescribed by law, the
three-year period shall be counted from the day the return was filed. For the purposes of this

37
As enunciated in these statutory provisions, the BIR has three years, counted from the date in her Answer to the Petition for Review of petitioner BPI before the CTA, filed on 08
of actual filing of the return or from the last date prescribed by law for the filing of such December 1997.23
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 II
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 There is no valid ground for the suspension of the running of the prescriptive period for
or ten-year period, whichever is appropriate, then the BIR has another three years19 after the collection of the assessed DST under the Tax Code of 1977, as amended.
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 In their Decisions, both the CTA and the Court of Appeals found that the filing by petitioner
period for collection of the assessed tax begins to run on the date the assessment notice had BPI of a protest letter suspended the running of the prescriptive period for collecting the
been released, mailed or sent by the BIR to the taxpayer. 20 assessed DST. This Court, however, takes the opposing view, and, based on the succeeding
discussion, concludes that there is no valid ground for suspending the running of the
In the present Petition, there is no controversy on the timeliness of the issuance of the prescriptive period for collection of the deficiency DST assessed against petitioner BPI.
Assessment, only on the prescription of the period to collect the deficiency DST following
its Assessment. While Assessment No. FAS-5-85-89-002054 and its corresponding A. The statute of limitations on assessment and collection of taxes is for the protection of
Assessment Notice were both dated 10 October 1989 and were received by petitioner BPI the taxpayer and, thus, shall be construed liberally in his favor.
on 20 October 1989, there was no showing as to when the said Assessment and Assessment
Notice were released, mailed or sent by the BIR. Still, it can be granted that the latest date Though the statute of limitations on assessment and collection of national internal revenue
the BIR could have released, mailed or sent the Assessment and Assessment Notice to taxes benefits both the Government and the taxpayer, it principally intends to afford
petitioner BPI was on the same date they were received by the latter, on 20 October 1989. protection to the taxpayer against unreasonable investigation. The indefinite extension of
Counting the three-year prescriptive period, for a total of 1,095 days,21 from 20 October the period for assessment is unreasonable because it deprives the said taxpayer of the
1989, then the BIR only had until 19 October 1992 within which to collect the assessed assurance that he will no longer be subjected to further investigation for taxes after the
deficiency DST. expiration of a reasonable period of time.24 As aptly explained in Republic of the Philippines
v. Ablaza25 –
The earliest attempt of the BIR to collect on Assessment No. FAS-5-85-89-002054 was its
issuance and service of a Warrant of Distraint and/or Levy on petitioner BPI. Although the The law prescribing a limitation of actions for the collection of the income tax is beneficial
Warrant was issued on 15 October 1992, previous to the expiration of the period for both to the Government and to its citizens; to the Government because tax officers would
collection on 19 October 1992, the same was served on petitioner BPI only on 23 October be obliged to act promptly in the making of assessment, and to citizens because after the
1992. 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,
Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the not to determine the latter’s real liability, but to take advantage of every opportunity to
Warrant of Distraint and/or Levy be fully executed so that it can suspend the running of the molest peaceful, law-abiding citizens. Without such a legal defense taxpayers would
statute of limitations on the collection of the tax. It is enough that the proceedings have furthermore be under obligation to always keep their books and keep them open for
validly began or commenced and that their execution has not been suspended by reason of inspection subject to harassment by unscrupulous tax agents. The law on prescription being
the voluntary desistance of the respondent BIR Commissioner. Existing jurisprudence a remedial measure should be interpreted in a way conducive to bringing about the
establishes that distraint and levy proceedings are validly begun or commenced by the beneficent purpose of affording protection to the taxpayer within the contemplation of the
issuance of the Warrant and service thereof on the taxpayer.22 It is only logical to require Commission which recommend the approval of the law.
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, In order to provide even better protection to the taxpayer against unreasonable investigation,
because it may only be upon the service of the Warrant that the taxpayer is informed of the the Tax Code of 1977, as amended, identifies specifically in Sections 223 and 22426 thereof
denial by the BIR of any pending protest of the said taxpayer, and the resolute intention of the circumstances when the prescriptive periods for assessing and collecting taxes could be
the BIR to collect the tax assessed. suspended or interrupted.

If the service of the Warrant of Distraint and/or Levy on petitioner BPI on 23 October 1992 To give effect to the legislative intent, these provisions on the statute of limitations on
was already beyond the prescriptive period for collection of the deficiency DST, which had assessment and collection of taxes shall be construed and applied liberally in favor of the
expired on 19 October 1992, then what more the letter of respondent BIR Commissioner, taxpayer and strictly against the Government.
dated 13 August 1997 and received by the counsel of the petitioner BPI only on 11
September 1997, denying the protest of petitioner BPI and requesting payment of the
deficiency DST? Even later and more unequivocally barred by prescription on collection B. The statute of limitations on assessment and collection of national internal revenue taxes
was the demand made by respondent BIR Commissioner for payment of the deficiency DST may be waived, subject to certain conditions, under paragraphs (b) and (d) of Section 223

38
of the Tax Code of 1977, as amended, respectively. Petitioner BPI, however, did not execute In the Petition at bar, petitioner BPI executed no such waiver of the statute of limitations on
any such waiver in the case at bar. the collection of the deficiency DST per Assessment No. FAS-5-85-89-002054. In fact, an
internal memorandum of the Chief of the Legislative, Ruling & Research Division of the
According to paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, BIR to her counterpart in the Collection Enforcement Division, dated 15 October 1992,
the prescriptive periods for assessment and collection of national internal revenue taxes, expressly noted that, "The taxpayer fails to execute a Waiver of the Statute of Limitations
respectively, could be waived by agreement, to wit – extending the period of collection of the said tax up to December 31, 1993 pending
reconsideration of its protest. . ."30 Without a valid waiver, the statute of limitations on
collection by the BIR of the deficiency DST could not have been suspended under paragraph
SEC. 223. – Exceptions as to period of limitation of assessment and collection of taxes. – (d) of Section 223 of the Tax Code of 1977, as amended.

