Taxation II Cayetano, De Peralta, Roble & Roxas

Case Digest
Instance on a petition for injunction, wherein the resolution reproduced in the
beginning of this decision was thereafter promulgated after hearing.
_________________________________________________________________TA That there must be some forum to which a party may apply for relief from an
alleged violation or denial of his rights is a legal principle from which there can
X REMEDIES be no dissent. Otherwise the rule of law would be defeated. The choice in this
________________________________________________________________G.R. case was between the Court of Tax Appeals and the Court of First Instance.
No. L-32542 November 26, 1970 Recourse to the former was sought and denied. The Tax Court held that it
could not issue the preliminary injunction prayed for except in the exercise of
THE COMMISSIONER OF CUSTOMS and THE COLLECTOR OF its appellate jurisdiction, and no appeal had been taken since no appealable
CUSTOMS for the Port of Manila vs. HON. FEDERICO C. ALIKPALA, in decision had been rendered.
his capacity as Judge of the Court of First Instance of Manila, Branch
XXII, GONZALO SY and TOMAS Y. DE LEON Respondent Court of First Instance assumed jurisdiction over the petition.
Issue:

Facts: W/N the CFI has jurisdiction. Yes.

In Civil Case No. 80655 entitled "Gonzalo Sy, doing business under the name Ruling:
and style of Gonzalo Sy Trading, and Tomas Y. de Leon, doing business under In view of the foregoing, we hold that respondent Court of First Instance had
the name and style of T. Y. de Leon Enterprises, petitioners, vs. The jurisdiction to take cognizance of the petition for injunction before it.
Commissioner of Customs and the Collector of Customs, respondents." The
petitioners filed an action wherein it prayed that the Commissioner of Customs The remedy prayed for was one in equity, which the petitioner below tried to
and the Collector of Customs be restrained from carrying out the seizure and seek in the Court of Tax Appeals, but was denied on the ground that no
scheduled auction sale of the fruits they imported from abroad and that the appealable decision had yet been rendered by the Collector and the
said cargo be released to them under the surety bonds which they have Commissioner of Customs. The jurisdiction of respondent Court was not
already submitted to respondent Collector of Customs. invoked to determine the validity of the seizure proceedings, which are
pending before the Collector of Customs and regarding which an appeal could
This firm was authorized by the Central Bank, under Monetary Board be eventually taken only to the Tax Court, but rather to stop the projected
Revolution No. 2038, to import fresh fruits from Japan to the extent of auction sale of the goods in question and secure the release thereof under
$350,000.00, on a no-dollar basis and without letters of credit. As of November surety bond, without prejudice to the main issue concerning the validity of the
1969 the amount of $144,306.15 had been used. On October 30 of that year seizure. Such relief is interlocutory in nature, and is sanctioned by Section
Gonzalo Sy Trading asked the Central Bank for an amendment of the terms of 2301 of the Tariff and Customs Code, which provides that "upon making any
the resolution so that the importations authorized under it could be procured seizure the Collector shall issue a warrant for the detention of the property; but
not only from Japan but from other sources as well which was denied. if the owner or importer desires to secure the release of the property for
The Director of the Foreign Exchange Department of the Central Bank wrote legitimate use, the Collector may surrender it upon the filing of a sufficient
the Prudential Bank and Trust Company in connection with the release bond, in an amount to be fixed by him, conditioned for payment of the
certificates so far issued by it covering the no-dollar importations of fresh fruits appraised value of the article and/or any fine, expenses and costs which may
by its client, Gonzalo Sy Trading, and noting that only $144,306.15 had been be adjudged in the case."
used out of the total amount of $350,000.00, authorized the Prudential Bank Issue:
and Trust Company to "continue to issue release certificates to cover the No-
Dollar importations of fresh fruits by your client, subject to the same terms and W/N the importations are prohibited by law within the meaning of the proviso
conditions imposed by the Monetary Board under the above-mentioned in Section 2301 of the Tariff and Customs Code which says that such
resolution." Pursuant to such authority Gonzalo Sy Trading continued prohibited importation may not be released under bond. No.
importing fresh fruits, until by the beginning of June 1970 the total amount Ruling:
already used was $314,142.51, leaving a balance of $35,857.49.
That question is involved and should properly be decided in the seizure
Gonzalo Sy Trading wrote a letter to the Central Bank, making reference to a proceedings. For purposes of the equitable remedy of injunction granted by
previous letter of May 27 requesting permission to utilize the said balance to respondent Court, however, as well, as of the petihere is no clear showing that
pay for two shipments of fresh fruits coming on June 4 and 6, respectively. the importations subject of seizure are prohibited by law; and second, that the
This request was denied. Collector of Customs has in fact agreed in the beginning to release the
Warrants of seizure and detention were issued by the Collector of Customs importations provided surety bonds were filed, although he subsequently
after the customs duties, taxes and other charges had been paid by the required a cash bond instead.
importer. The warrants of seizure were issued in view of Central Bank Circulars Nos.
The Collector of Customs issued a notice of auction sale of the goods under 294 and 295, promulgated on March 10 and 20, 1970, respectively, which
seizure to be held on the following August 12 and every day thereafter until provide that "no-dollar imports not covered by Circular No. 247 shall not be
terminated. On July 31 counsel for both importers wrote a letter to the Collector issued any release certificates and shall be referred to the Central Bank for
requesting that they be allowed to file sufficient bonds for the release of the official transmittal to the Bureau of Customs for appropriate seizure
goods, without prejudice to their right to contest the validity of seizure. On the proceedings."
same date the Collector granted the request by means of a handwritten Evidently, in the opinion of the Collector of Customs himself, even in the light
marginal notation on the letter itself, provided "duty and taxes have already of those circulars there exists no legal impediment to the release of the subject
been paid." Their approval was requested in another letter dated August 10, importations under bond, otherwise he would not have agreed thereto,
1970, but the Collector of Customs thereupon required a cash bond instead, although he changed his requirement from surety bond to cash. In any case,
as indicated in a similar marginal notation on this second letter. as pointed out by private respondents, the said importations had been ordered
On the same date — August 10 — the two importers filed a petition with the before Central Bank Circulars 294 and 295 were promulgated, and since the
Court of Tax Appeals to stop the sale at public auction of the fruit shipments orders were made in accordance with previous practice there could be no bad
in question, with a prayer for preliminary injunction until the final determination faith or intent to violate those circulars.
of the validity of the seizure proceedings. The options presented in this case are few and clearcut: (1) to sell the imported
CTA: Dismissed the petition on the ground of lack of jurisdiction, stating that fresh fruits at public auction, as the petitioners due insist; (2) to release them
neither the Collector of Customs nor the Commissioner of Customs had yet to the private respondents upon the filing of sufficient surety bonds, as
rendered any decision from which an appeal could be taken pursuant to respondent Court has directed; and (3) to require the private respondents to
file a cash bond instead.
Section 7 of Republic Act, No. 1125. Evidently anticipating such a ruling and
considering the urgency of the matter, the importers went to the Court of First
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 Taxation II Cayetano, De Peralta, Roble & Roxas
Case Digest
We fail to see what good it would do either the Government or the private (1) The BIR’s disallowance of ICC’s claimed expense deductions for
respondents to have the fruits sold at public auction. The Government's professional and security services billed to and paid by ICC in 1986, to wit:
interest, ultimately, is in the proceeds which may be realized from such sale,
(a) Expenses for the auditing services of SGV & Co.,3 for the year
in the event the fruits are declared forfeited in the seizure proceedings. By now
ending December 31, 1985;4
a considerable portion thereof must have deteriorated, and the rest will in all
probability not command the same prices as before. Besides, as pointed out (b) Expenses for the legal services [inclusive of retainer fees] of the
by the respondents — and this has not been denied — the Commissioner of law firm Bengzon & Bengson for the years 1984 and 1985.5
Customs has been quoted by a newspaper on September 29, 1970, to the
effect that "seized items worth hundreds of thousands of pesos could not be (c) Expense for security services of El Tigre Security & Investigation
disposed of because of the unrealistic bids received by the Bureau of Customs Agency for the months of April and May 1986.6
when the goods were offered for sale at public auction. ... Some of the offers (2) The alleged understatement of ICC’s interest income on the three
were not even enough to pay the import taxes and customs duties due on the promissory notes due from Realty Investment, Inc.
articles." To sell the goods at public auction, therefore, cannot but entail great
loss either to the Government or to the importers. The deficiency expanded withholding tax of P4,897.79 (inclusive of interest
and surcharge) was allegedly due to the failure of ICC to withhold 1%
On the other hand the filing of sufficient bond would serve the purpose expanded withholding tax on its claimed P244,890.00 deduction for security
envisaged, that is, protect the interest of the Government in the value of the services.7
imported goods should they be finally declared forfeited, while at the same
time avoiding needless damage or prejudice to the importers should the ICC sought a reconsideration of the subject assessments; however, it received
forfeiture fail. The release on bond, it may be repeated, is expressly authorized a final notice before seizure demanding payment of the amounts stated in the
by Section 2301 of the Tariff and Customs Code. said notices. Hence, it brought the case to the CTA.

But the petitioners would have the private respondents put up cash, alleging CTA - the petition is premature because the final notice of assessment cannot
that it may be difficult to realize upon a surety bond if it is allowed. We do not be considered as a final decision appealable to the tax court.
believe this reason is justified. In the first place, a bond, when required by law, CA – reversed the decision holding that a demand letter of the BIR reiterating
is commonly understood to mean an undertaking that is sufficiently secured, the payment of deficiency tax, amounts to a final decision on the protested
and not cash or currency. According to the respondents this is the established assessment and may therefore be questioned before the CTA.
practice in the Bureau of Customs, and this statement has not been denied.
Of course whatever surety bonds are submitted by the importers are subject CTA - rendered a decision canceling and setting aside the assessment notices
to any objections by the Collector of Customs as to their sufficiency or as to issued against ICC. It held that the claimed deductions for professional and
the solvency of the bondsman. In the second place, to require the private security services were properly claimed by ICC in 1986 because it was only in
respondents here to put up cash in the sum of P513,865.46 is prohibitive and the said year when the bills demanding payment were sent to ICC. Hence,
unrealistic, and amounts to an arbitrary exercise of discretion under the even if some of these professional services were rendered to ICC in 1984 or
circumstances of this case, assuming that the matter is discretionary. 1985, it could not declare the same as deduction for the said years as the
amount thereof could not be determined at that time.
We note, however, that the bonds offered by the respondents are all
subscribed by the same bonding company, namely, the Communications Petitioner filed the instant petition contending that since ICC is using the
Insurance Co., Inc., which has a net worth of only P504,655.15 and a accrual method of accounting, the expenses for the professional services that
maximum writing capacity of P50,465.52, on the basis of its financial statement accrued in 1984 and 1985, should have been declared as deductions from
as of December 31, 1969, according to a letter of the Acting Insurance income during the said years and the failure of ICC to do so bars it from
Commissioner dated August 28, 1970. The figure given by the petitioners in claiming said expenses as deduction for the taxable year 1986. As to the
their objection to the sufficiency of the bonds before respondent court is alleged deficiency interest income and failure to withhold expanded
P596,342.51 in reference to the net worth of said company. In any case the withholding tax assessment, petitioner invoked the presumption that the
petitioners have expressed doubts as to whether the bondsman can satisfy a assessment notices issued by the BIR are valid.
liability of P513,865.46, which is the aggregate amount of the bonds submitted. Issue: Whether or not Isabela, who uses accrual method, can claim on 1986
The objection on this ground has been brushed aside by the lower court in its only
order of September 8, 1970, since the private respondents "have shown that
the bonding company obtained reinsurance on part of their liability for those Ruling: No.
bonds." But it appears, as manifested by said respondents themselves, that
The case is remanded to the BIR for the computation of Isabela Cultural
only two of the bonds submitted by them, in the respective amounts of Corporation’s liability under Assessment Notice No. FAS-1-86-90-000680.
P94,647.80 and P78,981.24, are covered by reinsurance, leaving more than
P340,000.00 not reinsured. In view thereof, it is incumbent upon the The requisites for the deductibility of ordinary and necessary trade, business,
respondents to either cause of sufficient portion of the other bonds submitted or professional expenses, like expenses paid for legal and auditing services,
by it to be covered by reinsurance or to put up other surety bonds acceptable are: (a) the expense must be ordinary and necessary; (b) it must have been
to the Collector of Customs, the same to be justified before respondent Court paid or incurred during the taxable year; (c) it must have been paid or incurred
in case of dispute. in carrying on the trade or business of the taxpayer; and (d) it must be
supported by receipts, records or other pertinent papers.11
Subject to the condition stated in the preceding paragraph, the writ prayed for
is denied, the petition dismissed, and the restraining order issued by this Court Revenue Audit Memorandum Order No. 1-2000, provides that under the
hereby lifted. accrual method of accounting, expenses not being claimed as deductions by
a taxpayer in the current year when they are incurred cannot be claimed as
____________________________________________________________ deduction from income for the succeeding year. Thus, a taxpayer who is
G.R. No. 172231 February 12, 2007 authorized to deduct certain expenses and other allowable deductions for the
current year but failed to do so cannot deduct the same for the next year.13
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs. The accrual method relies upon the taxpayer’s right to receive amounts or its
ISABELA CULTURAL CORPORATION, Respondent. obligation to pay them, in opposition to actual receipt or payment, which
characterizes the cash method of accounting. Amounts of income accrue
Facts: On February 23, 1990, ICC, a domestic corporation, received from the where the right to receive them become fixed, where there is created an
BIR Assessment Notice No. FAS-1-86-90-000680 for deficiency income tax in enforceable liability. Similarly, liabilities are accrued when fixed and
the amount of P333,196.86, and Assessment Notice No. FAS-1-86-90-000681 determinable in amount, without regard to indeterminacy merely of time of
for deficiency expanded withholding tax in the amount of P4,897.79, inclusive payment.14
of surcharges and interest, both for the taxable year 1986.
The accrual of income and expense is permitted when the all-events test has
The deficiency income tax of P333,196.86, arose from: been met. This test requires: (1) fixing of a right to income or liability to pay;

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 Taxation II Cayetano, De Peralta, Roble & Roxas
Case Digest
and (2) the availability of the reasonable accurate determination of such Over the objections of accused, Judge Ulep granted the motion and ordered
income or liability. the information in Criminal Case No. Q-91-17321 reinstated. The subsequent
The all-events test requires the right to income or liability be fixed, and the MR was denied.
amount of such income or liability be determined with reasonable accuracy.
However, the test does not demand that the amount of income or liability be Petitioner submits that respondent judge committed a grave abuse of
known absolutely, only that a taxpayer has at his disposal the information
discretion in reinstating the information in Criminal Case No. Q-91-17321
necessary to compute the amount with reasonable accuracy. The all-events
test is satisfied where computation remains uncertain, if its basis is because
unchangeable; the test is satisfied where a computation may be unknown, but
is not as much as unknowable, within the taxable year. The amount of (a) the offense has prescribed; or
liability does not have to be determined exactly; it must be determined
with "reasonable accuracy." Accordingly, the term "reasonable (b) it exposes her to double jeopardy.
accuracy" implies something less than an exact or completely accurate
amount.[15] As regards the issue of prescription, petitioner contends that:
The propriety of an accrual must be judged by the facts that a taxpayer
knew, or could reasonably be expected to have known, at the closing of (a) the period of assessment has prescribed, applying the three year
its books for the taxable year. period provided under Batas Pambansa No. 700;
In the instant case, the expenses for professional fees consist of expenses for
legal and auditing services. The expenses for legal services pertain to the 1984 (b) the offense has prescribed since the complaint for preliminary
and 1985 legal and retainer fees of the law firm Bengzon Zarraga Narciso investigation was filed only on June 8, 1989, and the offense was
Cudala Pecson Azcuna & Bengson, and for reimbursement of the expenses committed in April 1980 when she filed the income tax return
of said firm in connection with ICC’s tax problems for the year 1984. As testified covering taxable year 1979.
by the Treasurer of ICC, the firm has been its counsel since the 1960’s.19 From
the nature of the claimed deductions and the span of time during which the
firm was retained, ICC can be expected to have reasonably known the retainer On July 16, 1984, the Bureau of Internal Revenue (BIR) issued a notice of
fees charged by the firm as well as the compensation for its legal services. assessment. Petitioner contends that the July 16, 1984 assessment was made
The failure to determine the exact amount of the expense during the taxable out of time.
year when they could have been claimed as deductions cannot thus be
attributed solely to the delayed billing of these liabilities by the firm. For one, Petitioner avers that while Sections 318 and 319 of the NIRC of 1977 provide a
ICC, in the exercise of due diligence could have inquired into the amount of
five (5) year period of limitation for the assessment and collection of internal
their obligation to the firm, especially so that it is using the accrual method of
accounting. For another, it could have reasonably determined the amount of revenue taxes, Batas Pambansa Blg. 700, enacted on February 22, 1984,
legal and retainer fees owing to its familiarity with the rates charged by their amended the two sections and reduced the period to three (3) years. Since the
long time legal consultant. tax return was filed in April 1980, the assessment made on July 16, 1984 was
_____________________________________________________________ beyond the three (3) year prescriptive period.
G.R. No. 127777 October 1, 1999
Petitioner submits that B.P. Blg. 700 must be given retroactive effect since it is
PETRONILA C. TUPAZ, petitioner, favorable to the accused. Petitioner argues that Article 22 of the Revised Penal
vs. Code, regarding the allowance of retroactive application of penal laws when
HONORABLE BENEDICTO B. ULEP Presiding Judge of RTC Quezon favorable to the accused shall apply in this case.
City, Branch 105, and PEOPLE OF THE PHILIPPINES, respondents.
Issues:
Facts:
1. Whether or not the period of assessment has prescribed.
On January 10, 1991, two Informations were filed with the RTC, against
Petronila C. Tupaz and her late husband Jose J. Tupaz, Jr., as corporate officers 2. Whether or not Article 22 of the Revised Penal Code shall apply in
of El Oro Engravers Corp., for nonpayment of deficiency corporate income tax this case.
for the year 1979.
3. Whether or not the trial court committed grave abuse of discretion
Criminal Case No. Q-91-17321 was raffled to Branch 105, presided over by in reinstating the information against petitioner
respondent Judge Benedicto B. Ulep; Q-91-17322 was raffled to Branch 86, then
Ruling:
presided over by Judge Antonio P. Solano.
1. At the outset, it must be stressed that internal revenue taxes are self-
On May 20, 1996, Judge Ulep granted the motion for withdrawal of the
assessing and no further assessment by the government is required to create
information in Criminal Case No. Q-91-17321 and dismissed the case, as
the tax liability. An assessment, however, is not altogether inconsequential; it
prayed for by the prosecution.
is relevant in the proper pursuit of judicial and extra judicial remedies to
Prosecutor Agcaoili filed a motion to reinstate information in Criminal Case enforce taxpayer liabilities and certain matters that relate to it, such as the
Q-91-17321, stating that the motion to withdraw information was made imposition of surcharges and interest, and in the application of statues of
through palpable mistake, and was the result of excusable neglect. He thought limitations and in the establishment of tax liens.
that Criminal Case No. Q-91-17321 was identical to Criminal Case No Q-90-
An assessment contains not only a computation of tax liabilities, but
12896, wherein accused was charged with nonpayment of deficiency
also a demand for payment within a prescribed period. The ultimate purpose
contractors tax, amounting to P346,879.29.
of assessment is to ascertain the amount that each taxpayer is to pay.

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 Taxation II Cayetano, De Peralta, Roble & Roxas
Case Digest
An assessment is a notice to the effect that the amount therein stated against petitioner in violation of her constitutionally protected right
is due as tax and a demand for payment thereof. Assessments made beyond against double jeopardy.
the prescribed period would not be binding on the taxpayer.
____________________________________________________________________
We agree with the Solicitor General that the shortened period of
CIR v. METRO STAR SUPERAMA
three (3) years prescribed under B.P. Blg. 700 is not applicable to petitioner.
B.P. Blg. 700, effective April 5, 1984, specifically states that the shortened G.R. No. 185371 Dec. 8, 2010
period of three years shall apply to assessments and collections of internal
revenue taxes beginning taxable year 1984. FACTS: The BIR through a letter of authority caused the examination of
respondent’s books of accounts and other accounting records for income tax and other
internal revenue taxes for the taxable year 1999. For the latter’s failure to comply with
Assessments made on or after (BEFORE) April 5, 1984 are governed
several requests of the presentation of records and subpoena duces tecum, the BIR
by the five-year period if the taxes assessed cover taxable years prior to Legal Division issued an Indorsement to proceed with the investigation based on the
January 1, 1984. The deficiency income tax under consideration is for taxable best evidence obtainable preparatory to the issuance of assessment notice.
year 1979. Thus, the period of assessment is still five years, under the old law. Respondent received a preliminary 15-day letter on November 9, 2001 and a Formal
The income tax return was filed in April 1980. Hence, the July 16, 1984 tax Letter of Demand on April 11, 2002 assessing it with deficiency VAT and withholding
assessment was issued within the prescribed period of five (5) years, from the tax for the taxable year 1999.
last day of filing the return, or from the date the return is filed, whichever ISSUE: WON the failure to strictly comply with notice requirements prescribed under
comes later. Sec. 228 of the NIRC of 1997 and RR No. 12-99 is tantamount to denial of due
process.
RULING: Yes.
The sending of a PAN to a to inform him of the assessment made is but part of the due
2. Article 22 of the Revised Penal Code finds no application in this case
process requirement in the issuance of a deficiency tax assessment, the absence of
for the simple reason that the provisions on the period of assessment which renders nugatory any assessment made by the tax authorities. The
cannot be considered as penal in nature. persuasiveness of the right to due process reaches both substantial and procedural
rights and the failure of the CIR to strictly comply with the requirements laid down by
We agree with the Solicitor General that the offense has not prescribed. law and its own rules is a denial of Metro Star’s right to due process. Thus, for its
failure to send the PAN stating the facts and the law on which the assessment was
Petitioner was charged with failure to pay deficiency income tax after repeated
made as required by Sec. 228 of RA NO. 8424, the assessment made by the CIR is
demands by the taxing authority. In Lim, Sr. v. Court of Appeals, we stated that void.
by its nature the violation could only be committed after service of notice and
demand for payment of the deficiency taxes upon the taxpayer. Hence, it
G.R. No. 139736 October 17, 2005
cannot be said that the offense has been committed as early as 1980, upon filing
of the income tax return. This is so because prior to the finality of the BANK OF THE PHILIPPINE ISLANDS vs. COMMISSIONER OF INTERNAL
assessment, the taxpayer has not committed any violation for nonpayment of REVENUE
the tax. The offense was committed only after the finality of the assessment
coupled with taxpayers willful refusal to pay the taxes within the allotted Facts:
period. In this case, when the notice of assessment was issued on July 16, 1984, Petitioner BPI is a commercial banking corporation organized and existing
the taxpayer still had thirty days from receipt thereof to protest or question under the laws of the Philippines. On two separate occasions, particularly on
the assessment. Otherwise, the assessment would become final and 06 June 1985 and 14 June 1985, it sold United States (US) $500,000.00 to
unappealable. the Central Bank of the Philippines (Central Bank), for the total sales
amount of US$1,000,000.00.
As he did not protest, the assessment became final and unappealable on On 10 October 1989, the Bureau of Internal Revenue (BIR) issued
August 16, 1984. Consequently, when the complaint for preliminary Assessment No. FAS-5-85-89-002054,3 finding petitioner BPI liable for
deficiency DST on its afore-mentioned sales of foreign bills of exchange to
investigation was filed on June 8, 1989, the criminal action was instituted
the Central Bank. x x x
within the five (5) year prescriptive period.
Petitioner BPI received the Assessment, together with the attached
Assessment Notice,4 on 20 October 1989.
Petitioner BPI, through its counsel, protested the Assessment in a letter
3. However, the petitioner’s contention that the reinstatement of the dated 16 November 1989, and filed with the BIR on 17 November 1989. The
information would expose her to double jeopardy. An accused is said protest letter is reproduced in full below –
placed in double jeopardy if he is again tried for an offense for xxx
which he has been convicted, acquitted or in another manner in Petitioner BPI did not receive any immediate reply to its protest letter.
which the indictment against him was dismissed without his However, on 15 October 1992, the BIR issued a Warrant of Distraint and/or
consent. In the instant case, there was a valid complaint filed against Levy6 against petitioner BPI for the assessed deficiency DST for taxable
year 1985, in the amount of ₱27,720.00 (excluding the compromise penalty
petitioner to which she pleaded not guilty. The court dismissed the
of ₱300.00). It served the Warrant on petitioner BPI only on 23 October 1992.7
case at the instance of the prosecution, without asking for accused-
Then again, petitioner BPI did not hear from the BIR until 11 September 1997,
petitioners consent. This consent cannot be implied or presumed.
when its counsel received a letter, dated 13 August 1997, signed by then BIR
Such consent must be expressed as to have no doubt as to the Commissioner Liwayway Vinzons-Chato, denying its "request for
accused’s conformity. As petitioner’s consent was not expressly reconsideration,”.
given, the dismissal of the case must be regarded as final and with BPI proceeded to file a Petition for Review with the CTA on 10 October
prejudice to the re-filing of the case. Consequently, the trial court 1997;9 to which respondent BIR Commissioner, represented by the Office of
committed grave abuse of discretion in reinstating the information the Solicitor General, filed an Answer on 08 December 1997.10
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 Taxation II Cayetano, De Peralta, Roble & Roxas
Case Digest
Petitioner BPI raised in its Petition for Review before the CTA, in addition to the last day prescribed by law for the filing thereof shall be considered
the arguments presented in its protest letter, dated 16 November 1989, the as filed on such last day.16
defense of prescription of the right of respondent BIR Commissioner to
The three-year period of limitations on the assessment and collection of
enforce collection of the assessed amount. It alleged that respondent BIR
national internal revenue taxes set by Section 203 of the Tax Code of
Commissioner only had three years to collect on Assessment No. FAS-
1977, as amended, can be affected, adjusted, or suspended, in
5-85-89-002054, but she waited for seven years and nine months to deny
accordance with the following provisions of the same Code –
the protest.
SEC. 223. – Exceptions as to period of limitation of assessment and
collection of taxes. – (a) In the case of a false or fraudulent return with
CTA: Identified two primary issues in the controversy between petitioner BPI intent to evade tax or of failure to file a return, the tax may be assessed,
and respondent BIR Commissioner: (1) whether or not the right of or a proceeding in court for the collection of such tax may be begun
respondent BIR Commissioner to collect from petitioner BPI the alleged without assessment, at any time within ten years after the discovery of
deficiency DST for taxable year 1985 had prescribed; and (2) whether or the falsity, fraud, or omission: Provided, That in a fraud assessment
not the sales of US$1,000,000.00 on 06 June 1985 and 14 June 1985 by which has become final and executory, the fact of fraud shall be judicially
petitioner BPI to the Central Bank were subject to DST. taken cognizance of in the civil or criminal action for the collection
thereof.
CTA answered the first issue in the negative and held that the statute of
limitations for respondent BIR Commissioner to collect on the (b) If before the expiration of the time prescribed in the preceding section
Assessment had not yet prescribed. In resolving the issue of prescription, for the assessment of the tax, both the Commissioner and the taxpayer
the CTA reasoned that – have agreed in writing to its assessment after such time the tax may be
assessed within the period agreed upon. The period so agreed upon may
In the case of Commissioner of Internal Revenue vs. Wyeth Suaco
be extended by subsequent written agreement made before the
Laboratories, Inc., G.R. No. 76281, September 30, 1991, 202 SCRA
expiration of the period previously agreed upon.
125, the Supreme Court laid to rest the first issue. It categorically ruled that a
"protest" is to be treated as request for reinvestigation or (c) Any internal revenue tax which has been assessed within the period
reconsideration and a mere request for reexamination or reinvestigation of limitation above-prescribed may be collected by distraint or levy or by
tolls the prescriptive period of the Commissioner to collect on an a proceeding in court within three years following the assessment of the
assessment. . . tax.
... (d) Any internal revenue tax which has been assessed within the period
agreed upon as provided in paragraph (b) hereinabove may be collected
In the case at bar, there being no dispute that petitioner filed its protest on
by distraint or levy or by a proceeding in court within the period agreed
the subject assessment on November 17, 1989, there can be no
upon in writing before the expiration of the three-year period. The period
conclusion other than that said protest stopped the running of the
so agreed upon may be extended by subsequent written agreements
prescriptive period of the Commissioner to collect.
made before the expiration of the period previously agreed upon.
Section 320 (now 223) of the Tax Code, clearly states that a request for
(e) Provided, however, That nothing in the immediately preceding
reinvestigation which is granted by the Commissioner, shall suspend the
section and paragraph (a) hereof shall be construed to authorize the
prescriptive period to collect. In sum, the CTA decided that the statute of
examination and investigation or inquiry into any tax returns filed in
limitations for respondent BIR Commissioner to collect on Assessment
accordance with the provisions of any tax amnesty law or decree.17
No. FAS-5-85-89-002054 had not yet prescribed; nonetheless, it still
ordered the cancellation of the said Assessment because the sales of SEC. 224. Suspension of running of statute. – The running of the statute of
foreign currency by petitioner BPI to the Central Bank in taxable year limitation provided in Section[s] 203 and 223 on the making of assessment and
1985 were tax-exempt. the beginning of distraint or levy or a proceeding in court for collection, in
respect of any deficiency, shall be suspended for the period during which
CA: Court of Appeals sustained the finding of the CTA on the first issue,
the Commissioner is prohibited from making the assessment or
that the running of the prescriptive period for collection on Assessment
beginning distraint or levy or a proceeding in court and for sixty days
No. FAS-5-85-89-002054 was suspended when herein petitioner BPI filed
thereafter; when the taxpayer requests for a reinvestigation which is
a protest on 17 November 1989 and, therefore, the prescriptive period for
granted by the Commissioner; when the taxpayer cannot be located in
collection on the Assessment had not yet lapsed. In the same Decision,
the address given by him in the return filed upon which a tax is being
however, the Court of Appeals reversed the CTA on the second issue and
assessed or collected: Provided, That, if the taxpayer informs the
basically adopted the position of the respondent BIR Commissioner that the
Commissioner of any change in address, the running of the statute of
sales of foreign currency by petitioner BPI to the Central Bank in taxable year
limitations will not be suspended; when the warrant of distraint and levy is duly
1985 were subject to DST.
served upon the taxpayer, his authorized representative, or a member of his
Issue: household with sufficient discretion, and no property could be located; and
when the taxpayer is out of the Philippines.18
W/N whether or not the right of respondent BIR Commissioner to collect
from petitioner BPI the alleged deficiency DST for taxable year 1985 had As enunciated in these statutory provisions, the BIR has three years,
prescribed. Yes. counted from the date of actual filing of the return or from the last date
prescribed by law for the filing of such return, whichever comes later, to
Ruling: assess a national internal revenue tax or to begin a court proceeding for
The efforts of respondent Commissioner to collect on Assessment No. the collection thereof without an assessment. In case of a false or
FAS-5-85-89-002054 were already barred by prescription. fraudulent return with intent to evade tax or the failure to file any return
at all, the prescriptive period for assessment of the tax due shall be 10
The period for the BIR to assess and collect an internal revenue tax is years from discovery by the BIR of the falsity, fraud, or omission. When
limited to three years by Section 203 of the Tax Code of 1977, as the BIR validly issues an assessment, within either the three-year or ten-
amended,15 which provides that – year period, whichever is appropriate, then the BIR has another three
SEC. 203. Period of limitation upon assessment and collection. – Except years19 after the assessment within which to collect the national internal
as provided in the succeeding section, internal revenue taxes shall be revenue tax due thereon by distraint, levy, and/or court proceeding. The
assessed within three years after the last day prescribed by law for the assessment of the tax is deemed made and the three-year period for collection
filing of the return, and no proceeding in court without assessment for of the assessed tax begins to run on the date the assessment notice had been
the collection of such taxes shall be begun after the expiration of such released, mailed or sent by the BIR to the taxpayer.20
period: Provided, That in a case where a return is filed beyond the period In the present Petition, there is no controversy on the timeliness of the
prescribed by law, the three-year period shall be counted from the day issuance of the Assessment, only on the prescription of the period to
the return was filed. For the purposes of this section, a return filed before collect the deficiency DST following its Assessment. While Assessment
No. FAS-5-85-89-002054 and its corresponding Assessment Notice were both
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 Taxation II Cayetano, De Peralta, Roble & Roxas
Case Digest
dated 10 October 1989 and were received by petitioner BPI on 20 October to always keep their books and keep them open for inspection subject to
1989, there was no showing as to when the said Assessment and harassment by unscrupulous tax agents. The law on prescription being a
Assessment Notice were released, mailed or sent by the BIR. Still, it can remedial measure should be interpreted in a way conducive to bringing about
be granted that the latest date the BIR could have released, mailed or the beneficent purpose of affording protection to the taxpayer within the
sent the Assessment and Assessment Notice to petitioner BPI was on contemplation of the Commission which recommend the approval of the law.
the same date they were received by the latter, on 20 October 1989.
In order to provide even better protection to the taxpayer against unreasonable
Counting the three-year prescriptive period, for a total of 1,095
investigation, the Tax Code of 1977, as amended, identifies specifically in
days,21 from 20 October 1989, then the BIR only had until 19 October 1992
Sections 223 and 22426 thereof the circumstances when the prescriptive
within which to collect the assessed deficiency DST.
periods for assessing and collecting taxes could be suspended or interrupted.
The earliest attempt of the BIR to collect on Assessment No. FAS-5-85-
To give effect to the legislative intent, these provisions on the statute of
89-002054 was its issuance and service of a Warrant of Distraint and/or
limitations on assessment and collection of taxes shall be construed and
Levy on petitioner BPI. Although the Warrant was issued on 15 October
applied liberally in favor of the taxpayer and strictly against the Government.
1992, previous to the expiration of the period for collection on 19 October
1992, the same was served on petitioner BPI only on 23 October 1992. B. The statute of limitations on assessment and collection of national
internal revenue taxes may be waived, subject to certain conditions,
Under Section 223(c) of the Tax Code of 1977, as amended, it is not
under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as
essential that the Warrant of Distraint and/or Levy be fully executed so
amended, respectively. Petitioner BPI, however, did not execute any
that it can suspend the running of the statute of limitations on the
such waiver in the case at bar.
collection of the tax. It is enough that the proceedings have validly began
or commenced and that their execution has not been suspended by According to paragraphs (b) and (d) of Section 223 of the Tax Code of 1977,
reason of the voluntary desistance of the respondent BIR Commissioner. as amended, the prescriptive periods for assessment and collection of national
Existing jurisprudence establishes that distraint and levy proceedings internal revenue taxes, respectively, could be waived by agreement, to wit –
are validly begun or commenced by the issuance of the
Warrant and service thereof on the taxpayer.22 It is only logical to require SEC. 223. – Exceptions as to period of limitation of assessment and collection
that the Warrant of Distraint and/or Levy be, at the very least, served of taxes. –
upon the taxpayer in order to suspend the running of the prescriptive ...
period for collection of an assessed tax, because it may only be upon the
service of the Warrant that the taxpayer is informed of the denial by the (b) If before the expiration of the time prescribed in the preceding section for
BIR of any pending protest of the said taxpayer, and the resolute the assessment of the tax, both the Commissioner and the taxpayer have
intention of the BIR to collect the tax assessed. agreed in writing to its assessment after such time the tax may be assessed
within the period agreed upon. The period so agreed upon may be extended
If the service of the Warrant of Distraint and/or Levy on petitioner BPI on 23 by subsequent written agreement made before the expiration of the period
October 1992 was already beyond the prescriptive period for collection previously agreed upon.
of the deficiency DST, which had expired on 19 October 1992, then what
more the letter of respondent BIR Commissioner, dated 13 August 1997 and ...
received by the counsel of the petitioner BPI only on 11 September 1997, (d) Any internal revenue tax which has been assessed within the period agreed
denying the protest of petitioner BPI and requesting payment of the deficiency upon as provided in paragraph (b) hereinabove may be collected by distraint
DST? Even later and more unequivocally barred by prescription on or levy or by a proceeding in court within the period agreed upon in writing
collection was the demand made by respondent BIR Commissioner for before the expiration of the three-year period. The period so agreed upon may
payment of the deficiency DST in her Answer to the Petition for Review be extended by subsequent written agreements made before the expiration of
of petitioner BPI before the CTA, filed on 08 December 1997.23 the period previously agreed upon.27
II The agreements so described in the afore-quoted provisions are often referred
There is no valid ground for the suspension of the running of the to as waivers of the statute of limitations. The waiver of the statute of
prescriptive period for collection of the assessed DST under the Tax Code limitations, whether on assessment or collection, should not be construed
of 1977, as amended. as a waiver of the right to invoke the defense of prescription but, rather,
an agreement between the taxpayer and the BIR to extend the period to
In their Decisions, both the CTA and the Court of Appeals found that the filing a date certain, within which the latter could still assess or collect taxes
by petitioner BPI of a protest letter suspended the running of the prescriptive due. The waiver does not mean that the taxpayer relinquishes the right to
period for collecting the assessed DST. This Court, however, takes the invoke prescription unequivocally.28
opposing view, and, based on the succeeding discussion, concludes that there
is no valid ground for suspending the running of the prescriptive period for A valid waiver of the statute of limitations under paragraphs (b) and (d) of
collection of the deficiency DST assessed against petitioner BPI. Section 223 of the Tax Code of 1977, as amended, must be: (1) in writing;
(2) agreed to by both the Commissioner and the taxpayer; (3) before the
A. The statute of limitations on assessment and collection of taxes is for expiration of the ordinary prescriptive periods for assessment and
the protection of the taxpayer and, thus, shall be construed liberally in collection; and (4) for a definite period beyond the ordinary prescriptive
his favor. periods for assessment and collection. The period agreed upon can still be
Though the statute of limitations on assessment and collection of national extended by subsequent written agreement, provided that it is executed prior
internal revenue taxes benefits both the Government and the taxpayer, it to the expiration of the first period agreed upon. The BIR had issued Revenue
principally intends to afford protection to the taxpayer against Memorandum Order (RMO) No. 20-90 on 04 April 1990 to lay down an even
unreasonable investigation. The indefinite extension of the period for more detailed procedure for the proper execution of such a waiver. RMO No.
assessment is unreasonable because it deprives the said taxpayer of the 20-90 mandates that the procedure for execution of the waiver shall be strictly
assurance that he will no longer be subjected to further investigation for followed, and any revenue official who fails to comply therewith resulting in the
taxes after the expiration of a reasonable period of time.24 As aptly prescription of the right to assess and collect shall be administratively dealt
explained in Republic of the Philippines v. Ablaza25 – with.