... C. 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
(b) If before the expiration of the time prescribed in the preceding section for the assessment of limitations on collection of the assessed deficiency DST under Section 224 of the Tax
of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment Code of 1977, as amended.
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 The Tax Code of 1977, as amended, also recognizes instances when the running of the
period previously agreed upon. 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 reads
... –

(d) Any internal revenue tax which has been assessed within the period agreed upon as SEC. 224. Suspension of running of statute. – The running of the statute of limitation
provided in paragraph (b) hereinabove may be collected by distraint or levy or by a provided in Section[s] 203 and 223 on the making of assessment and the beginning of
proceeding in court within the period agreed upon in writing before the expiration of the distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall
three-year period. The period so agreed upon may be extended by subsequent written be suspended for the period during which the Commissioner is prohibited from making the
agreements made before the expiration of the period previously agreed upon. 27 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
The agreements so described in the afore-quoted provisions are often referred to as waivers Commissioner; when the taxpayer cannot be located in the address given by him in the
of the statute of limitations. The waiver of the statute of limitations, whether on assessment return filed upon which a tax is being assessed or collected: Provided, That, if the taxpayer
or collection, should not be construed as a waiver of the right to invoke the defense of informs the Commissioner of any change in address, the running of the statute of limitations
prescription but, rather, an agreement between the taxpayer and the BIR to extend the period will not be suspended; when the warrant of distraint and levy is duly served upon the
to a date certain, within which the latter could still assess or collect taxes due. The waiver taxpayer, his authorized representative, or a member of his household with sufficient
does not mean that the taxpayer relinquishes the right to invoke prescription discretion, and no property could be located; and when the taxpayer is out of the
unequivocally.28 Philippines.31

A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of Of particular importance to the present case is one of the circumstances enumerated in
the Tax Code of 1977, as amended, must be: (1) in writing; (2) agreed to by both the Section 224 of the Tax Code of 1977, as amended, wherein the running of the statute of
Commissioner and the taxpayer; (3) before the expiration of the ordinary prescriptive limitations on assessment and collection of taxes is considered suspended "when the
periods for assessment and collection; and (4) for a definite period beyond the ordinary taxpayer requests for a reinvestigation which is granted by the Commissioner."
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 This Court gives credence to the argument of petitioner BPI that there is a distinction
expiration of the first period agreed upon. The BIR had issued Revenue Memorandum Order between a request for reconsideration and a request for reinvestigation. Revenue
(RMO) No. 20-90 on 04 April 1990 to lay down an even more detailed procedure for the Regulations (RR) No. 12-85, issued on 27 November 1985 by the Secretary of Finance,
proper execution of such a waiver. RMO No. 20-90 mandates that the procedure for upon the recommendation of the BIR Commissioner, governs the procedure for protesting
execution of the waiver shall be strictly followed, and any revenue official who fails to an assessment and distinguishes between the two types of protest, as follows –
comply therewith resulting in the prescription of the right to assess and collect shall be
administratively dealt with. PROTEST TO ASSESSMENT

This Court had consistently ruled in a number of cases that a request for reconsideration or SEC. 6. Protest. The taxpayer may protest administratively an assessment by filing a written
reinvestigation by the taxpayer, without a valid waiver of the prescriptive periods for the request for reconsideration or reinvestigation. . .
assessment and collection of tax, as required by the Tax Code and implementing rules, will
not suspend the running thereof.29

39
... ignored the request, and the records and documents were not at all examined. Considering
the given facts, this Court pronounced that –
For the purpose of the protest herein –
. . .The act of requesting a reinvestigation alone does not suspend the period. The request
(a) Request for reconsideration. – refers to a plea for a re-evaluation of an assessment on should first be granted, in order to effect suspension. (Collector vs. Suyoc Consolidated,
the basis of existing records without need of additional evidence. It may involve both a supra; also Republic vs. Ablaza, supra). Moreover, the Collector gave appellee until April
question of fact or of law or both. 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 from April 1,
1949. . . .34
(b) Request for reinvestigation. – refers to a plea for re-evaluation 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. In Republic of the Philippines v. Acebedo,35 this Court similarly found that –

With the issuance of RR No. 12-85 on 27 November 1985 providing the above-quoted . . . [T]he defendant, after receiving the assessment notice of September 24, 1949, asked for
distinctions between a request for reconsideration and a request for reinvestigation, the two a reinvestigation thereof on October 11, 1949 (Exh. A). There is no evidence that this
types of protest can no longer be used interchangeably and their differences so lightly request was considered or acted upon. In fact, on October 23, 1950 the then Collector of
brushed aside. It bears to emphasize that under Section 224 of the Tax Code of 1977, as Internal Revenue issued a warrant of distraint and levy for the full amount of the assessment
amended, the running of the prescriptive period for collection of taxes can only be (Exh. D), but there was no follow-up of this warrant. Consequently, the request for
suspended by a request for reinvestigation, not a request for reconsideration. Undoubtedly, reinvestigation did not suspend the running of the period for filing an action for
a reinvestigation, which entails the reception and evaluation of additional evidence, will collection.
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 The burden of proof that the taxpayer’s request for reinvestigation had been actually granted
of limitations on collection of the assessed tax, while the latter can not. shall be on respondent BIR Commissioner. The grant may be expressed in communications
with the taxpayer or implied from the actions of the respondent BIR Commissioner or his
The protest letter of petitioner BPI, dated 16 November 1989 and filed with the BIR the next authorized BIR representatives in response to the request for reinvestigation.
day, on 17 November 1989, did not specifically request for either a reconsideration or
reinvestigation. A close review of the contents thereof would reveal, however, that it In Querol v. Collector of Internal Revenue,36 the BIR, after receiving the protest letters of
protested Assessment No. FAS-5-85-89-002054 based on a question of law, in particular, taxpayer Querol, sent a tax examiner to San Fernando, Pampanga, to conduct the
whether or not petitioner BPI was liable for DST on its sales of foreign currency to the reinvestigation; as a result of which, the original assessment against taxpayer Querol was
Central Bank in taxable year 1985. The same protest letter did not raise any question of fact; revised by permitting him to deduct reasonable depreciation. In another case, Republic of
neither did it offer to present any new evidence. In its own letter to petitioner BPI, dated 10 the Philippines v. Lopez,37 taxpayer Lopez filed a total of four petitions for reconsideration
September 1992, the BIR itself referred to the protest of petitioner BPI as a request for and reinvestigation. The first petition was denied by the BIR. The second and third petitions
reconsideration.32 These considerations would lead this Court to deduce that the protest were granted by the BIR and after each reinvestigation, the assessed amount was reduced.
letter of petitioner BPI was in the nature of a request for reconsideration, rather than a The fourth petition was again denied and, thereafter, the BIR filed a collection suit against
request for reinvestigation and, consequently, Section 224 of the Tax Code of 1977, as taxpayer Lopez. When the taxpayers spouses Sison, in Commissioner of Internal Revenue
amended, on the suspension of the running of the statute of limitations should not apply. v. Sison,38 contested the assessment against them and asked for a reinvestigation, the BIR
ordered the reinvestigation resulting in the issuance of an amended assessment. Lastly,
Even if, for the sake of argument, this Court glosses over the distinction between a request in Republic of the Philippines v. Oquias,39 the BIR granted taxpayer Oquias’s request for
for reconsideration and a request for reinvestigation, and considers the protest of petitioner reinvestigation and duly notified him of the date when such reinvestigation would be held;
BPI as a request for reinvestigation, the filing thereof could not have suspended at once the only, neither taxpayer Oquias nor his counsel appeared on the given date.
running of the statute of limitations. Article 224 of the Tax Code of 1977, as amended, very
plainly requires that the request for reinvestigation had been granted by the BIR In all these cases, the request for reinvestigation of the assessment filed by the taxpayer was
Commissioner to suspend the running of the prescriptive periods for assessment and evidently granted and actual reinvestigation was conducted by the BIR, which eventually
collection. resulted in the issuance of an amended assessment. On the basis of these facts, this Court
ruled in the same cases that the period between the request for reinvestigation and the
That the BIR Commissioner must first grant the request for reinvestigation as a requirement revised assessment should be subtracted from the total prescriptive period for the assessment
for suspension of the statute of limitations is even supported by existing jurisprudence. of the tax; and, once the assessment had been reconsidered at the taxpayer’s instance, the
period for collection should begin to run from the date of the reconsidered or modified
assessment.40
In the case of Republic of the Philippines v. Gancayco,33 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 The rulings of the foregoing cases do not apply to the present Petition because: (1) the
protest filed by petitioner BPI was a request for reconsideration, not a reinvestigation, of the
40
assessment against it; and (2) even granting that the protest of petitioner BPI was a request This Court finds that although there is no compelling reason to abandon its decision in
for reinvestigation, there was no showing that it was granted by respondent BIR the Wyeth Suaco case, the said case cannot be applied to the particular facts of the Petition
Commissioner and that actual reinvestigation had been conducted. at bar.

Going back to the administrative records of the present case, it would seem that the BIR, A. The only exception to the statute of limitations on collection of taxes, other than those
after receiving a copy of the protest letter of petitioner BPI on 17 November 1989, did not already provided in the Tax Code, was recognized in the Suyoc case.
attempt to communicate at all with the latter until 10 September 1992, less than a month
before the prescriptive period for collection on Assessment No. FAS-5-85-89-002054 was As had been previously discussed herein, the statute of limitations on assessment and
due to expire. There were internal communications, mostly indorsements of the docket of collection of national internal revenue taxes may be suspended if the taxpayer executes a
the case from one BIR division to another; but these hardly fall within the same sort of acts valid waiver thereof, as provided in paragraphs (b) and (d) of Section 223 of the Tax Code
in the previously discussed cases that satisfactorily demonstrated the grant of the taxpayer’s of 1977, as amended; and in specific instances enumerated in Section 224 of the same Code,
request for reinvestigation. Petitioner BPI, in the meantime, was left in the dark as to the which include a request for reinvestigation granted by the BIR Commissioner. Outside of
status of its protest in the absence of any word from the BIR. Besides, in its letter to these statutory provisions, however, this Court also recognized one other exception to the
petitioner BPI, dated 10 September 1992, the BIR unwittingly admitted that it had not yet statute of limitations on collection of taxes in the case of Collector of Internal Revenue v.
acted on the protest of the former – Suyoc Consolidated Mining Co.43