The law prescribing a limitation of actions for the collection of the income tax This Court had consistently ruled in a number of cases that a request for
is beneficial both to the Government and to its citizens; to the Government reconsideration or reinvestigation by the taxpayer, without a valid waiver
because tax officers would be obliged to act promptly in the making of of the prescriptive periods for the assessment and collection of tax, as
assessment, and to citizens because after the lapse of the period of required by the Tax Code and implementing rules, will not suspend the
prescription citizens would have a feeling of security against unscrupulous running thereof.29
tax agents who will always find an excuse to inspect the books of In the Petition at bar, petitioner BPI executed no such waiver of the statute of
taxpayers, not to determine the latter’s real liability, but to take limitations on the collection of the deficiency DST per Assessment No. FAS-5-
advantage of every opportunity to molest peaceful, law-abiding citizens. 85-89-002054. In fact, an internal memorandum of the Chief of the Legislative,
Without such a legal defense taxpayers would furthermore be under obligation
Page 6 of 23
 Taxation II Cayetano, De Peralta, Roble & Roxas
Case Digest
Ruling & Research Division of the BIR to her counterpart in the Collection thereon. The Revenue Officers of the [the CIR] in the issuance of the Final
Enforcement Division, dated 15 October 1992, expressly noted that, "The Assessment Notice did not provide Enron with the written bases of the law and
taxpayer fails to execute a Waiver of the Statute of Limitations extending the facts on which the subject assessment is based. [The CIR] did not bother to
period of collection of the said tax up to December 31, 1993 pending explain how it arrived at such an assessment. More so, he failed to mention
reconsideration of its protest. . ."30 Without a valid waiver, the statute of the specific provision of the Tax Code or rules and regulations which were not
limitations on collection by the BIR of the deficiency DST could not have been complied with by Enron.13
suspended under paragraph (d) of Section 223 of the Tax Code of 1977, as
Both the CTA and the CA concluded that the deficiency tax assessment merely
amended.
itemized the deductions disallowed and included these in the gross income. It
_____________________________________________________________ also imposed the preferential rate of 5% on some items categorized by Enron
as costs. The legal and factual bases were, however, not indicated.
G.R. No. 166387 January 19, 2009
The advice of tax deficiency, given by the CIR to an employee of Enron, as
COMMISSIONER OF INTERNAL REVENUE, Petitioners,
well as the preliminary five-day letter, were not valid substitutes for the
vs.ENRON SUBIC POWERCORPORATION, Respondents.
mandatory notice in writing of the legal and factual bases of the assessment.
Facts: These steps were mere perfunctory discharges of the CIR’s duties in correctly
assessing a taxpayer.15 The requirement for issuing a preliminary or final
Enron, a domestic corporation registered with the Subic Bay Metropolitan notice, as the case may be, informing a taxpayer of the existence of a
Authority as a freeport enterprise,2 filed its annual income tax return for the deficiency tax assessment is markedly different from the requirement of what
year 1996 on April 12, 1997. It indicated a net loss of P7,684,948. such notice must contain. Just because the CIR issued an advice, a
Subsequently, the Bureau of Internal Revenue, through a preliminary five-day preliminary letter during the pre-assessment stage and a final notice, in the
letter,3 informed it of a proposed assessment of an alleged P2,880,817.25 order required by law, does not necessarily mean that Enron was informed of
deficiency income tax.4 Enron disputed the proposed deficiency assessment the law and facts on which the deficiency tax assessment was made.
in its first protest letter.5
_____________________________________________________________
On May 26, 1999, Enron received from the CIR a formal assessment
notice6 requiring it to pay the alleged deficiency income tax of P2,880,817.25 G.R. No. 162155 August 28, 2007
for the taxable year 1996. Enron protested this deficiency tax assessment, but
there was non-resolution. COMMISSIONER OF INTERNAL REVENUE and ARTURO V. PARCERO
Enron filed a petition for review in the Court of Tax Appeals (CTA). It argued in his official capacity as Revenue District Officer of Revenue District No.
that the deficiency tax assessment disregarded the provisions of Section 228 049 (Makati), Petitioners,
of the National Internal Revenue Code (NIRC), as amended,8and Section 3.1.4 vs.
of Revenue Regulations (RR) No. 12-999 by not providing the legal and factual
bases of the assessment. Enron likewise questioned the substantive validity PRIMETOWN PROPERTY GROUP, INC., Respondent.
of the assessment.10
Facts:
CTA – granted Enron’s petition and ordered the cancellation of its deficiency
tax assessment for the year 1996. The CTA reasoned that the assessment On March 11, 1999, Gilbert Yap, the Vice President of Primetown (respondent),
notice sent to Enron failed to comply with the requirements of a valid written
notice under Section 228 of the NIRC and RR No. 12-99. applied for refund of the income tax which they have paid on 1997. According
to Yap, the company accrued losses amounting to P/ 71,879,228. These losses
CA – affirmed CTA/s decision
enabled them to be exempt from paying income tax, which respondent paid
The CIR now argues that respondent was informed of the legal and factual diligently. Respondent was therefore claiming a refund. Respondents
bases of the deficiency assessment against it.
submitted requirements but the petitioners ignored their claim. On April 14,
Issue: Whether or not there was proper notice of assessment 2000, respondents filed a review in the Court of Tax Appeals. The said Court,
Ruling: No however, denied the petition stating that the petition was filed beyond the 2-
A notice of assessment is: year prescriptive period for filing judicial claim for tax refund. It invoked
Section 229 of the National Internal Revenue Code (NIRC):
[A] declaration of deficiency taxes issued to a [t]axpayer who fails to respond
to a Pre-Assessment Notice (PAN) within the prescribed period of time, or
whose reply to the PAN was found to be without merit. The Notice of Sec. 229. Recovery of Taxes Erroneously or Illegally Collected. -- No suit
Assessment shall inform the [t]axpayer of this fact, and that the report of or proceeding shall be maintained in any court for the recovery of
investigation submitted by the Revenue Officer conducting the audit shall be any national internal revenue tax hereafter alleged to have been
given due course.
erroneously or illegally assessed or collected, or of any penalty
The formal letter of demand calling for payment of the taxpayer’s deficiency claimed to have been collected without authority, or of any sum
tax or taxes shall state the fact, the law, rules and regulations or
alleged to have been excessively or in any manner wrongfully
jurisprudence on which the assessment is based, otherwise the formal
letter of demand and the notice of assessment shall be void. collected, until a claim for refund or credit has been duly filed with
the Commissioner; but such suit or proceeding may be maintained,
Section 228 of the NIRC provides that the taxpayer shall be informed in writing
of the law and the facts on which the assessment is made. Otherwise, the whether or not such tax, penalty, or sum has been paid under
assessment is void. To implement the provisions of Section 228 of the NIRC, protest or duress.
RR No. 12-99 was enacted. Section 3.1.4 of the revenue regulation reads:
3.1.4. Formal Letter of Demand and Assessment Notice. – The formal letter of In any case, no such suit or proceeding shall be filed after the expiration of
demand and assessment notice shall be issued by the Commissioner or his two (2) years from the date of payment of the tax or penalty regardless of
duly authorized representative. The letter of demand calling for payment of any supervening cause that may arise after payment: Provided, however, That
the taxpayer’s deficiency tax or taxes shall state the facts, the law, rules the Commissioner may, even without a claim therefor, refund or credit any
and regulations, or jurisprudence on which the assessment is based,
otherwise, the formal letter of demand and assessment notice shall be tax, where on the face of the return upon which payment was made, such
void. The same shall be sent to the taxpayer only by registered mail or by payment appears clearly to have been erroneously paid. (emphasis supplied)
personal delivery. xxx (emphasis supplied)
The CTA found that respondent filed its final adjusted return on April 14,
In [this] case, [the CIR] merely issued a formal assessment and indicated
therein the supposed tax, surcharge, interest and compromise penalty due 1998. Thus, its right to claim a refund or credit commenced on that date.
Page 7 of 23
 Taxation II Cayetano, De Peralta, Roble & Roxas
Case Digest
The tax court applied Article 13 of the Civil Code which states: The term “year” as used in Article 13 of the civil code is limited to 365 days. However,
it is said to be unrealistic and if public interest demands a reversion to the policy
Art. 13. When the law speaks of years, months, days or nights, it shall be embodied in the revised administrative code, this may be done through legislative
process and not by judicial decree.
understood that years are of three hundred sixty-five days each; months, of
thirty days; days, of twenty-four hours, and nights from sunset to sunrise. ____________________________________________________________________

If the months are designated by their name, they shall be computed by the
G.R. No. 159694 January 27, 2006
number of days which they respectively have.
COMMISSIONER OF INTERNAL REVENUE vs. AZUCENA T. REYES
In computing a period, the first day shall be excluded, and the last included.
(emphasis supplied)
Facts:
Thus, according to the CTA, the two-year prescriptive period under Section "On July 8, 1993, Maria C. Tancinco (or ‘decedent’) died, leaving a 1,292
229 of the NIRC for the filing of judicial claims was equivalent to 730 days. square-meter residential lot and an old house thereon (or ‘subject property’)
located at 4931 Pasay Road, Dasmariñas Village, Makati City.
Because the year 2000 was a leap year, respondent's petition, which was filed
731 days after respondent filed its final adjusted return, was filed beyond the "On the basis of a sworn information-for-reward filed by a certain Raymond
reglementary period. Abad (or ‘Abad’), conducted an investigation on the decedent’s estate.
Subsequently, it issued a Return Verification Order. But without the required
preliminary findings being submitted, it issued Letter of Authority No. 132963
On appeal before the CA, the CA reversed and set aside the decision of the for the regular investigation of the estate tax case. Azucena T. Reyes (or
CTA. It ruled that Article 13 of the Civil Code did not distinguish between a ‘[Reyes]’), one of the decedent’s heirs, received the Letter of Authority.
regular year and a leap year. According to the CA:
The BIR issued a preliminary assessment notice against the estate in the
amount of P14,580,618.67. On May 10, 1998, the heirs of the decedent
The rule that a year has 365 days applies, notwithstanding the fact that a received a final estate tax assessment notice and a demand letter, for the
particular year is a leap year. amount of P14,912,205.47, inclusive of surcharge and interest.
A certain Felix M. Sumbillo protested the assessment [o]n behalf of the heirs
In other words, even if the year 2000 was a leap year, the periods covered by
on the ground that the subject property had already been sold by the decedent
April 15, 1998 to April 14, 1999 and April 15, 1999 to April 14, 2000 should still sometime in 1990.
be counted as 365 days each or a total of 730 days. A statute which is clear and
The CIR issued a preliminary collection letter to [Reyes], followed by a Final
explicit shall be neither interpreted nor construed. Notice Before Seizure.

Issue: Whether the petition was filed within the two-year period A Warrant of Distraint and/or Levy was served upon the estate, followed by
Notices of Levy on Real Property and Tax Lien against it.
Ruling: Yes "On March 2, 1999, [Reyes] protested the notice of levy. However, on March
11, 1999, the heirs proposed a compromise settlement of P1,000,000.00.
The Court ruled that when a subsequent law impliedly repeals a prior law, the "As the estate failed to pay its tax liability within the April 15, 2000 deadline,
new law shall apply. In the case at bar, Art 13 of the New Civil Code, which the Chief, Collection Enforcement Division, BIR, notified [Reyes] on June 6,
states that a year shall compose 365 days, shall be repealed by EO 292 Sec 31 2000 that the subject property would be sold at public auction on August 8,
of the Administrative Code of 1987, which states that a year shall be composed 2000.
of 12 months regardless of the number of days in a month. Therefore, the two- "On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division.
year prescriptive period ends on April 14, 2000. Respondents filed petition on Assailing the scheduled auction sale, she asserted that x x x the assessment,
letter of demand[,] and the whole tax proceedings against the estate are void
April 14, 2000 (which is the last day prescribed to file a petition. ab initio. She offered to file the corresponding estate tax return and pay the
correct amount of tax without surcharge [or] interest.
____________________________________________________________________
"Without acting on [Reyes’s] protest and offer, [the CIR] instructed the
NAMARCO v. TECSON 29 SCRA 70 Collection Enforcement Division to proceed with the August 8, 2000 auction
sale. Consequently, on June 28, 2000, [Reyes] filed a [P]etition for [R]eview
FACTS: On December 21, 1965, National Marketing Corporation filed a complaint, with the CTA.
as successor of the Price Stabilization Corporation, against the defendant based on an [Reyes] filed a Motion for the Issuance of a Writ of Preliminary Injunction or
already decided civil case from 10 years ago. Defendant Miguel Tecson moved to Status Quo Order, which was granted by the CTA. Upon [Reyes’s] filing of a
dismiss the said complaint upon the ground of lack of jurisdiction over the subject surety bond in the amount of P27,000,000.00, the CTA issued a [R]esolution
matter and prescription of action. The court, then, issued an order of dismissal with ordering [the CIR] to desist and refrain from proceeding with the auction sale
regards the article 13 of the civil code. However, National Marketing Corporation of the subject property or from issuing a [W]arrant of [D]istraint or
appealed to the court of appeals from such order. Looking at the fact that 1960 and [G]arnishment of [B]ank [A]ccount[,] pending determination of the case and/or
1964 is a leap year, they insisted that a “year” means a “calendar year” and a leap year unless a contrary order is issued.
would still be counted as 1 year even if it consists of 366 days. The very conclusion
thus reached by appellant shows that its theory contravenes the explicit provision of "[The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the
Art. 13 of the Civil Code of the Philippines, limiting the connotation of each "year" — CTA no longer has jurisdiction over the case[,] because the assessment
as the term is used in our laws — to 365 days. against the estate is already 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.
ISSUE: WON the term “year” as used in Article 13 of the civil code is limited to 365 "During the pendency of the [P]etition for [R]eview with the CTA, however, the
days. BIR issued Revenue Regulation (or ‘RR’) No. 6-2000 and Revenue
RULING: No. Memorandum Order (or ‘RMO’) No. 42-2000 offering certain taxpayers with
delinquent accounts and disputed assessments an opportunity to compromise
their tax liability.

Page 8 of 23
 Taxation II Cayetano, De Peralta, Roble & Roxas
Case Digest
"On November 25, 2000, [Reyes] filed an application with the BIR for the First, RA 8424 has already amended the provision of Section 229 on protesting
compromise settlement (or ‘compromise’) of the assessment against the an assessment. The old requirement of merely notifying the taxpayer of the
estate pursuant to Sec. 204(A) of the Tax Code, as implemented by RR No. CIR’s findings was changed in 1998 to informing the taxpayer of not only the
6-2000 and RMO No. 42-2000. law, but also of the facts on which an assessment would be made; otherwise,
the assessment itself would be invalid.
"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 It was on February 12, 1998, that a preliminary assessment notice was issued
compromise amount of P1,062,778.20 but was still awaiting approval of the against the estate. On April 22, 1998, the final estate tax assessment notice,
National Evaluation Board (or ‘NEB’). The CTA granted the motion and reset as well as demand letter, was also issued. During those dates, RA 8424 was
the hearing to February 27, 2001. already in effect. The notice required under the old law was no longer sufficient
under the new law.
"On February 19, 2001, [Reyes] filed a Motion to Declare Application for the
Settlement of Disputed Assessment as a Perfected Compromise. In said To be simply informed in writing of the investigation being conducted and of
motion, she alleged that [the CIR] had not yet signed the compromise[,] the recommendation for the assessment of the estate taxes due is nothing but
because of procedural red tape requiring the initials of four Deputy a perfunctory discharge of the tax function of correctly assessing a taxpayer.
Commissioners on relevant documents before the compromise is signed by The act cannot be taken to mean that Reyes already knew the law and the
the [CIR]. [Reyes] posited that the absence of the requisite initials and facts on which the assessment was based. It does not at all conform to the
signature[s] on said documents does not vitiate the perfected compromise. compulsory requirement under Section 228. Moreover, the Letter of Authority
received by respondent on March 14, 1997 was for the sheer purpose of
"Commenting on the motion, [the CIR] countered that[,] without the approval
investigation and was not even the requisite notice under the law.
of the NEB, [Reyes’s] application for compromise with the BIR cannot be
considered a perfected or consummated compromise. The procedure for protesting an assessment under the Tax Code is found in
Chapter III of Title VIII, which deals with remedies. Being procedural in nature,
"On March 9, 2001, the CTA denied [Reyes’s] motion, prompting her to file a
can its provision then be applied retroactively? The answer is yes.
Motion for Reconsideration Ad Cautelam. In a [R]esolution dated April 10,
2001, the CTA denied the [M]otion for [R]econsideration with the suggestion The general rule is that statutes are prospective. However, statutes that are
that[,] for an orderly presentation of her case and to prevent piecemeal remedial, or that do not create new or take away vested rights, do not fall under
resolutions of different issues, [Reyes] should file a [S]upplemental [P]etition the general rule against the retroactive operation of statutes.14 Clearly, Section
for [R]eview[,] setting forth the new issue of whether there was already a 228 provides for the procedure in case an assessment is protested. The
perfected compromise. 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, either
CTA: [P]etition for [R]eview is DENIED. Accordingly, [Reyes] is ORDERED to
expressly or by necessary implication, that pending actions are excepted from
PAY deficiency estate tax in the amount of Nineteen Million Five Hundred
the operation of Section 228, or that applying it to pending proceedings would
Twenty Four Thousand Nine Hundred Nine and 78/100 (P19,524,909.78).
impair vested rights.
"In arriving at its decision, the CTA ratiocinated that there can only be a
Second, the non-retroactive application of Revenue Regulation (RR) No. 12-
perfected and consummated compromise of the estate’s tax liability[,] if the
99 is of no moment, considering that it merely implements the law.
NEB has approved [Reyes’s] application for compromise in accordance with
RR No. 6-2000, as implemented by RMO No. 42-2000. 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
"Anent the validity of the assessment notice and letter of demand against the
or administrative agency to have one immediately issued after a law is passed,
estate, the CTA stated that ‘at the time the questioned assessment notice and
the absence of the regulation does not automatically mean that the law itself
letter of demand were issued, the heirs knew very well the law and the facts
would become inoperative.
on which the same were based.’ It also observed that the petition was not filed
within the 30-day reglementary period provided under Sec. 11 of Rep. Act No. At the time the pre-assessment notice was issued to Reyes, RA 8424 already
1125 and Sec. 228 of the Tax Code."5 stated that the taxpayer must be informed of both the law and facts on which
the assessment was based. Thus, the CIR should have required the
CA: In partly granting the Petition, the CA said that Section 228 of the Tax
assessment officers of the Bureau of Internal Revenue (BIR) to follow the clear
Code and RR 12-99 were mandatory and unequivocal in their requirement.
mandate of the new law. The old regulation governing the issuance of estate
The assessment notice and the demand letter should have stated the facts
tax assessment notices ran afoul of the rule that tax regulations -- old as they
and the law on which they were based; otherwise, they were deemed
were -- should be in harmony with, and not supplant or modify, the law.16
void.6 The appellate court held that while administrative agencies, like the BIR,
were not bound by procedural requirements, they were still required by law It may be argued that the Tax Code provisions are not self-executory. It would
and equity to observe substantive due process. The reason behind this be too wide a stretch of the imagination, though, to still issue a regulation that
requirement, said the CA, was to ensure that taxpayers would be duly apprised would simply require tax officials to inform the taxpayer, in any manner, of the
of -- and could effectively protest -- the basis of tax assessments against law and the facts on which an assessment was based. That requirement is
them.7Since the assessment and the demand were void, the proceedings neither difficult to make nor its desired results hard to achieve.
emanating from them were likewise void, and any order emanating from them
Moreover, an administrative rule interpretive of a statute, and not declarative
could never attain finality.
of certain rights and corresponding obligations, is given retroactive effect as of
Issue: the date of the 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
Whether petitioner’s assessment against the estate is valid. No.
September 6, 1999, this regulation was to retroact to January 1, 1998 -- a date
Ruling: prior to the issuance of the preliminary assessment notice and demand letter.
The second paragraph of Section 228 of the Tax Code12 is clear and Third, neither Section 229 nor RR 12-85 can prevail over Section 228 of the
mandatory. It provides as follows: Tax Code.
"Sec. 228. Protesting of Assessment. -- No doubt, Section 228 has replaced Section 229. The provision on protesting
an assessment has been amended. Furthermore, in case of discrepancy
"The taxpayers shall be informed in writing of the law and the facts on which between the law as amended and its implementing but old regulation, the
the assessment is made: otherwise, the assessment shall be void." former necessarily prevails.18 Thus, between Section 228 of the Tax Code and
In the present case, Reyes was not informed in writing of the law and the facts the pertinent provisions of RR 12-85, the latter cannot stand because it cannot
on which the assessment of estate taxes had been made. She was merely go beyond the provision of the law. The law must still be followed, even though
notified of the findings by the CIR, who had simply relied upon the provisions the existing tax regulation at that time provided for a different procedure. The
of former Section 22913 prior to its amendment by Republic Act (RA) No. 8424, regulation then simply provided that notice be sent to the respondent in the
otherwise known as the Tax Reform Act of 1997. form prescribed, and that no consequence would ensue for failure to comply
with that form.

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 Taxation II Cayetano, De Peralta, Roble & Roxas
Case Digest
Fourth, petitioner violated the cardinal rule in administrative law that the Division pointed out that the assessment was issued beyond the prescriptive
taxpayer be accorded due process. Not only was the law here disregarded, period considering that the CIR issued the FANs only on December 17, 2009.
but no valid notice was sent, either. A void assessment bears no valid fruit.
The CTA Division ruled further that the Waivers entered into by the CIR and
The law imposes a substantive, not merely a formal, requirement. To proceed
La Flor did not effectively extend the prescriptive period for the issuance of the
heedlessly with tax collection without first establishing a valid assessment is
tax assessments. It pointed out that the Waivers dated September 3, 2008 and
evidently violative of the cardinal principle in administrative investigations: that
December 2, 2009 were never presented or offered in evidence, while the
taxpayers should be able to present their case and adduce supporting
Waiver dated February 16, 2009 did not comply with the provisions of Revenue
evidence.19 In the instant case, respondent has not been informed of the basis
Memorandum Order (RMO) No. 20-90 because it failed to state the nature and
of the estate tax liability. Without complying with the unequivocal mandate of
amount of the tax to be assessed.
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 The CIR argued that the prescriptive period under Section 203 of the NIRC
taxation’s general provisions that are expected to be known by the taxpayer, does not apply to withholding agents such as La Flor. It explained that the
is utter chicanery. amount collected from them is not the tax itself but rather a penalty. The CIR
pointed out that the provision of Section 203 of the NIRC only mentions
Even a cursory review of the preliminary assessment notice, as well as the assessment of taxes as distinguished from assessment of penalties. It
demand letter sent, reveals the lack of basis for -- not to mention the highlighted that La Flor was made liable for EWT and WTC deficiencies in its
insufficiency of -- the gross figures and details of the itemized deductions capacity as a withholding agent and not in its personality as a taxpayer.
indicated in the notice and the letter. This Court cannot countenance an
assessment based on estimates that appear to have been arbitrarily or On the other hand, the CIR maintained that even applying the periods set in
capriciously arrived at. Although taxes are the lifeblood of the government, Section 203 of the NIRC, the EWT and WTC assessment of La Flor had not
their assessment and collection "should be made in accordance with law as yet prescribed. It pointed out that La Flor had executed three Waivers
any arbitrariness will negate the very reason for government itself."21 extending the prescriptive period under the NIRC. The CIR lamented that the
Fifth, the rule against estoppel does not apply. Although the government CTA erred in disregarding them because evidence not formally offered may be
cannot be estopped by the negligence or omission of its agents, the obligatory considered if they form part of the records. It noted that in the Answer it filed
provision on protesting a tax assessment cannot be rendered nugatory by a before the CTA Division, the subject Waivers were included as annexes. In
mere act of the CIR . addition, the CIR assailed that failure to comply with RMO No. 20-90 does not
invalidate the Waivers.
Tax laws are civil in nature.22 Under our Civil Code, acts executed against the
mandatory provisions of law are void, except when the law itself authorizes the Issues:
validity of those acts.23 Failure to comply with Section 228 does not only render
the assessment void, but also finds no validation in any provision in the Tax (1) What are the prescriptive periods for collection and assessment of
Code. We cannot condone errant or enterprising tax officials, as they are taxes?
expected to be vigilant and law-abiding.
_____________________________________________________________

(2) Whether the prescriptive period under Section 203 of the NIRC do
Commissioner of Internal Revenue Vs. La Flor Dela Isabela, Inc. not apply to EWT and WTC assessments because they are not
considered as internal revenue taxes but “penalties”
G.R. No. 211289. January 14, 2019
(3) Whether La Flor’s EWT and WTC Assessments for 2005 were
Facts: barred by prescription

Respondent La Flor dela Isabela, Inc. (La Flor) is a domestic corporation. It Ruling:
filed monthly returns for the Expanded Withholding Tax (EWT) and
Withholding Tax on Compensation (WTC) for calendar year 2005. (1)

On September 3, 2008, La Flor executed a Waiver of the Statute of Limitations

(Waiver) in connection with its internal revenue liabilities for the calendar year Section 203 of the NIRC provides for the ordinary prescriptive period for the
ending December 31, 2005. On February 16, 2009, it executed another assessment and collection of taxes, to wit:
Waiverto extend the period of assessment until December 31, 2009.
SEC. 203. Period of Limitation Upon Assessment and Collection. — Except as
On November 20, 2009, La Flor received a copy of the Preliminary provided in Section 222, internal revenue taxes shall be assessed within three
Assessment Notice for deficiency taxes for the taxable year 2005. Meanwhile, (3) years after the last day prescribed by law for the filing of the return, and no
on December 2, 2009, it executed another Waiver. proceeding in court without assessment for the collection of such taxes shall
be begun after the expiration of such period: Provided, That in case where a
On January 7, 2010, La Flor received Formal Letter of Demand and Final return is filed beyond the period prescribed by law, the three (3)-year period
Assessment Notice for late filing and payment of WTCs and EWTs. The above- shall be counted from the day the return was filed. For purposes of this Section,
mentioned assessment notices were all dated December 17, 2009 and a return filed before the last day prescribed by law for the filing thereof shall
covered the deficiency taxes for the taxable year 2005. be considered as filed on such last day.

La Flor filed its Letter of Protest contesting the assessment notices. The On the other hand, Section 222(a) of the NIRC provides for instances where
Commissioner of Internal Revenue (CIR) issued the Final Decision on the ordinary prescriptive period of three years for the assessment and
Disputed Assessment (FDDA) involving the alleged deficiency withholding collection of taxes is extended to 10 years, i.e., false return, fraudulent returns,
taxes in the aggregate amount of P6,835,994.76. Aggrieved, La Flor filed a or failure to file a return. In short, the relevant provisions in the NIRC
petition for review before the CTA Division. concerning the prescriptive period for the assessment of internal revenue
taxes provide for an ordinary and extraordinary period for assessment.
The CTA Division ruled in favor of La Flor and cancelled the deficiency tax
assessments against it. It noted that based on the dates La Flor had filed its
returns for EWT and WTC, the CIR had until February 15, 2008 to March 1,
2009 to issue an assessment pursuant to the three-year prescriptive period (2) No.
under Section 203 of the National Internal Revenue Code (NIRC). The CTA

Page 10 of 23
 Taxation II Cayetano, De Peralta, Roble & Roxas
Case Digest
It is true that withholding tax is a method of collecting tax in advance and that G.R. No. 120880 June 5, 1997
a withholding tax on income necessarily implies that the amount of tax withheld
comes from the income earned by the taxpayer/payee. Nonetheless, the Court FERDINAND R. MARCOS II, petitioner,
does not agree with the CIR that withholding tax assessments are merely an
vs. COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF
imposition of a penalty on the withholding agent, and thus, outside the
coverage of Section 203 of the NIRC. INTERNAL REVENUE and HERMINIA D. DE GUZMAN, respondents.

The liability of the withholding agent is distinct and separate from the tax Facts:
liability of the income earner. It is premised on its duty to withhold the taxes
paid to the payee. Should the withholding agent fail to deduct the required Bongbong Marcos sought for the reversal of the ruling of the Court of Appeals
amount from its payment to the payee, it is liable for deficiency taxes and to grant CIR's petition to levy the properties of the late Pres. Marcos to cover
applicable penalties. In Commissioner of Internal Revenue v. Procter &
the payment of his tax delinquencies during the period of his exile in the US.
Gamble Philippine Manufacturing Corporation the Court explained:
The Marcos family was assessed by the BIR after it failed to file estate tax
It thus becomes important to note that under Section 53 (c) of the NIRC, the returns. However the assessment were not protested administratively by Mrs.
withholding agent who is “required to deduct and withhold any tax” is made Marcos and the heirs of the late president so that they became final and
“personally liable for such tax” and indeed is indemnified against any claims
unappealable after the period for filing of opposition has prescribed. Marcos
and demands which the stockholder might wish to make in questioning the
amount of payments effected by the withholding agent in accordance with the contends that the properties could not be levied to cover the tax dues because
provisions of the NIRC. The withholding agent, P&G-Phil., is directly and they are still pending probate with the court, and settlement of tax deficiencies
independently liable for the correct amount of the tax that should be withheld could not be had, unless there is an order by the probate court or until the
from the dividend remittances. The withholding agent is, moreover, subject to
probate proceedings are terminated.
and liable for deficiency assessments, surcharges and penalties should the
amount of the tax withheld be finally found to be less than the amount that
should have been withheld under law. Petitioner also pointed out that applying Memorandum Circular
No. 38-68, the BIR's Notices of Levy on the Marcos properties were issued
A “person liable for tax” has been held to be a “person subject to tax” and beyond the allowed period, and are therefore null and void.
properly considered a “taxpayer.” The terms “liable for tax” and “subject to tax”
both connote legal obligation or duty to pay a tax. It is very difficult, indeed Issue: Are the contentions of Bongbong Marcos correct?
conceptually impossible, to consider a person who is statutorily made “liable
for tax” as not “subject to tax.” By any reasonable standard, such a person Ruling: No.
should be regarded as a party in interest, or as a person having sufficient legal
interest, to bring a suit for refund of taxes he believes were illegally collected
The deficiency income tax assessments and estate tax assessment are
from him.
already final and unappealable -and-the subsequent levy of real properties is
Thus, withholding tax assessments such as EWT and WTC clearly a tax remedy resorted to by the government, sanctioned by Section 213 and
contemplate deficiency internal revenue taxes. Their aim is to collect unpaid 218 of the National Internal Revenue Code. This summary tax remedy is
income taxes and not merely to impose a penalty on the withholding agent for
distinct and separate from the other tax remedies (such as Judicial Civil actions
its failure to comply with its statutory duty.
and Criminal actions), and is not affected or precluded by the pendency of any
(3) Yes. other tax remedies instituted by the government.

The assessments against La Flor had prescribed. The requirements under The approval of the court, sitting in probate, or as a settlement
RMO No. 20-90 are mandatory. tribunal over the deceased's estate is not a mandatory requirement in the
collection of estate taxes. On the contrary, under Section 87 of the NIRC, it is
In Commissioner of Internal Revenue v. Systems Technology Institute, Inc.,
the Court had ruled that waivers extending the prescriptive period of tax the probate or settlement court which is bidden not to authorize the executor
assessments must be compliant with RMO No. 20-90 and must indicate the or judicial administrator of the decedent's estate to deliver any distributive
nature and amount of the tax due, to wit: share to any party interested in the estate, unless it is shown a Certification by
the Commissioner of Internal Revenue that the estate taxes have been paid.
“These requirements are mandatory and must strictly be followed. To be sure,
in a number of cases, this Court did not hesitate to strike down waivers which This provision disproves the petitioner's contention that it is the probate court
failed to strictly comply with the provisions of RMO 20-90 and RDAO 05-01. x which approves the assessment and collection of the estate tax.
x x x”
On the issue of prescription, the omission to file an estate tax return,
The Court also invalidated the waivers executed by the taxpayer in the case and the subsequent failure to contest or appeal the assessment made by the
of Commissioner of Internal Revenue v. Standard Chartered Bank, because:
BIR is fatal to the petitioner's cause, as under Sec.223 of the NIRC, in case of
(1) they were signed by Assistant Commissioner-Large Taxpayers Service and
not by the CIR; (2) the date of acceptance was not shown; (3) they did not failure to file a return, the tax may be assessed at anytime within 10 years after
specify the kind and amount of the tax due; and (4) the waivers speak of a the omission, and any tax so assessed may be collected by levy upon real
request for extension of time within which to present additional documents and property within 3 years (now 5 years) following the assessment of the tax.
not for reinvestigation and/or reconsideration of the pending internal revenue
case as required under RMO No. 20-90. Since the estate tax assessment had become final and unappealable by the
petitioner's default as regards protesting the validity of the said assessment,
In the present case, the September 3, 2008, February 16, 2009 and December there is no reason why the BIR cannot continue with the collection of the said
2, 2009 Waivers failed to indicate the specific tax involved and the exact tax.
amount of the tax to be assessed or collected. As above-mentioned, these
details are material as there can be no true and valid agreement between the
___________________________________________________________
taxpayer and the CIR absent these information. Clearly, the Waivers did not
effectively extend the prescriptive period under Section 203 on account of their ____________________________________________________________________
invalidity. CIR v. CENTRAL LUZON DRUG