This refers to your protest against and/or request for reconsideration of the assessment/s of In the said case, the Collector of Internal Revenue issued an assessment against taxpayer
this Office against you involving the amount of ₱28,020.00 under FAS-5-85-89-002054 Suyoc Consolidated Mining Co. on 11 February 1947 for deficiency income tax for the
dated October 23, 1989 as deficiency documentary stamp tax inclusive of compromise taxable year 1941. Taxpayer Suyoc requested for at least a year within which to pay the
penalty for the year 1985. amount assessed, but at the same time, reserving its right to question the correctness of the
assessment before actual payment. The Collector granted taxpayer Suyoc an extension of
In this connection, it is requested that the enclosed waiver of the statute of limitations only three months to pay the assessed tax. When taxpayer Suyoc failed to pay the assessed
extending the period of collection of the said tax/es to December 31, 1993 be executed by tax within the extended period, the Collector sent it a demand letter, dated 28 November
you as a condition precedent of our giving due course to your protest…41 1950. Upon receipt of the demand letter, taxpayer Suyoc asked for a reinvestigation and
reconsideration of the assessment, but the Collector denied the request. Taxpayer Suyoc
When the BIR stated in its letter, dated 10 September 1992, that the waiver of the statute of reiterated its request for reconsideration on 25 April 1952, which was denied again by the
limitations on collection was a condition precedent to its giving due course to the request Collector on 06 May 1953. Taxpayer Suyoc then appealed the denial to the Conference
for reconsideration of petitioner BPI, then it was understood that the grant of such request Staff. The Conference Staff heard the appeal from 02 September 1952 to 16 July 1955, and
for reconsideration was being held off until compliance with the given condition. When the negotiations resulted in the reduction of the assessment on 26 July 1955. It was the
petitioner BPI failed to comply with the condition precedent, which was the execution of collection of the reduced assessment that was questioned before this Court for being
the waiver, the logical inference would be that the request was not granted and was not given enforced beyond the prescriptive period.44
due course at all.
In resolving the issue on prescription, this Court ratiocinated thus –
III
It is obvious from the foregoing that petitioner refrained from collecting the tax by distraint
The suspension of the statute of limitations on collection of the assessed deficiency DST or levy or by proceeding in court within the 5-year period from the filing of the second
from petitioner BPI does not find support in jurisprudence. amended final return due to the several requests of respondent for extension to which
petitioner yielded to give it every opportunity to prove its claim regarding the correctness
of the assessment. Because of such requests, several reinvestigations were made and a
It is the position of respondent BIR Commissioner, affirmed by the CTA and the Court of hearing was even held by the Conference Staff organized in the collection office to consider
Appeals, that the three-year prescriptive period for collecting on Assessment No. FAS-5- claims of such nature which, as the record shows, lasted for several months. After inducing
85-89-002054 had not yet prescribed, because the said prescriptive period was suspended, petitioner to delay collection as he in fact did, it is most unfair for respondent to now take
invoking the case of Commissioner of Internal Revenue v. Wyeth Suaco Laboratories, advantage of such desistance to elude his deficiency income tax liability to the prejudice of
Inc.42 It was in this case in which this Court ruled that the prescriptive period provided by the Government invoking the technical ground of prescription.
law to make a collection is interrupted once a taxpayer requests for reinvestigation or
reconsideration of the assessment.
While we may agree with the Court of Tax Appeals that a mere request for reexamination
or reinvestigation may not have the effect of suspending the running of the period of
Petitioner BPI, on the other hand, is requesting this Court to revisit the Wyeth Suaco case limitation for in such case there is need of a written agreement to extend the period between
contending that it had unjustifiably expanded the grounds for suspending the prescriptive the Collector and the taxpayer, there are cases however where a taxpayer may be prevented
period for collection of national internal revenue taxes. from setting up the defense of prescription even if he has not previously waived it in writing
as when by his repeated requests or positive acts the Government has been, for good

41
reasons, persuaded to postpone collection to make him feel that the demand was not ...
unreasonable or that no harassment or injustice is meant by the Government. And when
such situation comes to pass there are authorities that hold, based on weighty reasons, that Although the protest letters prepared by SGV & Co. in behalf of private respondent did not
such an attitude or behavior should not be countenanced if only to protect the interest of the categorically state or use the words "reinvestigation" and "reconsideration," the same are to
Government.45 be treated as letters of reinvestigation and reconsideration…

By the principle of estoppel, taxpayer Suyoc was not allowed to raise the defense of These letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to
prescription against the efforts of the Government to collect the tax assessed against it. This collect the deficiency taxes. The Bureau of Internal Revenue, after having reviewed the
Court adopted the following principle from American jurisprudence: "He who prevents a records of Wyeth Suaco, in accordance with its request for reinvestigation, rendered a
thing from being done may not avail himself of the nonperformance which he has himself final assessment… It was only upon receipt by Wyeth Suaco of this final assessment that
occasioned, for the law says to him in effect ‘this is your own act, and therefore you are not the five-year prescriptive period started to run again.47
damnified.’"46
The foremost criticism of petitioner BPI of the Wyeth Suaco decision is directed at the
In the Suyoc case, this Court expressly conceded that a mere request for reconsideration or statement made therein that, "settled is the rule that the prescriptive period provided by law
reinvestigation of an assessment may not suspend the running of the statute of limitations. to make a collection by distraint or levy or by a proceeding in court is interrupted once a
It affirmed the need for a waiver of the prescriptive period in order to effect suspension taxpayer requests for reinvestigation or reconsideration of the assessment."48 It would seem
thereof. However, even without such waiver, the taxpayer may be estopped from raising the that both petitioner BPI and respondent BIR Commissioner, as well as, the CTA and Court
defense of prescription because by his repeated requests or positive acts, he had induced of Appeals, take the statement to mean that the filing alone of the request for reconsideration
Government authorities to delay collection of the assessed tax. 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
Based on the foregoing, petitioner BPI contends that the declaration made in the later case made in the Wyeth Suaco case. While it is true that, by itself, such statement would appear
of Wyeth Suaco, that the statute of limitations on collection is suspended once the taxpayer to be a generalization of the exceptions to the statute of limitations on collection, it is best
files a request for reconsideration or reinvestigation, runs counter to the ruling made by this interpreted in consideration of the particular facts of the Wyeth Suaco case and previous
Court in the Suyoc case. jurisprudence.

B. Although this Court is not compelled to abandon its decision in the Wyeth Suaco case, it The Wyeth Suaco case cannot be in conflict with the Suyoc case because there are
finds that Wyeth Suaco is not applicable to the Petition at bar because of the distinct facts substantial differences in the factual backgrounds of the two cases. The Suyoc case refers to
involved herein. 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
In the case of Wyeth Suaco, taxpayer Wyeth Suaco was assessed for failing to remit therein that the repeated requests or positive acts of the taxpayer prevented or estopped it
withholding taxes on royalties and dividend declarations, as well as, for deficiency sales tax. from setting up the defense of prescription against the Government when the latter attempted
The BIR issued two assessments, dated 16 December 1974 and 17 December 1974, both to collect the assessed tax. In the Wyeth Suaco case, taxpayer Wyeth Suaco filed a request
received by taxpayer Wyeth Suaco on 19 December 1974. Taxpayer Wyeth Suaco, through for reinvestigation, which was apparently granted by the BIR and, consequently, the
its tax consultant, SGV & Co., sent to the BIR two letters, dated 17 January 1975 and 08 prescriptive period was indeed suspended as provided under Section 224 of the Tax Code
February 1975, protesting the assessments and requesting their cancellation or withdrawal of 1977, as amended.49
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 To reiterate, Section 224 of the Tax Code of 1977, as amended, identifies specific
settlement being offered under Letter of Instruction No. 308. Taxpayer Wyeth Suaco circumstances when the statute of limitations on assessment and collection may be
manifested its conformity to paying a compromise amount, but subject to certain conditions; interrupted or suspended, among which is a request for reinvestigation that is granted by the
though, apparently, the said compromise amount was never paid. On 10 December 1979, BIR Commissioner. The act of filing a request for reinvestigation alone does not suspend
the BIR Commissioner rendered a decision reducing the assessment for deficiency the period; such request must be granted.50 The grant need not be express, but may be
withholding tax against taxpayer Wyeth Suaco, but maintaining the assessment for implied from the acts of the BIR Commissioner or authorized BIR officials in response to
deficiency sales tax. It was at this point when taxpayer Wyeth Suaco brought its case before the request for reinvestigation.51
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 This Court found in the Wyeth Suaco case that the BIR actually conducted a reinvestigation,
when the case was brought before it on appeal. According to the decision of this Court – 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
Settled is the rule that the prescriptive period provided by law to make a collection by its request for reinvestigation was granted, as written by its Finance Manager in a letter
distraint or levy or by a proceeding in court is interrupted once a taxpayer requests for dated 01 July 1975, addressed to the Chief of the Tax Accounts Division, wherein he
reinvestigation or reconsideration of the assessment. . . admitted that, "[a]s we understand, the matter is now undergoing review and consideration

42
by your Manufacturing Audit Division…" The statute of limitations on collection, then, suspended the prescriptive period for collection under Section 224 of the Tax Code of 1977,
started to run only upon the issuance and release of the reduced assessment. as amended; and, petitioner BPI, other than filing a request for reconsideration of
Assessment No. FAS-5-85-89-002054, did not make repeated requests or performed
The Wyeth Suaco case, therefore, is correct in declaring that the prescriptive period for positive acts that could have persuaded the respondent BIR Commissioner to delay
collection is interrupted or suspended when the taxpayer files a request for reinvestigation, collection, and that would have prevented or estopped petitioner BPI from setting up the
provided that, as clarified and qualified herein, such request is granted by the BIR defense of prescription against collection of the tax assessed, as required in the Suyoc case.
Commissioner.
This is a simple case wherein respondent BIR Commissioner and other BIR officials failed
Thus, this Court finds no compelling reason to abandon its decision in the Wyeth Suaco case. to act promptly in resolving and denying the request for reconsideration filed by petitioner
It also now rules that the said case is not applicable to the Petition at bar because of the BPI and in enforcing collection on the assessment. They presented no reason or explanation
distinct facts involved herein. As already heretofore determined by this Court, the protest as to why it took them almost eight years to address the protest of petitioner BPI. The statute
filed by petitioner BPI was a request for reconsideration, which merely required a review of on limitations imposed by the Tax Code precisely intends to protect the taxpayer from such
existing evidence and the legal basis for the assessment. Respondent BIR Commissioner did prolonged and unreasonable assessment and investigation by the BIR.
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 Considering that the right of the respondent BIR Commissioner to collect from petitioner
between it and respondent BIR Commissioner or any of the authorized representatives of BPI the deficiency DST in Assessment No. FAS-5-85-89-002054 had already prescribed,
the latter. There was no showing that petitioner BPI was informed or aware that its request then, there is no more need for this Court to make a determination on the validity and
for reconsideration was granted or acted upon by the BIR. correctness of the said Assessment for the latter would only be unenforceable.

IV Wherefore, based on the foregoing, the instant Petition is GRANTED. The Decision of the
Court of Appeals in CA-G.R. SP No. 51271, dated 11 August 1999, which reinstated
Conclusion Assessment No. FAS-5-85-89-002054 requiring petitioner BPI to pay the amount of
₱28,020.00 as deficiency documentary stamp tax for the taxable year 1985, inclusive of the
compromise penalty, is REVERSED and SET ASIDE. Assessment No. FAS-5-85-89-
To summarize all the foregoing discussion, this Court lays down the following rules on the 002054 is hereby ordered CANCELED.
exceptions to the statute of limitations on collection.
SO ORDERED.
The statute of limitations on collection may only be interrupted or suspended by a valid
waiver executed in accordance with paragraph (d) of Section 223 of the Tax Code of 1977,
as amended, and the existence of the circumstances enumerated in Section 224 of the same
Code, which include a request for reinvestigation granted by the BIR Commissioner.