_____________________________________________________________ G.R. No. 159647 April 15, 2005

Page 11 of 23
 Taxation II Cayetano, De Peralta, Roble & Roxas
Case Digest
In 1992, Republic Act No. 7432, otherwise known as "An Act to Maximize the
Contribution of Senior Citizens to Nation Building, Grant Benefits and Special
FACTS: Respondents operated six drugstores under the business name Mercury
Privileges and For Other Purposes," granted senior citizens several privileges,
Drug. From January to December 1996 respondent granted 20% sales discount to
one of which was obtaining a 20 percent discount from all establishments
qualified senior citizens on their purchases of medicines pursuant to RA 7432 for a
relative to the use of transportation services, hotels and similar lodging
total of ₱ 904,769.
establishments, restaurants and recreation centers and purchase of medicines
anywhere in the country.1 The law also provided that the private
establishments giving the discount to senior citizens may claim the cost as tax
On April 15, 1997, respondent filed its annual Income Tax Return for taxable year credit.2 In compliance with the law, the Bureau of Internal Revenue issued
1996 declaring therein net losses. On Jan. 16, 1998 respondent filed with petitioner a Revenue Regulations No. 2-94, which defined "tax credit" as follows:
claim for tax refund/credit of ₱ 904,769.00 allegedly arising from the 20% sales
discount. Unable to obtain affirmative response from petitioner, respondent elevated Tax Credit – refers to the amount representing the 20% discount
its claim to the Court of Tax Appeals. The court dismissed the same but upon granted to a qualified senior citizen by all establishments relative to
reconsideration, the latter reversed its earlier ruling and ordered petitioner to issue a their utilization of transportation services, hotels and similar lodging
Tax Credit Certificate in favor of respondent citing CA GR SP No. 60057 (May 31, establishments, restaurants, halls, circuses, carnivals and other
2001, Central Luzon Drug Corp. vs. CIR) citing that Sec. 229 of RA 7432 deals similar places of culture, leisure and amusement, which discount
exclusively with illegally collected or erroneously paid taxes but that there are other shall be deducted by the said establishments from their gross
situations which may warrant a tax credit/refund. income for income tax purposes and from their gross sales for value-
added tax or other percentage tax purposes.3
In 1995, respondent Bicolandia Drug Corporation, a corporation engaged in
CA affirmed Court of Tax Appeal's decision reasoning that RA 7432 required neither the business of retailing pharmaceutical products granted the 20 percent sales
a tax liability nor a payment of taxes by private establishments prior to the availment discount to qualified senior citizens purchasing their medicines in compliance
of a tax credit. Moreover, such credit is not tantamount to an unintended benefit from with R.A. No. 7432.4 Respondent treated this discount as a deduction from its
the law, but rather a just compensation for the taking of private property for public gross income in compliance with Revenue Regulations No. 2-94, which
use. implemented R.A. No. 7432.5 On April 15, 1996, respondent filed its 1995
Corporate Annual Income Tax Return declaring a net loss position with nil
income tax liability.6
ISSUE: WON respondent, despite incurring a net loss, may still claim the 20% sales
discount as a tax credit. On December 27, 1996, respondent filed a claim for tax refund or credit in the
amount of PhP 259,659.00 with the Appellate Division of the Bureau of Internal
Revenue—because its net losses for the year 1995 prevented it from
RULING: Yes. benefiting from the treatment of sales discounts as a deduction from gross
sales during the said taxable year.7 It alleged that the petitioner Commissioner
of Internal Revenue erred in treating the 20 percent sales discount given to
It is clear that Sec. 4a of RA 7432 grants to senior citizens the privilege of obtaining a senior citizens as a deduction from its gross income for income tax purposes
20% discount on their purchase of medicine from any private establishment in the or other percentage tax purposes rather than as a tax credit.8
country. The latter may then claim the cost of the discount as a tax credit. Such credit On April 6, 1998, respondent appealed to the Court of Tax Appeals in order to
can be claimed even if the establishment operates at a loss. toll the running of two (2)-year prescriptive period to file a claim for refund
pursuant to Section 230 of the Tax Code then.9 Respondent argued that since
Section 4 of R.A. No. 7432 provided that discounts granted to senior citizens
A tax credit generally refers to an amount that is “subtracted directly from one’s total may be claimed as tax credit, Section 2(i) of Revenue Regulations No. 2-94,
tax liability.” It is an “allowance against the tax itself” or “a deduction from what is which referred to the tax credit as the amount representing the 20 percent
owed” by a taxpayer to the government. discount that "shall be deducted by the said establishments from their gross
A tax credit should be understood in relation to other tax concepts. One of these is tax income for income tax purposes and from their gross sales for value-added
deduction – which is subtraction “from income for tax purposes,” or an amount that is tax or other percentage tax purposes,"10 is illegal, void and without effect for
“allowed by law to reduce income prior to the application of the tax rate to compute being inconsistent with the statute it implements.
the amount of tax which is due.” In other words, whereas a tax credit reduces the tax Petitioner maintained that Revenue Regulations No. 2-94 is valid since the law
due, tax deduction reduces the income subject to tax in order to arrive at the taxable tasked the Department of Finance, among other government offices, with the
income. issuance of the necessary rules and regulations to carry out the objectives of
the law.11
CTA: declared that the provisions of R.A. No. 7432 would prevail over Section
A tax credit is used to reduce directly the tax that is due, there ought to be a tax liability
before the tax credit can be applied. Without that liability, any tax credit application 2(i) of Revenue Regulations No. 2-94, whose definition of "tax credit" deviated
will be useless. There will be no reason for deducting the latter when there is, to begin from the intendment of the law; and as a result, partially granted the
with, no existing obligation to the government. However, as will be presented shortly, respondent's claim for a refund.
the existence of a tax credit or its grant by law is not the same as the availment or use CA: modified the decision of the Court of Tax Appeals as the law provided for
of such credit. While the grant is mandatory, the availment or use is not. If a net loss a tax credit, not a tax refund.
is reported by, and no other taxes are currently due from, a business establishment,
there will obviously be no tax liability against which any tax credit can be applied. Issue:
For the establishment to choose the immediate availment of a tax credit will be W/N the 20 percent sales discount granted to qualified senior citizens by the
premature and impracticable. respondent pursuant to R.A. No. 7432 may be claimed as a tax credit, instead
____________________________________________________________________ of a deduction from gross income or gross sales. No.
Ruling:

G.R. No. 148083 July 21, 2006 Redefining "Tax Credit" as "Tax Deduction"

COMMISSIONER OF INTERNAL REVENUE vs. BICOLANDIA DRUG The problem stems from the issuance of Revenue Regulations No. 2-94, which
CORPORATION (Formerly known as ELMAS DRUG CO.) was supposed to implement R.A. No. 7432, and the radical departure it made
when it defined the "tax credit" that would be granted to establishments that
give 20 percent discount to senior citizens. Under Revenue Regulations No.
Facts: 2-94, the tax credit is "the amount representing the 20 percent discount
granted to a qualified senior citizen by all establishments relative to their
utilization of transportation services, hotels and similar lodging establishments,
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 Taxation II Cayetano, De Peralta, Roble & Roxas
Case Digest
restaurants, drugstores, recreation centers, theaters, cinema houses, concert cost of the 20 percent discount may be claimed by the private establishments
halls, circuses, carnivals and other similar places of culture, leisure and as a tax credit. It is clear that the lawmakers intended the grant of a tax credit
amusement, which discount shall be deducted by the said establishments from to complying private establishments like the respondent.
their gross income for income tax purposes and from their gross sales for
If the private establishments appear to benefit more from the tax credit than
value-added tax or other percentage tax purposes."15 It equated "tax credit"
originally intended, it is not for petitioner to say that they shouldn't. The tax
with "tax deduction," contrary to the definition in Black's Law Dictionary, which
credit may actually have provided greater incentive for the private
defined tax credit as:
establishments to comply with R.A. No. 7432, or quicker relief from the cut into
An amount subtracted from an individual's or entity's tax liability to profits of these businesses.
arrive at the total tax liability. A tax credit reduces the taxpayer's
Revenue Regulations No. 2-94 Null and Void
liability x x x, compared to a deduction which reduces taxable
income upon which the tax liability is calculated. A credit differs from From the above discussion, it must be concluded that Revenue Regulations
deduction to the extent that the former is subtracted from the tax No. 2-94 is null and void for failing to conform to the law it sought to implement.
while the latter is subtracted from income before the tax is In case of discrepancy between the basic law and a rule or regulation issued
computed.16 to implement said law, the basic law prevails because said rule or regulation
cannot go beyond the terms and provisions of the basic law.22
The interpretation of an administrative government agency, which is tasked to
implement the statute, is accorded great respect and ordinarily controls the Revenue Regulations No. 2-94 being null and void, it must be ruled then that
construction of the courts.17 Be that as it may, the definition laid down in the under R.A. No. 7432, which was effective at the time, respondent is entitled to
questioned Revenue Regulations can still be subjected to scrutiny. Courts will its claim of a tax credit, and the ruling of the Court of Appeals must be affirmed.
not hesitate to set aside an executive interpretation when it is clearly
erroneous. There is no need for interpretation when there is no ambiguity in But even as this particular case is decided in this manner, it must be noted that
the rule, or when the language or words used are clear and plain or readily the concerns of the petitioner regarding tax credits granted to private
understandable to an ordinary reader.18 The definition of the term "tax credit" establishments giving discounts to senior citizens have been addressed. R.A.
is plain and clear, and the attempt of Revenue Regulations No. 2-94 to define No. 7432 has been amended by Republic Act No. 9257, the "Expanded Senior
it differently is the root of the conflict. Citizens Act of 2003." In this, the term "tax credit" is no longer used. The 20
percent discount granted by hotels and similar lodging establishments,
Tax Credit is not Tax Refund restaurants and recreation centers, and in the purchase of medicines in all
establishments for the exclusive use and enjoyment of senior citizens is
The Court of Appeals expressly recognized the differences between a "tax
treated in the following manner:
credit" and a "tax refund," and stated that the same are not synonymous with
each other, which is why it modified the ruling of the Court of Tax Appeals. The establishment may claim the discounts granted under (a), (f),
(g) and (h) as tax deduction based on the net cost of the goods sold
Revenue Regulations No. 2-94 vs. R.A. No. 7432 and
or services rendered: Provided, That the cost of the discount shall
R.A. No. 7432 vs. the National Internal Revenue Code
be allowed as deduction from gross income for the same taxable
Petitioner contends that since R.A. No. 7432 used the word "may," the year that the discount is granted. Provided, further, that the total
availability of the tax credit to private establishments is only permissive and amount of the claimed tax deduction net of value added tax if
not absolute or mandatory. From that starting point, petitioner further argues applicable, shall be included in their gross sales receipts for tax
that the definition of the term "tax credit" in Revenue Regulations No. 2-94 was purposes and shall be subject to proper documentation and to the
validly issued under the authority granted by the law to the Department of provisions of the National Internal Revenue Code, as amended.23
Finance to formulate the needed guidelines. It further explained that Revenue
This time around, there is no conflict between the law and the implementing
Regulations No. 2-94 can be harmonized with R.A No. 7432, such that the
Revenue Regulations. Under Revenue Regulations No. 4-2006, "(o)nly the
definition of the term "tax credit" in Revenue Regulations No. 2-94 is
actual amount of the discount granted or a sales discount not exceeding 20%
controlling. It claims that to do otherwise would result in Section 4(a) of R.A.
of the gross selling price can be deducted from the gross income, net of value
No. 7432 impliedly repealing Section 204 (c) of the National Internal Revenue
added tax, if applicable, for income tax purposes, and from gross sales or
Code.
gross receipts of the business enterprise concerned, for VAT or other
These arguments must also fail. percentage tax purposes."24 Under the new law, there is no tax credit to speak
of, only deductions.
Revenue Regulations No. 2-94 is still subordinate to R.A. No. 7432, and in
cases of conflict, the implementing rule will not prevail over the law it seeks to Petitioner can find some vindication in the amendment made to R.A. No. 7432
implement. While seemingly conflicting laws must be harmonized as far as by R.A. No. 9257, which may be more in consonance with the principles of
practicable, in this particular case, the conflict cannot be resolved in the taxation, but as it was R.A. No. 7432 in force at the time this case arose, this
manner the petitioner wishes. There is a great divide separating the idea of law controls the result in this particular case, for which reason the petition must
"tax credit" and "tax deduction," as seen in the definition in Black's Law fail.
Dictionary.
This case should remind all heads of executive agencies which are given the
The claimed absurdity of Section 4(a) of R.A. No. 7432 impliedly repealing power to promulgate rules and regulations, that they assume the roles of
Section 204(c) of the National Internal Revenue Code could only come about lawmakers. It is well-settled that a regulation should not conflict with the law it
if it is accepted that a tax credit is akin to a tax refund wherein payment of implements. Thus, those drafting the regulations should study well the laws
taxes must be made in order for it to be claimed. But as shown in Section their rules will implement, even to the extent of reviewing the minutes of the
112(a) of the National Internal Revenue Code, it is not always necessary for deliberations of Congress about its intent when it drafted the law. They may
payment to be made for a tax credit to be available. also consult the Secretary of Justice or the Solicitor General for their opinions
on the drafted rules. Administrative rules, regulations and orders have the
Looking into R.A. No. 7432
efficacy and force of law so long as they do not contravene any statute or the
It cannot be denied that R.A. No. 7432 has a laudable goal. Moreover, it cannot Constitution.25 It is then the duty of the agencies to ensure that their rules do
be argued that it was the intent of lawmakers for private establishments to be not deviate from or amend acts of Congress, for their regulations are always
the primary beneficiaries of the law. However, while the purpose of the law to subordinate to law.
benefit senior citizens is praiseworthy, the concerns of the affected private
_____________________________________________________________
establishments were also considered by the lawmakers. As in other cases
wherein private property is taken by the State for public use, there must be just
compensation. In this particular case, it took the form of the tax credit granted
G.R. No. 162852 December 16, 2004
to private establishments, purposely chosen by the lawmakers. In the similar
case of Commissioner of Internal Revenue v. Central Luzon Drug PHILIPPINE JOURNALISTS, INC., petitioner,
Corporation,20 scrutinizing the deliberations of the Bicameral Conference vs.
Committee Meeting on Social Justice on February 5, 1992 which finalized R.A. COMMISSIONER OF INTERNAL REVENUE, respondent.
No. 7432, the discussions of the lawmakers clearly showed the intent that the
Page 13 of 23
 Taxation II Cayetano, De Peralta, Roble & Roxas
Case Digest
Facts: It is an agreement between the taxpayer and the BIR that the period to issue
an assessment and collect the taxes due is extended to a date certain. The
In April 1995, the Philippine Journalists, Inc. (PJI) filed its income tax return waiver does not mean that the taxpayer relinquishes the right to invoke
for the year 1994. In 1995, a tax audit was conducted by the Bureau of prescription unequivocally particularly where the language of the document is
Internal Revenue (BIR) where it was found that PJI was liable for a tax equivocal. For the purpose of safeguarding taxpayers from any unreasonable
deficiency. In September 1997, PJI asked that it be allowed to present its examination, investigation or assessment, our tax law provides a statute of
evidence to dispute the finding. In the same month, the Comptroller of PJI limitations in the collection of taxes. Thus, the law on prescription, being a
(Lorenza Tolentino) executed a waiver of the statute of limitations whereby remedial measure, should be liberally construed in order to afford such
PJI agreed waived the running of the prescriptive period of the protection. As a corollary, the exceptions to the law on prescription should
government’s right to make an assessment. Said right was set to expire on perforce be strictly construed.
April 17, 1998 but due to the additional evidence that PJI sought to present,
the government needed more time. The waiver is also defective from the government side because it was signed
only by a revenue district officer, not the Commissioner, as mandated by the
And so a reinvestigation took place which yielded the same result – PJI is NIRC and RMO No. 20-90. The waiver is not a unilateral act by the taxpayer
liable for tax deficiencies. In December 1998, a formal assessment notice or the BIR, but is a bilateral agreement between two parties to extend the
(FAN) was sent via registered mail to PJI. Subsequently, a warrant for period to a date certain. The conformity of the BIR must be made by either the
distraint/levy was issued against the assets of PJI. Commissioner or the Revenue District Officer. This case involves taxes
amounting to more than One Million Pesos (P1,000,000.00) and executed
PJI filed a protest which eventually reached the Court of Tax Appeals. PJI almost seven months before the expiration of the three-year prescription
averred that the waiver executed by Tolentino was incomplete; that no period. For this, RMO No. 20-90 requires the Commissioner of Internal
acceptance date was indicated to show that the waiver was accepted by Revenue to sign for the BIR.
BIR; that no copy was furnished PJI; that the waiver was an unlimited
waiver because it did not indicate as to how long the extension of the _____________________________________________________________
prescriptive period should last. As such, there was no valid waiver of the
statute of limitations which in turn make the FAN issued in December 1998 G.R. No. 139736 October 17, 2005
void.
BANK OF THE PHILIPPINE ISLANDS, Petitioner,
The Commissioner of Internal Revenue (CIR) argued that the placing of the vs.COMMISSIONER OF INTERNAL REVENUE, Respondent.
acceptance date is merely a formal requirement and not vital to the validity
of the waiver; that there is no need to furnish PJI a copy of the waiver
Facts:
because in the first place, it was PJI, through its representative, who was
making the waiver so it should know about it; and that there is no need to
place a specific date as to how long the prescriptive period should be Petitioner BPI is a commercial banking corporation organized and existing
extended because PJI was waiving the prescriptive period and was not under the laws of the Philippines. On two separate occasions, particularly on
asking to extend it. 06 June 1985 and 14 June 1985, it sold United States (US) $500,000.00 to the
Central Bank of the Philippines (Central Bank), for the total sales amount of
The Court of Tax Appeals (CTA) ruled in favor of PJI. But the Court of
Appeals reversed the CTA as it ruled in favor of the CIR. US$1,000,000.00.