Even when the request for reconsideration or reinvestigation is not accompanied by a valid
waiver or there is no request for reinvestigation that had been granted by the BIR
Commissioner, the taxpayer may still be held in estoppel and be prevented from setting up
the defense of prescription of the statute of limitations on collection when, by his own
repeated requests or positive acts, the Government had been, for good reasons, persuaded to
postpone collection to make the taxpayer feel that the demand is not unreasonable or that
no harassment or injustice is meant by the Government, as laid down by this Court in
the Suyoc case.

Applying the given rules to the present Petition, this Court finds that –

(a) The statute of limitations for collection of the deficiency DST in Assessment No. FAS-
5-85-89-002054, issued against petitioner BPI, had already expired; and

(b) None of the conditions and requirements for exception from the statute of limitations on
collection exists herein: Petitioner BPI did not execute any waiver of the prescriptive period
on collection as mandated by paragraph (d) of Section 223 of the Tax Code of 1977, as
amended; the protest filed by petitioner BPI was a request for reconsideration, not a request
for reinvestigation that was granted by respondent BIR Commissioner which could have
43
TAXPAYER’S REMEDIES: PROTESTING AN ASSESSMENT There is no question that the National Internal Revenue Code explicitly
provides that in the matter of filing cases in Court, civil or criminal, for the
G.R. No. 130430 December 13, 1999 collection of taxes, etc., the approval of the commissioner must first be
secured. . . . [A]n action will not prosper in the absence of the
commissioner's approval. Thus, in the instant case, the absence of the
REPUBLIC OF THE PHILIPPINES, represented by the Commissioner of the approval of the commissioner in the institution of the action is fatal to the
Bureau of Internal Revenue (BIR), petitioner, cause of the plaintiff . . . .
vs.
SALUD V. HIZON, respondent.
The trial court arrived at this conclusion because the complaint filed by the BIR was
not signed by then Commissioner Liwayway Chato.
MENDOZA, J.:
Sec. 221 of the NIRC provides:
This is a petition for review of the decision 1 of the Regional Trial Court, Branch 44, San
Fernando, Pampanga, dismissing the suit filed by the Bureau of Internal Revenue for
collection of tax. Form and mode of proceeding in actions arising under this Code. — Civil
and criminal actions and proceedings instituted in behalf of the Government
under the authority of this Code or other law enforced by the Bureau of
The facts are as follows: Internal Revenue shall be brought in the name of the Government of the
Philippines and shall be conducted by the provincial or city fiscal, or the
On July 18, 1986, the BIR issued to respondent Salud V. Hizon a deficiency income tax Solicitor General, or by the legal officers of the Bureau of Internal Revenue
assessment of P1,113,359.68 covering the fiscal year 1981-1982. Respondent not having deputized by the Secretary of Justice, but no civil and criminal actions for
contested the assessment, petitioner, on January 12, 1989, served warrants of distraint and the recovery of taxes or the enforcement of any fine, penalty or forfeiture
levy to collect the tax deficiency. However, for reasons not known, it did not proceed to under this Code shall begun without the approval of the Commissioner.
dispose of the attached properties. (Emphasis supplied)

More than three years later, or on November 3, 1992, respondent wrote the BIR requesting To implement this provision Revenue Administrative Order No. 5-83 of the BIR
a reconsideration of her tax deficiency assessment. The BIR, in a letter dated August 11, provides in pertinent portions:
1994, denied the request. On January 1, 1997, it filed a case with the Regional Trial Court,
Branch 44, San Fernando, Pampanga to collect the tax deficiency. The complaint was signed The following civil and criminal cases are to be handled by Special
by Norberto Salud, Chief of the Legal Division, BIR Region 4, and verified by Amancio Attorneys and Special Counsels assigned in the Legal Branches of Revenues
Saga, the Bureau's Regional Director in Pampanga. Regions:

Respondent moved to dismiss the case on two grounds: (1) that the complaint was not filed xxx xxx xxx
upon authority of the BIR Commissioner as required by §221 2 of the National Internal
Revenue Code, and (2) that the action had already prescribed. Over petitioner's objection,
the trial court, on August 28, 1997, granted the motion and dismissed the complaint. Hence, II. Civil Cases
this petition. Petitioner raises the following issues: 3
1. Complaints for collection on cases falling within the jurisdiction
I. WHETHER OR NOT THE INSTITUTION OF THE CIVIL CASE FOR of the Region . . . .
COLLECTION OF TAXES WAS WITHOUT THE APPROVAL OF THE
COMMISSIONER IN VIOLATION OF SECTION 221 OF THE NATIONAL In all the abovementioned cases, the Regional Director is authorized
INTERNAL REVENUE CODE. to sign all pleadings filed in connection therewith which, otherwise,
requires the signature of the Commissioner.
II. WHETHER OR NOT THE ACTION FOR COLLECTION OF TAXES FILED
AGAINST RESPONDENT HAD ALREADY BEEN BARRED BY THE xxx xxx xxx
STATUTE OF LIMITATIONS.
Revenue Administrative Order No. 10-95 specifically authorizes the Litigation and
First. In sustaining respondent's contention that petitioner's complaint was filed without the Prosecution Section of the Legal Division of regional district offices to institute the
authority of the BIR Commissioner, the trial court stated: 4 necessary civil and criminal actions for tax collection. As the complaint filed in this case
was signed by the BIR's Chief of Legal Division for Region 4 and verified by the Regional
Director, there was, therefore, compliance with the law.

44
However, the lower court refused to recognize RAO No. 10-95 and, by implication, RAO (d) The power to assign or reassign internal revenue officers to
No. 5-83. It held: establishments where articles subject to excise tax are produced or kept.

[M]emorand[a], circulars and orders emanating from bureaus and agencies whether None of the exceptions relates to the Commissioner's power to approve the filing of
in the purely public or quasi-public corporations are mere guidelines for the internal tax collection cases.
functioning of the said offices. They are not laws which courts can take judicial
notice of. As such, they have no binding effect upon the courts for such Second. With regard to the issue that the case filed by petitioner for the collection of
memorand[a] and circulars are not the official acts of the legislative, executive and respondent's tax deficiency is barred by prescription, §223(c) of the NIRC provides:
judicial departments of the Philippines. . . . 5
Any internal revenue tax which has been assessed within the period of
This is erroneous. The rule is that as long as administrative issuances relate solely to carrying limitation above-prescribed may be collected by distraint or levy or by a
into effect the provisions of the law, they are valid and have the force of law. 6 The proceeding in court within three years 7 following the assessment of the tax.
governing statutory provision in this case is §4(d) of the NIRC which provides:
The running of the three-year prescriptive period is suspended 8 —
Specific provisions to be contained in regulations. — The regulations of the
Bureau of Internal Revenue shall, among other things, contain provisions
specifying, prescribing, or defining: 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
xxx xxx xxx which is granted by the Commissioner; when the taxpayer cannot be located
in the address given by him in the return filed upon which the tax is being
(d) The conditions to be observed by revenue officers, provincial fiscals and assessed or collected; provided, that, if the taxpayer informs the
other officials respecting the institution and conduct of legal actions and Commissioner of any change in address, the running of the statute of
proceedings. limitations will not be suspended; when the warrant of distraint or levy is
duly served upon the taxpayer, his authorized representative or a member of
RAO Nos. 5-83 and 10-95 are in harmony with this statutory mandate. his household with sufficient discretion, and no property could be located;
and when the taxpayer is out of the Philippines.
As amended by R.A. No. 8424, the NIRC is now even more categorical. Sec. 7 of the present
Code authorizes the BIR Commissioner to delegate the powers vested in him under the Petitioner argues that, in accordance with this provision, respondent's request for
pertinent provisions of the Code to any subordinate official with the rank equivalent to a reinvestigation of her tax deficiency assessment on November 3, 1992 effectively
division chief or higher, except the following: suspended the running of the period of prescription such that the government could
still file a case for tax collection. 9
(a) The power to recommend the promulgation of rules and regulations by
the Secretary of Finance; The contention has no merit. Sec. 229 10 of the Code mandates that a request for
reconsideration must be made within 30 days from the taxpayer's receipt of the tax
deficiency assessment, otherwise the assessment becomes final, unappealable and,
(b) The power to issue rulings of first impression or to reverse, revoke or therefore, demandable. 11 The notice of assessment for respondent's tax deficiency was
modify any existing ruling of the Bureau; issued by petitioner on July 18, 1986. On the other hand, respondent made her request for
reconsideration thereof only on November 3, 1992, without stating when she received the
(c) The power to compromise or abate under §204 (A) and (B) of this Code, notice of tax assessment. She explained that she was constrained to ask for a reconsideration
any tax deficiency: Provided, however, that assessment issued by the in order to avoid the harassment of BIR collectors. 12 In all likelihood, she must have been
Regional Offices involving basic deficiency taxes of five hundred thousand referring to the distraint and levy of her properties by petitioner's agents which took place
pesos (P500,000.00) or less, and minor criminal violations as may be on January 12, 1989. Even assuming that she first learned of the deficiency assessment on
determined by rules and regulations to be promulgated by the Secretary of this date, her request for reconsideration was nonetheless filed late since she made it more
Finance, upon the recommendation of the Commissioner, discovered by than 30 days thereafter. Hence, her request for reconsideration did not suspend the running
regional and district officials, may be compromised by a regional evaluation of the prescriptive period provided under §223(c). Although the Commissioner acted on her
board which shall be composed of the Regional Director as Chairman, the request by eventually denying it on August 11, 1994, this is of no moment and does not
Assistant Regional Director, heads of the Legal, Assessment and Collection detract from the fact that the assessment had long become demandable.
Divisions and the Revenue District Officer having jurisdiction over the
taxpayer, as members; and Nonetheless, it is contended that the running of the prescriptive period under §223(c) was
suspended when the BIR timely served the warrants of distraint and levy on respondent on

45
January 12, 1989. 13 Petitioner cites for this purpose our ruling in Advertising Associates
Inc., v. Court of Appeals. 14 Because of the suspension, it is argued that the BIR could still
avail of the other remedy under §223(c) of filing a case in court for collection of the tax
deficiency, as the BIR in fact did on January 1, 1997.

Petitioner's reliance on the Court's ruling in Advertising Associates Inc. v. Court of

Appeals is misplaced. What the Court stated in that case and, indeed, in the earlier case
of Palanca v. Commissioner of Internal Revenue, 15 is that the timely service of a warrant
of distraint or levy suspends the running of the period to collect the tax deficiency in the
sense that the disposition of the attached properties might well take time to accomplish,
extending even after the lapse of the statutory period for collection. In those cases, the BIR
did not file any collection case but merely relied on the summary remedy of distraint and
levy to collect the tax deficiency. The importance of this fact was not lost on the Court.
Thus, in Advertising Associates, it was held: 16 "It should be noted that the Commissioner
did not institute any judicial proceeding to collect the tax. He relied on the warrants of
distraint and levy to interrupt the running of the statute of limitations.