Issues: On 10 October 1989, the Bureau of Internal Revenue (BIR) issued an

assessment finding petitioner BPI liable for deficiency DST on its afore-
1. Whether or not that the assessment having been made beyond the mentioned sales of foreign bills of exchange to the Central Bank amounting to
3-year prescriptive period is null and void; and P 28,020.00.
2. Whether or not the CTA gravely erred when it ruled that failure to
comply with the provisions of Revenue Memorandum Order (RMO) Petitioner BPI received the Assessment, together with the attached
No. 20-90 is merely a formal defect that does not invalidate the Assessment Notice, on 20 October 1989. Petitioner in a letter protested against
waiver of the statute of limitations the assessment, requesting for reconsideration.
Held:
Petitioner BPI did not receive any immediate reply to its protest letter.
NO. However, on 15 October 1992, the BIR issued a Warrant of Distraint and/or
Levy against petitioner BPI for the assessed deficiency DST for taxable year
The waiver document is incomplete and defective and thus the three-year 1985, in the amount of ₱27,720.00 (excluding the compromise penalty of
prescriptive period was not tolled or extended and continued to run. ₱300.00). It served the Warrant on petitioner BPI only on 23 October 1992.
Consequently, the Assessment/Demand was invalid because it was issued
beyond the three (3) year period. In the same manner, Warrant of Distraint
Then again, petitioner BPI did not hear from the BIR until 11 September 1997,
and/or Levy which petitioner received thereafter is also null and void for having
been issued pursuant to an invalid assessment. when its counsel received a letter, dated 13 August 1997, signed by then BIR
Commissioner Liwayway Vinzons-Chato, denying its request for
The NIRC, under Sections 203 and 222, provides for a statute of limitations on reconsideration.
the assessment and collection of internal revenue taxes in order to safeguard
the interest of the taxpayer against unreasonable investigation. Unreasonable Petitioner BPI raised in its Petition for Review before the CTA, in addition to
investigation contemplates cases where the period for assessment extends
indefinitely because this deprives the taxpayer of the assurance that it will no the arguments presented in its protest letter, dated 16 November 1989, the
longer be subjected to further investigation for taxes after the expiration of a defense of prescription of the right of respondent BIR Commissioner to
reasonable period of time. enforce collection of the assessed amount. It alleged that respondent BIR
Commissioner only had three years to collect on Assessment No. FAS-5-85-89-
A waiver of the statute of limitations under the NIRC, to a certain extent, is a
derogation of the taxpayers’ right to security against prolonged and 002054, but she waited for seven years and nine months to deny the protest.
unscrupulous investigations and must therefore be carefully and strictly In her Answer and subsequent Memorandum, respondent BIR Commissioner
construed. The waiver of the statute of limitations is not a waiver of the right to merely reiterated her position, as stated in her letter to petitioner BPI, dated
invoke the defense of prescription as erroneously held by the Court of Appeals.
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 Taxation II Cayetano, De Peralta, Roble & Roxas
Case Digest
13 August 1997, which denied the latter’s protest; and remained silent as to request for reconsideration of Assessment No. FAS-5-85-89-002054, did not
the expiration of the prescriptive period for collection of the assessed make repeated requests or performed positive acts that could have persuaded
deficiency DST. the respondent BIR Commissioner to delay collection, and that would have
prevented or estopped petitioner BPI from setting up the defense of
Issue: Whether or not the right of respondent BIR Commissioner to collect prescription against collection of the tax assessed, as required in
from petitioner BPI the alleged deficiency DST for taxable year 1985 had the Suyoc case.
prescribed.
This is a simple case wherein respondent BIR Commissioner and other BIR
Ruling: Yes officials failed to act promptly in resolving and denying the request for
reconsideration filed by petitioner BPI and in enforcing collection on the
The statute of limitations on assessment and collection of taxes is for the protection of
assessment. They presented no reason or explanation as to why it took them
the taxpayer and, thus, shall be construed liberally in his favor.
almost eight years to address the protest of petitioner BPI. The statute on
Though the statute of limitations on assessment and collection of national limitations imposed by the Tax Code precisely intends to protect the taxpayer
internal revenue taxes benefits both the Government and the taxpayer, it from such prolonged and unreasonable assessment and investigation by the
principally intends to afford protection to the taxpayer against unreasonable BIR.
investigation. The indefinite extension of the period for assessment is
Considering that the right of the respondent BIR Commissioner to collect from
unreasonable because it deprives the said taxpayer of the assurance that he
petitioner BPI the deficiency DST in Assessment No. FAS-5-85-89-002054 had
will no longer be subjected to further investigation for taxes after the
already prescribed, then, there is no more need for this Court to make a
expiration of a reasonable period of time.
determination on the validity and correctness of the said Assessment for the
In order to provide even better protection to the taxpayer against latter would only be unenforceable.
unreasonable investigation, the Tax Code of 1977, as amended, identifies
____________________________________________________________________
specifically in Sections 223 and 224 thereof the circumstances when the
CIR v. PHOENIX ASSURANCE 14 SCRA 52
prescriptive periods for assessing and collecting taxes could be suspended or
interrupted. FACTS: Phoenix Assurance Co., Ltd., a foreign insurance corporation organized
under the laws of Great Britain, is licensed to do business in the Philippines with head
To give effect to the legislative intent, these provisions on the statute of office in London. On April 1, 1953, Phoenix Assurance Co., Ltd. filed its Philippine
limitations on assessment and collection of taxes shall be construed and income tax return for 1952, declaring therein a deduction from gross income as part of
the head office expenses incurred for its Philippine business.
applied liberally in favor of the taxpayer and strictly against the Government.
On August 30, 1955 it amended its income tax return for 1952 by excluding from its
The statute of limitations on collection may only be interrupted or suspended gross income the amount representing reinsurance premiums ceded to foreign
reinsurers and further eliminating deductions corresponding to the ceded premiums.
by a valid waiver executed in accordance with paragraph (d) of Section 223 of
The Commissioner of Internal Revenue disallowed a portion of the claimed deduction
the Tax Code of 1977, as amended, and the existence of the circumstances for head office expenses and assessed a deficiency tax on July 24, 1958.
enumerated in Section 224 of the same Code, which include a request for
On August 1, 1958 the Bureau of Internal Revenue released the assessment for
reinvestigation granted by the BIR Commissioner. deficiency income tax for the years 1952 and 1954 against Phoenix Assurance Co, Ltd.
which the latter protested. However, the Commissioner of Internal Revenue denied
Even when the request for reconsideration or reinvestigation is not such protest. Subsequently, Phoenix Assurance Co., Ltd. appealed to the Court of Tax
accompanied by a valid waiver or there is no request for reinvestigation that Appeals. The Court of Tax Appeals declared the right of the Commissioner of Internal
had been granted by the BIR Commissioner, the taxpayer may still be held in Revenue to assess deficiency income tax for 1952 to have prescribed.
estoppel and be prevented from setting up the defense of prescription of the ISSUE: WON the right of the Commissioner of Internal Revenue to assess
statute of limitations on collection when, by his own repeated requests or deficiency income tax has prescribed.
positive acts, the Government had been, for good reasons, persuaded to RULING: No.
postpone collection to make the taxpayer feel that the demand is not The Court of Tax Appeals found the right of the Commissioner of Internal Revenue
unreasonable or that no harassment or injustice is meant by the Government, barred by prescription, the same having been exercised more than five years from the
as laid down by this Court in the Suyoc case. date the original return was filed. On the other hand, the Commissioner of Internal
Revenue insists that his right to issue the assessment has not prescribed inasmuch as
the same was availed of before the 5year period provided for in Section 331 of the Tax
Applying the given rules to the present Petition, this Court finds that –
Code expired, counting the running of the period from August 30, 1955, the date when
the amended return was filed.
(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; The question is: Should the running of the prescriptive period commence from the
filing of the original or amended return?
and
The Court of Tax Appeals ruled that the original return was a complete return
(b) None of the conditions and requirements for exception from the statute of containing “information on various items of income and deduction from which
respondent may intelligently compute and determine the tax liability of petitioner,”
limitations on collection exists herein: Petitioner BPI did not execute any
hence, the prescriptive period should be counted from the filing of said original return.
waiver of the prescriptive period on collection as mandated by paragraph (d) On the other hand, the Commissioner of Internal Revenue maintains that:
of Section 223 of the Tax Code of 1977, as amended; the protest filed by
‘xxx the deficiency income tax in question could not possibly be determined, or
petitioner BPI was a request for reconsideration, not a request for assessed, on the basis of the original return filed on April 1, 1953, for considering that
reinvestigation that was granted by respondent BIR Commissioner which the declared loss amounted to P199,583.93, the mere disallowance of part of the head
could have suspended the prescriptive period for collection under Section 224 office expenses could not possibly result in said loss being completely wiped out and
Phoenix being liable to deficiency tax. Not until the amended return was filed on
of the Tax Code of 1977, as amended; and, petitioner BPI, other than filing a

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 Taxation II Cayetano, De Peralta, Roble & Roxas
Case Digest
August 30, 1955 could the Commissioner assess the deficiency income tax in Wyeth Suaco argued that it was not liable to pay withholding tax at source on
question.” the accrued royalties and dividends because they have yet to be remitted or
paid abroad. It claimed that it was not able to remit the balance of fifty percent
Accordingly, he would wish to press for the counting of the prescriptive period from
(50%) of the accrued royalties to its foreign licensors because of Central Bank
the filing of the amended return.
Circular No. 289 allowing remittance of royalties up to fifty percent (50%) only.
To our mind, the Commissioner’s view should be sustained. The changes and With regard to what the Bureau of Internal Revenue claimed as the amount of
alterations embodied in the amended income tax return consisted of the exclusion of P2,952,391.00 forming part of the cash dividends declared in 1973, Wyeth
reinsurance premiums received from domestic insurance companies by Phoenix Suaco alleged that the same was due its foreign stockholders. Again, Wyeth
Assurance Co., Ltd.’s London head office, reinsurance premiums ceded to foreign Suaco was not able to remit these dividends because of the restriction of the
reinsurers not doing business in the Philippines and various items of deduction Central Bank in a memorandum implementing CB Circular No. 289 dated
attributable to such excluded reinsurance premiums thereby substantially modifying February 21, 1970. Thus, Wyeth Suaco's contention was that a withholding tax
the original return. Furthermore, although the deduction for head office expenses at source on royalties and dividends becomes due and payable only upon their
allocable to Philippine business, whose disallowance gave rise to the deficiency tax, actual payment or remittance.
was claimed also in the original return, the Commissioner could not have possibly
On the matter of the withholding tax at source on remuneration for technical
determined a deficiency tax thereunder because Phoenix Assurance Co., Ltd. declared
services, Wyeth Suaco insisted that it was up-to-date in remitting the
a loss of P199,583.93 therein which would have more than offset such disallowance
corresponding withholding tax on this income to the Bureau of Internal
of P15,826.35.
Revenue.
Considering that the deficiency assessment was based on the amended return which,
As to the assessed deficiency sales tax, Wyeth Suaco maintained that the
as aforestated, is substantially different from the original return, the period of
difference between its landed cost figure (which is the basis for computing the
limitation of the right to issue the same should be counted from the filing of the
advancesales tax) and that of the revenue examiner, was due to the use of
amended income tax return. From August 30, 1955, when the amended return was
estimated amounts by the Bureau of Customs and to foreign exchange
filed, to July 24, 1958, when the deficiency assessment was issued, less than five years
differential.
elapsed. The right of the Commissioner to assess the deficiency tax on such amended
return has not prescribed. Wyeth Suaco however, admitted liability with respect to the short payment of
advance sales tax in the amount of P1,000.00 on its importation of "Mega
_________________________________________________________________ Polymycin D."5
G.R. No. 76281 September 30, 1991 On September 12, 1975, the Commissioner of Internal Revenue asked Wyeth
COMMISSIONER OF INTERNAL REVENUE vs. WYETH SUACO Suaco to avail itself of the compromise settlement under LOI 308. In its
LABORATORIES, INC. and THE COURT OF TAX APPEALS answer, Wyeth Suaco manifested its conformity to a 10% compromise
provided it be applied only to the basic sales tax, excluding surcharge and
Facts: interest. As to the deficiency withholding tax at source, Wyeth took exception
The sole issue in this petition for review on certiorari is whether or not on the ground that it involves purely a legal question and some of the amounts
petitioner's right to collect deficiency withholding tax at source and sales tax included in the assessment have already bee paid.
liabilities from private respondent is barred by prescription. On December 10, 1979, petitioner, thru then acting Commissioner of Internal
Private respondent Wyeth Suaco Laboratories, Inc. (Wyeth Suaco for brevity) Revenue Ruben B. Ancheta, rendered a decision reducing the assessment of
is a domestic corporation engaged in the manufacture and sale of assorted the withholding tax at source for 1973 to P1,973,112.86. However, the amount
pharmaceutical and nutritional products. Its accounting period is on a fiscal of P61,155.21 as deficiency sales tax remained the same.6
year basis ending October 31 of every year. Thereafter, Wyeth Suaco filed a petition for review in Court of Tax Appeals on
By virtue of Letter of Authority No. 52415 dated June 17, 1974 issued by then January 18, 1980, praying that lpeti tioner be enjoined from enforcing the
Commissioner of Internal Revenue Misael P. Vera, Revenue Examiner Dante assessments by reason of prescription and that the assessments be declared
Kabigting conducted an investigation and examination of the books of null and void for lack of legal and factual basis.7
accounts of Wyeth Suaco.1 On October 15, 1974, he submitted a report CTA: Rendered a decision enjoining the Commissioner of Internal Revenue
containing the result of his investigation. The report disclosed that Wyeth from collecting the deficiency taxes, the dispositive portion of which reads as
Suaco was paying royalties to its foreign licensors as well as remuneration for follows.
technical services to Wyeth International Laboratories of London. Wyeth
Suaco was also found to have declared cash dividends on September 27, The basis of the above decision was the finding of the Tax Court that while the
1973 and these were paid on October 31, 1973. However, it allegedly failed to assessments for the deficiency taxes were made within the five-year period of
remit withholding tax at source for the fourth (4th) quarter of 1973 on accrued limitation, the right of petitioner to collect the same has already prescribed, in
royalties, remuneration for technical services and cash dividends, resulting in accordance with Section 319 (c) of the Tax Code of 1977. The said law
a deficiency withholding tax at source in the aggregate amount of provides that an assessment of any internal revenue tax within the five-year
P3,178,994.15.2 period of limitation may be collected by distraint or levy or by a proceeding in
court, but only if begun within five (5) years after the assessment of the tax.
Moreover, it was reported that during the periods from November 1, 1972 to
December 31, 1972 and January 1, 1973 to October 31, 1973, Wyeth Suaco Issue:
deducted the cost of non-deductible raw materials, resulting in its alleged W/N the collection of the deficiency taxes is barred by prescription. No.
failure to pay the correct amount of advance sales tax. There was reportedly
also a short payment of advance sales tax in its importation of "Mega Ruling:
Polymycin D" on October 3, 1972. All these resulted in a deficiency sales tax
The applicable laws in the instant case are Sections 318 and 319 (c) of the
in the amount of P60,855.21 and compromise penalty in the amount of
National Internal Revenue Code of 1977 (now Sections 203 and 224 of the
P300.00 or a total amount of P61,155.21.3
National Internal Revenue Code of 1986), to wit:
Consequently, the Bureau of Internal Revenue assessed Wyeth Suaco on the
SEC. 318. Period of limitation upon assessment and collection —
aforesaid tax liabilities in two (2) notices dated December 16, 1974 and
Except as provided in the succeeding section, internal revenue
December 17, 1974. These assessment notices were both received by Wyeth
taxes shall be assessed within five years after the return was filed,
Suaco on December 19, 1974.4
and no proceeding in court without assessment for the collection of
Thereafter, Wyeth Suaco through its tax consultant SGV &Co., sent the such taxes shall be begun after the expiration of such period. ...
Bureau of Intemal Revenue two (2) letters dated January 17, 1975 and
SEC. 319. Exceptions as to period of limitations of assessment and
February 8, 1975, protesting the assessments and requesting their
collection of taxes. —
cancellation or withdrawal on the ground that said assessments lacked factual
or legal basis. xxx xxx xxx

Page 16 of 23
 Taxation II Cayetano, De Peralta, Roble & Roxas
Case Digest
(c) Where the assessment of any internal revenue tax has been Suaco protested the assessments and sought its reconsideration in two (2)
made within the period of limitation above-prescribed such tax may letters received by the Bureau of Internal Revenue on January 20 and
be collected by distraint or levy by a proceeding in court, but only if February 10, 1975, the prescriptive period was interrupted. This period started
begun (1) within five years after the assessment of the tax, or (2) to run again when the Bureau of Internal Revenue served the final assessment
prior the expiration of any period for collection agreed upon in writing to Wyeth Suaco on January 2, 1980. Since the warrants of distraint and levy
by the Commissioner and the taxpayer before the expiration of such were served on Wyeth Suaco on March 12, 1980, then, only about four (4)
five-year period. The period so agreed upon may be extended by months of the five-year prescriptive period was used.
subsequent agreements in writing made before the expiration of the
_____________________________________________________________
period previously agreed upon. (emphasis supplied)
G.R. No. L-22734 September 15, 1967
The main thrust of petitioner for the allowance of this petition is that the five-
year prescriptive period provided by law to mak a collection by distraint or levy COMMISSIONER OF INTERNAL REVENUE, petitioner,
or by a proceeding in court has not yet prescribed. Although he admits that vs.
more than five (5) years have already lapsed from the time the assessment MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO
notices were received by private respondent on December 19, 1974 up to the PINEDA, respondent.
time the warrants of distraint and levy were served on March 12, 1980, he
avers that the running of the prescriptive period was stayed or interrupted Facts: On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima
when Wyeth Suaco protested the assessments. Petitioner argues that the Bagtas, and 15 children, the eldest of whom is Manuel B. Pineda, a lawyer.
protest letters sent by SGV & Co. in behalf of Wyeth Suaco dated January 17, Estate proceedings were had wherein the surviving widow was appointed
1975 and February 8, 1975, requesting for withdrawal and cancellation of the administratrix. The estate was divided among and awarded to the heirs and
assessments were actually requests for reinvestigation or reconsideration, the proceedings terminated on June 8, 1948. Manuel B. Pineda's share
which could interrupt the running of the five-year prescriptive period. amounted to about P2,500.00.

Wyeth Suaco, on the other hand, maintains the position that it never asked for After the estate proceedings were closed, the Bureau of Internal Revenue
a reinvestigation nor reconsideration of th assessments. What it requested investigated the income tax liability of the estate for the years 1945, 1946, 1947
was the cancellation and with drawal of the assessments for lack of legal and and 1948 and it found that the corresponding income tax returns were not filed.
factual basis. Thus, its protest letters dated January 17, 1975 and February 8, Collector of Internal Revenue filed said returns for the estate on the basis of
1975 did not suspend or interrupt the running of the five-year prescriptive the information.
period. Manuel B. Pineda, who received the assessment, contested the same.
Settled is the rule that the prescriptive period provided by law to make a Subsequently, he appealed to the Court of Tax Appeals alleging that he was
collection by distraint or levy or by a proceeding in court is interrupted once a appealing "only that proportionate part or portion pertaining to him as one of
taxpayer requests for reinvestigation or reconsideration of the assessment. I the heirs."