Moreover, if, as petitioner in effect says, the prescriptive period was suspended twice, i.e.,
when the warrants of distraint and levy were served on respondent on January 12, 1989 and
then when respondent made her request for reinvestigation of the tax deficiency assessment
on November 3, 1992, the three-year prescriptive period must have commenced running
again sometime after the service of the warrants of distraint and levy. Petitioner, however,
does not state when or why this took place and, indeed, there appears to be no reason for
such. It is noteworthy that petitioner raised this point before the lower court apparently as
an alternative theory, which, however, is untenable.

For the foregoing reasons, we hold that petitioner's contention that the action in this case
had not prescribed when filed has no merit. Our holding, however, is without prejudice to
the disposition of the properties covered by the warrants of distraint and levy which
petitioner served on respondent, as such would be a mere continuation of the summary
remedy it had timely begun. Although considerable time has passed since then, as held
in Advertising Associates Inc. v. Court of Appeals 17 and Palanca v. Commissioner of
Internal Revenue, 18 the enforcement of tax collection through summary proceedings may
be carried out beyond the statutory period considering that such remedy was seasonably
availed of.

WHEREFORE, the petition is DENIED.

46
TAXPAYER’S REMEDIES: PROTESTING AN ASSESSMENT In his Answer,11 respondent argued, among other things, that the petition was filed out of
time which argument the First Division of the CTA upheld and accordingly dismissed the
G.R. No. 179343 January 21, 2010 petition.12

FISHWEALTH CANNING CORPORATION, Petitioner, Petitioner filed a Motion for Reconsideration13 which was denied.14 The Resolution denying
vs. its motion for reconsideration was received by petitioner on October 31, 2006. 15
COMMISSIONER OF INTERNAL REVENUE, Respondent.
On November 21, 2006, petitioner filed a petition for review before the CTA En
CARPIO MORALES, J.: Banc16 which, by Decision17 of July 5, 2007, held that the petition before the First Division,
as well as that before it, was filed out of time.
The Commissioner of Internal Revenue (respondent), by Letter of Authority dated May 16,
2000,1 ordered the examination of the internal revenue taxes for the taxable year 1999 of Hence, the present petition,18 petitioner arguing that the CTA En Banc erred in holding that
Fishwealth Canning Corp. (petitioner). The investigation disclosed that petitioner was liable the petition it filed before the CTA First Division as well as that filed before it (CTA En
in the amount of ₱2,395,826.88 representing income tax, value added tax (VAT), Banc) was filed out of time.
withholding tax deficiencies and other miscellaneous deficiencies. Petitioner eventually
settled these obligations on August 30, 2000.2 The petition is bereft of merit.

On August 25, 2000, respondent reinvestigated petitioner’s books of accounts and other Section 228 of the 1997 Tax Code provides that an assessment
records of internal revenue taxes covering the same period for the purpose of which it issued
a subpoena duces tecum requiring petitioner to submit its records and books of accounts. x x x may be protested administratively by filing a request for reconsideration or
Petitioner requested the cancellation of the subpoena on the ground that the same set of reinvestigation within thirty (30) days from receipt of the assessment in such form and
documents had previously been examined. manner as may be prescribed by implementing rules and regulations. Within sixty (60) days
from filing of the protest, all relevant supporting documents shall have been submitted;
As petitioner did not heed the subpoena, respondent thereafter filed a criminal complaint otherwise, the assessment shall become final.
against petitioner for violation of Sections 5 (c) and 266 of the 1997 Internal Revenue Code,
which complaint was dismissed for insufficiency of evidence. 3 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
Respondent sent, on August 6, 2003, petitioner a Final Assessment Notice of income or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of
tax and VAT deficiencies totaling ₱67,597,336.75 for the taxable year 1999,4 which the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise,
assessment petitioner contested by letter of September 23, 2003. 5 the decision shall become final, executory and demandable. (underscoring
supplied)1avvphi1
Respondent thereafter issued a Final Decision on Disputed Assessment dated August 2,
2005, which petitioner received on August 4, 2005, denying its letter of protest, apprising it In the case at bar, petitioner’s administrative protest was denied by Final Decision on
of its income tax and VAT liabilities in the amounts of "₱15,396,905.24 and Disputed Assessment dated August 2, 2005 issued by respondent and which petitioner
₱63,688,434.40 [sic], respectively, for the taxable year 1999,"6 and requesting the received on August 4, 2005. Under the above-quoted Section 228 of the 1997 Tax Code,
immediate payment thereof, "inclusive of penalties incident to delinquency." Respondent petitioner had 30 days to appeal respondent’s denial of its protest to the CTA.
added that if petitioner disagreed, it may appeal to the Court of Tax Appeals (CTA) "within
thirty (30) days from date of receipt hereof, otherwise our said deficiency income and value- Since petitioner received the denial of its administrative protest on August 4, 2005, it had
added taxes assessments shall become final, executory, and demandable."7 until September 3, 2005 to file a petition for review before the CTA Division. It filed one,
however, on October 20, 2005, hence, it was filed out of time. For a motion for
Instead of appealing to the CTA, petitioner filed, on September 1, 2005, a Letter of reconsideration of the denial of the administrative protest does not toll the 30-day period to
Reconsideration dated August 31, 2005.8 appeal to the CTA.

By a Preliminary Collection Letter dated September 6, 2005, respondent demanded payment On petitioner’s final contention that it has a meritorious case in view of the dismissal of the
of petitioner’s tax liabilities,9 drawing petitioner to file on October 20, 2005 a Petition for above-mentioned criminal case filed against it for violation of the 1997 Internal Revenue
Review10 before the CTA. Code,19 the same fails. For the criminal complaint was instituted not to demand payment,
but to penalize the taxpayer for violation of the Tax Code.20

WHEREFORE, the petition is DISMISSED.

47