In another case, this Court stated that the statutory period of limitation for CTA – reversed the decision of the Commissioner on the ground that his right
collection may be interrupted if by the taxpayer's repeated requests or positive to assess and collect the tax has prescribed.
acts the Government has been, for good reasons, persuaded to postpone The Commissioner appealed and this Court affirmed the findings of the Tax
collection to make him feel that the demand was not unreasonable or that no Court in respect to the assessment for income tax for the year 1947 but held
harassment or injustice is meant by the Goverrument.13 that the right to assess and collect the taxes for 1945 and 1946 has not
Thus, the pivotal issue in this case is whether or not Wyeth Suaco sought prescribed.
reinvestigation or reconsideration of the deficiency tax assessments issued by The Court of Tax Appeals rendered judgment holding Manuel B. Pineda liable
the Bureau of Internal Revenue. for the payment corresponding to his share.
After carefully examining the records of the case, we find that Wyeth Suaco Manuel B. Pineda opposes the proposition on the ground that as an heir he is
admitted that it was seeking reconsideration of the tax assessments as shown liable for unpaid income tax due the estate only up to the extent of and in
in a letter of James A. Gump, its President and General Manager, dated April proportion to any share he received.
28, 1975 x x x.
Issue: Whether or not the Government can require Manuel B. Pineda to pay
Furthermore, when Wyeth Suaco thru its tax consultant SGV & Co. sent the the full amount of the taxes assessed
letters protesting the assessments, the Bureau of Internal Revenue,
Manufacturing Audit Division, conducted a review and reinvestigation of the Ruling: Yes.
assessments. This fact was admitted by Wyeth Suaco thru its Finance Pineda is liable for the assessment as an heir and as a holder-transferee of
Manager in a letter dated July 1, 1975 addressed to the Chief, Tax Accounts property belonging to the estate/taxpayer. As an heir he is individually
Division. The pertinent portion of said letter reads as follows:x x x answerable for the part of the tax proportionate to the share he received from
Although the protest letters prepared by SGV & Co. in behalf of private the inheritance.3 His liability, however, cannot exceed the amount of his
respondent did not categorically state or use th words "reinvestigation" and share.4
"reconsideration," the same are to be treated as letters of reinvestigation and As a holder of property belonging to the estate, Pineda is liable for he tax up
reconsideration. By virtue of these letters, the Bureau of Internal Revenue to the amount of the property in his possession. The reason is that the
ordered its Manufacturing Audit Division to review the assessment made. Government has a lien on the P2,500.00 received by him from the estate as
Furthermore, private respondent's claim that it did not seek reinvestigation or his share in the inheritance, for unpaid income taxes4a for which said estate is
reconsideration of the assessments is belied by the subsequent liable, pursuant to the last paragraph of Section 315 of the Tax Code.
correspondence or letters written by its officers, as shown above.
By virtue of such lien, the Government has the right to subject the property in
These letters of Wyeth Suaco interrupted the running of the five-year Pineda's possession, i.e., the P2,500.00, to satisfy the income tax assessment
prescriptive period to collect the deficiency taxes. The Bureau of Internal in the sum of P760.28. After such payment, Pineda will have a right of
Revenue, after having reviewed the record of Wyeth Suaco, in accordance contribution from his co-heirs,5 to achieve an adjustment of the proper share
with its request for reinvestigation, rendered a final assessment. This final of each heir in the distributable estate.
assessment issue by then Acting Commissioner Ruben B. Ancheta was date
December 10, 1979 and received by private respondent on January 2, 1980, All told, the Government has two ways of collecting the tax in question. One,
fixed its tax liability at P1,973,112.86 as deficiency withholding tax at source by going after all the heirs and collecting from each one of them the amount of
and P61,155.21 as deficiency sales tax. It was only upon receipt by Wyeth the tax proportionate to the inheritance received. This remedy was adopted
Suaco of this final assessment that the five-year prescriptive period started to in Government of the Philippine Islands v. Pamintuan, supra. In said case, the
run again. Government filed an action against all the heirs for the collection of the tax.
This action rests on the concept that hereditary property consists only of that
Verily, the original assessments dated December 16 and 17, 1974 were both part which remains after the settlement of all lawful claims against the estate,
received by Wyeth Suaco on December 19, 1974. However, when Wyeth for the settlement of which the entire estate is first liable.6 The reason why in
Page 17 of 23
 Taxation II Cayetano, De Peralta, Roble & Roxas
Case Digest
case suit is filed against all the heirs the tax due from the estate is levied Court had already laid down the dictum that the Commissioner should
proportionately against them is to achieve thereby two results: first, payment always indicate to the taxpayer in clear and unequivocal language what
of the tax; and second, adjustment of the shares of each heir in the distributed
estate as lessened by the tax. constitutes his final determination of the disputed assessment.

Another remedy, pursuant to the lien created by Section 315 of the Tax Code Specifically, this Court ruled:
upon all property and rights to property belonging to the taxpayer for unpaid
income tax, is by subjecting said property of the estate which is in the hands . . . we deem it appropriate to state that the Commissioner of Internal Revenue
of an heir or transferee to the payment of the tax due, the estate. This second
remedy is the very avenue the Government took in this case to collect the tax. should always indicate to the taxpayer in clear and unequivocal language
The Bureau of Internal Revenue should be given, in instances like the case at whenever his action on an assessment questioned by a taxpayer constitutes his
bar, the necessary discretion to avail itself of the most expeditious way to final determination on the disputed assessment, as contemplated by sections
collect the tax as may be envisioned in the particular provision of the Tax Code 7 and 11 of Republic Act 1125, as amended. On the basis of this statement
above quoted, because taxes are the lifeblood of government and their prompt
and certain availability is an imperious need.7 And as afore-stated in this case indubitably showing that the Commissioner's communicated action is his final
the suit seeks to achieve only one objective: payment of the tax. The decision on the contested assessment, the aggrieved taxpayer would then be
adjustment of the respective shares due to the heirs from the inheritance, as able to take recourse to the tax court at the opportune time. Without needless
lessened by the tax, is left to await the suit for contribution by the heir from
difficulty, the taxpayer would be able to determine when his right to appeal
whom the Government recovered said tax.
to the tax court accrues. This rule of conduct would also obviate all desire and
_____________________________________________________________
opportunity on the part of the taxpayer to continually delay the finality of the
assessment — and, consequently, the collection of the amount demanded as
taxes — by repeated requests for recomputation and reconsideration. On the
part of the Commissioner, this would encourage his office to conduct a careful
G.R. No. L-66160 May 21, 1990 and thorough study of every questioned assessment and render a correct and
definite decision thereon in the first instance. This would also deter the
COMMISSIONER OF INTERNAL REVENUE, petitioner, Commissioner from unfairly making the taxpayer grope in the dark and
vs. UNION SHIPPING CORPORATION and THE COURT OF TAX speculate as to which action constitutes the decision appealable to the tax
APPEALS, respondents. court. Of greater import, this rule of conduct would meet a pressing need for
fair play, regularity, and orderliness in administrative action. (Surigao Electric
Facts: Co., Inc. v. C.T.A., 57 SCRA 523, 528, [1974]).

In a letter dated December 27, 1974, herein petitioner Commissioner of There appears to be no dispute that petitioner did not rule on private
Internal Revenue assessed against Yee Fong Hong, Ltd. and/or herein private respondent's motion for reconsideration but contrary to the above ruling of
respondent Union Shipping Corporation, the total sum of P583,155.22 as this Court, left private respondent in the dark as to which action of the
deficiency income taxes due for the years 1971 and 1972. Said letter was Commissioner is the decision appealable to the Court of Tax Appeals. Had he
received on January 4, 1975, and in a letter dated January 10, 1975 (Exhibit "B"), categorically stated that he denies private respondent's motion for
received by petitioner on January 13, 1975, private respondent protested the reconsideration and that his action constitutes his final determination on the
assessment. disputed assessment, private respondent without needless difficulty would
have been able to determine when his right to appeal accrues and the resulting
Petitioner, without ruling on the protest, issued a Warrant of Distraint and
confusion would have been avoided.
Levy. In a letter, private respondent reiterated its request for reinvestigation.
Petitioner, again, without acting on the request for reinvestigation and Under the circumstances, the Commissioner of Internal Revenue, not having
reconsideration of the Warrant of Distraint and Levy, filed a collection suit clearly signified his final action on the disputed assessment, legally the period
against private respondent. to appeal has not commenced to run. Thus, it was only when private
respondent received the summons on the civil suit for collection of deficiency
In 1979, private respondent filed with respondent court a Petition for Review.
income on December 28, 1978 that the period to appeal commenced to run.
The CTA ruled in favor of private respondent. Hence, this is a petition for
review on certiorari. ____________________________________________________________________
YABES v. FLOJO 115 SCRA 278
Petitioner contends that the warrant of distraint and levy was issued after
respondent corporation filed a request for reconsideration of subject FACTS: Doroteo Yabes, for some time was an exclusive dealer of products of the
assessment, thus constituting petitioner's final decision in the disputed International Harvester Macleod, Inc.
assessments. He received a letter from the Commissioner of Internal Revenue demanding payment
as commercial broker's fixed and percentage taxes plus surcharges and the sum of
Petitioner argues therefore that the period to appeal to the Court of Tax P2,530 as compromise penalty.
Appeals commenced to run from receipt of said warrant on November 25, Yabes, through his counsel, filed with the Commissioner's Office his letter protesting
1976, so that on January 10, 1979 when respondent corporation sought redress the assessment on the ground that his agreements with International Harvester
from the Tax Court, petitioner's decision has long become final and executory. Macleod, Inc. were of purchase and sale, and not of agency. He requested for
reinvestigation or review of the case. In reply, the Commissioner informed Doroteo
Yabes in a letter dated September 18, 1962, that the latter's request for reinvestigation
Issue: Whether or not the issuance of a warrant of distraint and levy is proof
was denied.
of the finality of an assessment and is tantamount to an outright denial of a
motion for reconsideration of an assessment. The Commissioner wrote a letter advising Doroteo Yabes that "the administrative
appeal x x x will be held in abeyance pending the resolution of the issues in a similar
case. The lawyers of Doroteo Yabes agreed to file, and their client, Doroteo Yabes did
Ruling:
file a tax waiver on October 20, 1962, extending the period of prescription.
Page 18 of 23
 Taxation II Cayetano, De Peralta, Roble & Roxas
Case Digest
Doroteo Yabes died on March 13, 1963 and no estate proceedings were instituted. His to the Court of Industrial Relations. After six years, the said Court issued an
widow also died during the pendency of the case; the petitioners are the children of order on November 8, 1962 directing petitioner company to reinstate the
the deceased taxpayer. members of respondent union. On March 12, 1963 some 88 union members
were thus reinstated by petitioner. However, petitioner discriminated against
After a lapse of about five years, the heirs of the deceased Doroteo Yabes, through
the reemployed workers with respect to wage rates, off-season pay, cost of
their lawyers, received on August 4, 1967, a letter from the Commissioner requesting
living allowance, milling bonus and Christmas bonus by depriving them of
that they "waive anew the Statute of Limitations" and further confirming the previous
aforesaid benefits or by granting to some members benefits lesser than those
understanding that the final resolution of the protest of the deceased Doroteo Yabes
given to members of the Pasudeco Workers Union, another labor group in the
was "being held in abeyance until the Supreme Court renders its decision on a similar
service of petitioner. By reason of such denial and/or grant of lower benefits to
case involving the same factual and legal issues brought to it on appeal".
respondent's members because of their union affiliation and union activities,
The heirs of Doroteo Yabes filed a revised waiver but no word was received by the respondent filed with the CIR a complaint dated September 10, 1964 for unfair
petitioners or their lawyers during the interim of more than three (3) years, but on labor practice against petitioner.
January 20, 1971, petitioners as heirs of the deceased Doroteo Yabes received the
CIR: Handed down a decision adjudging herein petitioner guilty of unfair labor
summons and a copy of the complaint filed by the Commissioner's with the Court of
practice acts as charged and finding the same to have been committed, and
First Instance of Cagayan which seeks to collect from the petitioners the sum of
thereby directing petitioner to cease and desist from further committing the
money.
said unfair labor practice acts and directing petitioner to pay wage differentials
Taking the complaint as the final decision of the Commissioner on the disputed to certain workers and fringe benefits as would be found due and payable to
assessment against the deceased taxpayer Doroteo Yabes, petitioners filed on February them and to readmitted seasonal and casual members of respondent union
12, 1971, a petition for review of said disputed assessment with the Court of Tax totalling 88 with the exception of 7 workers.
Appeals. The Commissioner filed a motion to dismiss on the ground that the
With the finality of the December 4, 1972 decision having been settled,
assessment against Doroteo Yabes had already become final, executory and
respondent Union filed with the CIR a motion for computation of final judgment
incontestable.
and a petition for attorney's lien both dated October 17, 1973 (pp. 47 & 50,
ISSUE: WON respondent Court of First Instance can lawfully acquire jurisdiction rec.).
over a contested assessment made by the Commissioner of Internal Revenue against
Petitioner company filed its answer to motion for computation of final judgment
the deceased taxpayer Doroteo Yabes, which has not yet become final, executory and
and the petition for attorney's lien under date of November 20, 1973 (p. 52,
incontestable, and which assessment is being contested by petitioners in the Court of
rec.).
Tax Appeals, Case No. 2216, and still pending consideration.
The CIR, acting on the aforesaid motions of respondent Union, issued its order
RULING: No.
of June 6, 1974 approving and granting to respondent's counsel, Atty. Ignacio
In a letter of July 27, 1967, respondent informed petitioners that a resolution of their Lacsina, attorney's fees equivalent to 20% of the total amount of final judgment
protest was being held in abeyance until the Supreme Court renders a decision on a or whatever recovery or settlement is made and directing its Examining
similar case Division to compute the wage and fringe benefits differentials due the 28
individual workers who did not waive or quitclaim their rights established by
Respondent also informed petitioners' counsel that 'administrative appeal for and in the decision of December 4, 1972 as well as the attorney's fees equivalent to
behalf of their clients will be held in abeyance pending resolution of the issues on a 20% of the total wage and fringe benefits differentials due the fifty-three (53)
similar case which was appealed by you to the Court of Tax Appeals'. individual workers who executed agreements with the company waiving and
It is clear in these letters that respondent reconsidered the finality of his decision of quitclaiming their rights, benefits and privileges under the aforesaid decision
August 3, 1962, assuming arguendo that the letter had a tenor of finality. (pp. 15 & 57, rec.).
There is no reason for the SC to disagree from or reverse the Court of Tax Appeals' Petitioner moved for reconsideration of aforecited order on June 26, 1974 and
conclusion that under the circumstances of this case, what may be considered as final on July 5, 1974, the arguments supporting said motion for reconsideration
decision or assessment of the Commissioner is the filing of the complaint for collection followed.
in the respondent Court of First Instance of Cagayan. Respondent Union then filed its motion to strike out the motion for
Summons were served on petitioners on January 20, 1971, therefore the appeal with reconsideration dated July 23, 1974 (p. 72, rec.). In a resolution of September
the Court of Tax Appeals in CTA Case No. 2216 was filed on time. 3, 1974, respondent lower court denied petitioner's motion for reconsideration.
Court of First Instance of Cagayan can only acquire jurisdiction over this case filed Petitioner alleges the following assignment of errors:
against the heirs of the taxpayer if the assessment made by the Commissioner of 1. The Court of Industrial Relations erred in awarding attorney's fees to the
Internal Revenue had become final and incontestable. union's counsel equivalent to 20% of the total amount of final judgment or
The Court of Tax Appeals has exclusive appellate jurisdiction to review on appeal any whatever recovery or settlement is made thereunder; because, aside from
decision of the Collector of Internal Revenue in cases involving disputed assessments being inequitable, exorbitant, excessive and unconscionable, the same is
and other matters arising under the National Internal Revenue Code. without legal basis.
For want of jurisdiction over the case, the Court of First Instance of Cagayan should 2. The Court of Industrial Relations erred in ordering the Chief of its examining
have dismissed the complaint filed in Civil Case No. II-7. division or his duly authorized representative to examine the payrolls,
vouchers, books of account and other pertinent documents of petitioner, and
Absent jurisdiction over the case, it would be improper for the to compute the wage and fringe-benefits differentials allegedly due the
Court of First Instance of Cagayan to take cognizance over the case and act upon members of respondent Union because such examination and computation
interlocutory matters of the case, as well. have become academic.

The dismissal of the complaint, however, is not sufficient. The ends of justice would 3. The Court of Industrial Relations erred in not denying or dismissing the two
best be served by considering the complaint filed in Civil Case No. II-7 not only as a motions filed by respondent union on October 18, 1973 praying therein that
final notice of assessment but also as a counterclaim in CTA Case No. 2216 in order the union's counsel be awarded attorney's fees and that an order be issued
to avoid multiplicity of suits... to expedite the settlement of the controversy. directing the examining division of the court to compute the wage and fringe
benefits differentials allegedly due the members of the union under the
________________________________________________________________G.R. decision of December 4, 1972.
No. L-39387 June 29, 1982
Issue:
PAMPANGA SUGAR DEVELOPMENT CO., INC. vs. COURT OF
INDUSTRIAL RELATIONS AND SUGAR WORKERS ASSOCIATION W/N the award of attorney’s fee is valid. Yes.

Facts: W/N the quitclaim is valid. No.

In February, 1956, the workers' affiliates of respondent Union staged a strike Ruling:
against petitioner company. This labor dispute was certified by the President
Page 19 of 23
 Taxation II Cayetano, De Peralta, Roble & Roxas
Case Digest
Nevertheless, this Court finds the allegations to be devoid of merit. Petitioner's records show that the lower court qualified its statement to the effect that the
contention that there is no basis for respondent's petition for attorney's lien waiver must not be contrary to law, public order, public policy, morals or good
filed with the trial court containing allegations relative to attorney's fees as customs, or prejudicial to a third person with a right recognized by law citing
agreed upon between him and his client, the complainant Sugar Workers' Article 6 of the New Civil Code. This attempt by petitioner casts a serious doubt
Association, is untenable. The written conformity of the President of said Sugar on the integrity and good faith not only of the petitioner but also of its counsel.
Workers Association on behalf thereof confirms the existence of such an
This Court rejects the allegation of petitioner to the effect that the 53
agreement on attorney's fees and constitutes an irrefutable evidence of such
agreements gave substance to the policy of the Industrial Peace Act of
agreement. The trial court, therefore, had sufficient evidence upon which it
encouraging the parties to make all reasonable efforts to settle their
based its decision. The petitioner did not contest the allegations contained in
differences by mutual agreement, citing the case of Filomena Dionela, et al.
the respondent's petition for attorney's lien before the trial court. This
vs. CIR, et al. (L-18334, August 31, 1963).
constitutes an implied admission thereof. Moreover, it is evident from the tenor
of the trial court's order issued on June 6, 1974 that the said court carefully Petitioner's contention and the case cited in support thereof apply only where
evaluated the respondent's petition for attorney's lien and even reduced the there is good faith on the part of the party litigants. In the case at bar, petitioner
percentage from 25 IC to 20 %. acted with evident bad faith and malice. Petitioner secured the 53 quitclaim
agreements individually with the 53 sugar workers without the intervention of
Be that as it may, the allegations of petitioner to the effect that by reason of
respondent's lawyer who was representing them before the lower court. This
the quitclaims there is nothing upon which the attorney's lien attaches, is not
subterfuge is tantamount to a sabotage of the interest of respondent
valid. This Court finds the quitclaims not valid. Firstly, said quitclaims were
association. Needless to say, the means employed by petitioner in dealing with
secured on December 27, 1972 by petitioner after it lost its case in the lower
the workers individually, instead of collectively through respondent and its
court when the latter promulgated its decision on the case on December 4,
counsel, violates good morals as they undermine the unity of respondent union
1972. Obviously in its desire to deny what is due the sugar workers concerned
and fuels industrial disputes, contrary to the declared policy in the Industrial
and frustrate the decision of the lower court awarding benefits to them, it used
Peace Act.
its moral ascendancy as employer over said workers to secure said quitclaims.
Predicated on said quitclaims, petitioner filed a petition for certiorari before this This Court likewise rejects petitioner's allegation that the 53 quitclaim
Court but the same was denied by the Court on July 31, 1973 and October 4, agreements were in the nature of a compromise citing the case of Republic vs.
1973. Petitioner now has the audacity to return before this Court still invoking Estenzo, et al., (L-24656, September 25, 1968, 25 SCRA 122) and Articles
said quitclaims, which We again reject. 2028 and 2040 of the New Civil Code.
Secondly, while rights may be waived, the same must not be contrary to law, Petitioner's allegations and citations apply only to compromises between the
public order, public policy, morals or good customs or prejudicial to a third party-litigants done in good faith. In the case at bar, there was no compromise
person with a right recognized by law (Art. 6, New Civil Code). between the petitioner and the respondent Sugar Workers Association. In
respect of the 53 quitclaims, these are not compromise agreements between
Needless to state, the foregoing provisions are contrary to law, It exempts the
the petitioner and respondent union. They are separate documents of
petitioner from any legal liability. The above- quoted provision renders the
renunciation of individual rights. Compromise involves the mutual renunciation
quitclaim agreements void ab initio in their entirety since they obligated the
of rights by both parties on a parity basis. The quitclaims, however, bind the
workers concerned to forego their benefits, while at the same time, exempted
workers to renounce their rights while the petitioner not only does not renounce
the petitioner from any liability that it may choose to reject. This runs counter
anything but also acquires exemption from any legal liability in connection
to Article 22 of the New Civil Code which provides that no one shall be unjustly
therewith.
enriched at the expense of another.
_____________________________________________________________
Thirdly, the alleged quitclaim agreements are contrary to public policy. Once a
civil action is filed in court, the cause of action may not be the subject of
compromise unless the same is by leave of the court concerned. Otherwise,
this will render the entire judicial system irrelevant to the prejudice of the
national interest. Parties to litigations cannot be allowed to trifle with the judicial G.R. No. L-41919-24 May 30, 1980
system by coming to court and later on agreeing to a compromise without the
knowledge and approval of the court. This converts the judiciary into a mere QUIRICO P. UNGAB, petitioner,
tool of party-litigants who act according to their whims and caprices. This is vs.
more so when the court has already rendered its decision on the issues HON. VICENTE N. CUSI, JR., in his capacity as Judge of the Court of First
submitted. Instance, Branch 1, 16TH Judicial District, Davao City, THE
COMMISSIONER OF INTERNAL REVENUE, and JESUS N. ACEBES, in
In the case at bar, the lower court has already rendered a decision on the his capacity as State Prosecutor, respondents.
issues presented before the alleged quitclaims agreements were made. The
quitclaim agreements were secured by petitioner while it filed a petition for
certiorari before this Court for a review of the lower court's decision. The Facts:
quiclaim agreements taken together with the petitioner's petition for certiorari Sometime in July, 1974, BIR Examiner Ben Garcia examined the income tax
of the trial court's decision clearly and unmistakably shows the bad faith of the returns filed by the herein petitioner, Quirico P. Ungab, for the calendar year
petitioner and its outright refusal to comply with its legal obligations. And now ending December 31, 1973. In the course of his examination, he discovered
it has the temerity to attempt to use this Court as its instrument for the purpose. that the petitioner failed to report his income derived from sales of banana
This Court rejects the contention of petitioner to the effect that the lien of an saplings. As a result, the BIR District Revenue Officer at Davao City sent a
attorney on the judgment or decree for the payment of money and the "Notice of Taxpayer" to the petitioner informing him that there is due from him
preference thereof which he has secured in favor of his client takes legal effect (petitioner) the amount of P104,980.81, representing income, business tax and
only from and after, but not before notice of said lien has been entered in the forest charges for the year 1973.
record and served on the adverse party, citing the cases of Menzi and Co. vs. Upon receipt of the notice, the petitioner wrote the BIR District Revenue Officer
Bastida (63 Phil. 16) and Macondray & Co. vs. Jose (66 Phil. 590) in support protesting the assessment, claiming that he was only a dealer or agent on
thereof. commission basis in the banana sapling business and that his income, as
This Court finds the petitioner's contentions and citations applicable only when reported in his income tax returns for the said year, was accurately stated. BIR
the case has already been decided with finality. In the case at bar, the original Examiner Ben Garcia submitted a "Fraud Referral Report," to the Tax Fraud
case was decided with finality only after this Court denied the petitioner's Unit of the Bureau of Internal Revenue.
motion for reconsideration of this Court's denial of its petition for certiorari on Special Investigation Division of the Bureau of Internal Revenue found
the lower court's decision. sufficient proof that the herein petitioner is guilty of tax evasion for the taxable
This Court is appalled by the attempt of petitioner to mislead it by alleging that year 1973 and recommended his prosecution.
the lower court recognized the validity and effectivity of the 53 individual Six (6) informations were filed against the petitioner with the Court of First
agreements when it declared allegedly that "rights may be waived. " The Instance of Davao City.
Page 20 of 23
 Taxation II Cayetano, De Peralta, Roble & Roxas
Case Digest
Petitioner filed a motion to quash the informations upon the grounds that: (1) During the investigation, the appellant could not produce to examiner Robles,
the informations are null and void for want of authority on the part of the State all the pertinent vouchers, sales invoices and other accounting records for the
Prosecutor to initiate and prosecute the said cases; and (2) the trial court has
no jurisdiction to take cognizance of the above-entitled cases in view of his Purpose) of verifying the correctness of the returns. In view of the inability of
pending protest against the assessment made by the BIR Examiner. the appellant to produce said books and records, examiner Robles resorted to
Issues: the so-called "percentage basis" of computing net income. Under this method,
net income was computed by the use of an average percentage method based
(1) Whether or not the State Prosecutor has authority to prosecute said
cases on the returns of taxpayers engaged in the same line of business.

(2) Whether or not the filing of the cases is premature since the CIR has On the basis of the reports of examiner Robles, the Collector of Internal
not yet resolved his protests against the assessment of the Revenue
Revenue made a formal demand dated December 23, 1950, on the accused for
District Officer; and that he was denied recourse to the Court of Tax
Appeals. the payment of his deficiency income taxes for 1946, 1947 and 1949, including
surcharges thereon, in the respective sums of P30,632.51 P376,303.16, and
Ruling:
P60,205.80, and asked him to show cause why he should not be prosecuted for
(1) Yes.
his failure to preserve his books of accounts, vouchers and invoices, for a
The respondent State Prosecutor, although believing that he can proceed period of five years from the date of the last entry therein. The Collector found
independently of the City Fiscal in the investigation and prosecution of these
that the income tax returns should have stated that his income was P93,886.55,
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 P621,072.80 and P359,310.18 for the years 1946, 1947 and 1949.
being shown Administrative Order No. 116, dated December 5, 1974,
designating the said State Prosecutor to assist all Provincial and City fiscals On December 29, 1950, Income Tax Assessment Notices were sent to the
throughout the Philippines in the investigation and prosecution of all violations appellant, giving him up to January 29, 1951 to pay the aforementioned
of the National Internal Revenue Code, as amended, and other related laws, deficiency income taxes plus surcharges. Appellant protested against the
graciously allowed the respondent State Prosecutor to conduct the
investigation of said cases, and in fact, said investigation was conducted in the assessments. On February 26, 1951, the Collector of Internal Revenue
office of the City Fiscal. 13 reiterated the demand for payment by the appellant. Up to now, nothing was
(2) No. paid by, the appellant on account of the above claims of the government.

What is involved here is not the collection of taxes where the assessment of Appellant urges in his appeal the following propositions:
the Commissioner of Internal Revenue may be reviewed by the Court of Tax
Appeals, but a criminal prosecution for violations of the National Internal 1. The actions against appellant had already prescribed
Revenue Code which is within the cognizance of courts of first instance. While
there can be no civil action to enforce collection before the assessment when the informations were filed.
procedures provided in the Code have been followed, there is no requirement
for the precise computation and assessment of the tax before there can be a 2. The criminal liability of the accused, if any in the first
criminal prosecution under the Code. têñ.£îhq three informations (L-17177-9) has been extinguished by
Besides, it has been ruled that a petition for reconsideration of an assessment reason of the extinguishment of his civil liability to pay
may affect the suspension of the prescriptive period for the collection of taxes, taxes.
but not the prescriptive period of a criminal action for violation of
law. 16 Obviously, the protest of the petitioner against the assessment of the 3. Section 51(d) of the National Internal Revenue Code upon
District Revenue Officer cannot stop his prosecution for violation of the which the informations in the first three cases were based,
National Internal Revenue Code. Accordingly, the respondent Judge did not
abuse his discretion in denying the motion to quash filed by the petitioner. has already been repealed, and, therefore, he can no
longer be prosecuted for its violation.
_____________________________________________________________
G.R. No. L-17177-80 December 28, 1964 Issue: Whether or not the actions of Tierra had already prescribed.

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee, Ruling:

vs.
ILDEFONSO TIERRA, defendant-appellant. 1. Section 354 of the National Internal Revenue Code provides:

Facts: All violations of any provision of this Code shall prescribe after five years.

It was established that appellant was, during the years 1946 up to 1949, Prescription shall begin to run from the day of the commission of the violation
engaged in the general merchandise business, including the buying and of the law and if the same be not known at the time, from the discovery thereof
selling of school and office supplies. For the years 1946, 1947 and 1949, he filed and the institution of judicial proceedings for its investigation and
his income tax returns, declaring in full all his gross sales, and paid income punishment. ...
taxes due thereon in the respective sums of P2,557.54,
P13,097.63 and P2,980.00. Evidence was adduced to show' and the trial court so found, that the falsity of
the returns filed by the appellant and his failure to preserve his books of
Said returns were later verified by Valerians Robles, an income tax examiner accounts for at least five years from the date of the last entry in each book were
of the Bureau of Internal Revenue. And on December 16, 1950, examiner all discovered only on December 16, 1950. Since the informations were filed on
Robles reported his finding, that appellant had filed false and fraudulent December 12, 1955, the trial court correctly ruled that the actions were all within
returns for said by overstating his purchases for 1946, 1947 and 1949, and over the five-year period of limitation.
declaring his expenses, for 1947, thereby reducing the, net income subject to
tax. 2. The filing of a false and fraudulent income tax return and the failure
to pay the tax necessarily makes the delinquent taxpayer amenable

Page 21 of 23
 Taxation II Cayetano, De Peralta, Roble & Roxas
Case Digest
to the penal provisions of Section 73 of the Code. Any subsequent ISSUE: WON the Formal Letter of Demand be construed as the final decision of the
satisfaction of the tax liability, by payment or prescription, will not CIR appealable to the CTA under Republic Act 9282.
operate to extinguish such criminal liability, since the duty to pay RULING: Yes.
the tax is imposed by statute independent of any attempt on the part
of the taxpayer to evade payment. Whether under the National This is considered an exception to the general rule on exhaustion of administrative
Internal Revenue Code or under the Revised Penal Code, the remedies since the CIR is considered estopped from claiming the same principle
applies in its case. The tenor of the demand letter is clear that the CIR had already
satisfaction of civil liability is not one of the grounds for the
made a final decision and that the remedy of the Petitioner was to appeal the same
extinction of criminal action. The failure of the government, within 30 days of receipt. This can be gleaned from the use of the terms “final
therefore, to enforce by appropriate civil remedies the collection of decision” and “appeal” which were deemed unequivocal language pointing to the
the taxes, does not detract from its right criminally to prosecute finality of the decision. While the Court cited the rules relative to (a) protesting the
violations of the Code. The criminal actions subsist so long as there FAN and not the PAN and (b) counting the 30 day period to appeal to the CTA from
are no legal grounds that would bar their prosecution. receipt of the decision of the CIR and not issuance of the assessment, this particular
case was deemed a clear exception in view of the CIR’s own actions.
However, although. appellant does not specifically assign this as
________________________________________________________________G.R.
error, we hold that the lower court erred in sentencing him in the first No. L-19865 July 31, 1965
three cases to indemnify the government for the amounts of deficiency
MARIA CARLA PIROVANO, etc., et al., petitioners-appellants,
taxes plus surcharges which he failed to pay. This question was already vs. THE COMMISSIONER OF INTERNAL REVENUE, respondent-appellee.
laid at rest in the case of People vs. Arnault (G.R. No. 1,4288, November
Facts:
20, 1952, 48 O.f Gaz. 4805) wherein we held that there is no legal sanction
PIROVANO, etc., et al., petitioners-appellants,
for the imposition of payment of the civil indemnity to the government
vs.THE COMMISSIONER OF INTERNAL REVENUE, respondent-appellee.
in a criminal proceeding for violation of the income tax laws. We said in
that case: G.R. No. L-19865, July 31,1965
FACTS:
Enrico Pirovano was the father of the herein petitioners-appellants. In 1941,
De la Rama Steamship Co. insured the life of said Enrico Pirovano, who was
.... While section 73 of the National Internal Revenue Code provides then its President and General Manager until the time of his death, with various
for the imposition of the penalty for refusal or neglect to pay income Philippine and American insurance companies for a total sum of one million
tax or to make a return thereof, by imprisonment or fine, or both, it pesos, designating itself as the beneficiary of the policies, obtained by it.
fails to provide for the collection of said tax in criminal proceedings. In the latter part of 1944, said Enrico Pirovano died.
As well contended by counsel for appellant, Chapters I and II of The Company received the total sum of P643,000.00 as proceeds of the said
Title IX of the National Internal Revenue Code provides only for life insurance policies obtained from American insurers.
civil remedies for the collection of the income tax, and under section Tthe Board of Directors of the Company provided that the Company shall pay
316, the civil remedy is either by distraint of goods, chattels, etc., or the proceeds of said life insurance policies to the heirs of the said Enrico
by judicial action. It is a commonly accepted principle of law that Pirovano after the Company shall have settled in full the balance of its present
the method prescribed by statute for the collection of taxes is remaining bonded indebtedness, but the annual interests accruing on the
principal shall be paid to the heirs of the said Enrico Pirovano, or their duly
generally exclusive, and unless a contrary intent be gathered from appointed representative, whenever the Company is in a position to meet said
the statute, it should be followed strictly. (3 Cooley, Law on obligation.
Taxation, Section 1326, pp. 621-623) However, the majority stockholders of the Company voted to revoke the
resolution approving the donation in favor of the Pirovano children.
As a consequence of this revocation and refusal of the Company to pay the
3. It is not now necessary to discuss the effect of the suppression of this balance of the donation amounting to P564,980.90 despite demands therefor,
the herein petitioners-appellants represented by their natural guardian, Mrs.
provision by virtue of Republic Act No. 2343. Suffice it to say that Estefania R. Pirovano, brought an action for the recovery of said amount, plus
the accused is charged not only for failure to pay deficiency taxes as interest and damages against De la Rama Steamship Co., in the Court of First
assessed under section 51 (d) of the Revenue Code prior to its Instance of Rizal, which case ultimately culminated to an appeal to this Court.
amendment, but also under sections 45 and 46 in relation to section On December 29, 1954, this court rendered its decision in the appealed case
(96 Phil. 335) holding that the donation was valid and remunerative in nature.
73 for filing false and fraudulent returns. Even without alleging a
violation of section 51(d), the indictments can still stand. The above decision became final and executory. In compliance therewith, De
la Rama Steamship Co. made, on April 6, 1955, a partial payment on the
amount of the judgment and paid the balance thereof on May 12, 1955.
____________________________________________________________________
The Commissioner of Internal Revenue assessed the amount of P60,869.67
as donees' gift tax, inclusive of surcharges, interests and other penalties,
against each of the petitioners-appellants, or for the total sum of P243,478.68;
ALLIED BANK v. CIR and, on April 23, 1955, a donor's gift tax in the total amount of P34,371.76 was
also assessed against De la Rama Steamship Co., which the latter paid.
G.R. No. 175097 FEB. 5, 2010 Petitioners-appellants herein contested respondent Commissioner's
assessment and imposition of the donees' gift taxes and donor's gift tax and
FACTS: Allied Banking Corporation received a PAN from the BIR which it timely
also made a claim for refund of the donor's gift tax so collected.
disputed. In response, the BIR issued a Formal Letter of Demand with Assessment
Notices. Instead of protesting the FAN, the petitioner filed a Petition for Review with Issue: Whether or not petitioners should pay the donee’s gift taxes
the CTA. The CTA dismissed the Petition stating that it is neither the assessment nor
the formal demand letter itself that is appealable before it but instead it should be the Ruling: Yes.
decision of the CIR on the disputed assessment.
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 Taxation II Cayetano, De Peralta, Roble & Roxas
Case Digest
Love and affection are not considerations of value they are not estimable in
terms of value. Nor are sentiments of gratitude for gratuitous part favors or Petitioner's contention is that the provision of law applicable to this case is the
kindnesses; nor are obligations which are merely moral. It has been well said period of five years limitation upon assessment and collection from the filing of
that if a moral obligation were alone sufficient it would remove the necessity the returns provided for in See. 331 of the National Internal Revenue Code.
for any consideration at all, since the fact of making a promise impose, the He argues that since the 1946 income tax return could be presumed filed
moral obligation to perform it." before March 1, 1947 and the notice of final and last assessment was received
by the taxpayer on March 2, 1955, a period of about 8 years had elapsed and
It is of course perfectly possible that a donation or gift should at the same time
the five year period provided by law (Sec. 331 of the National Internal Revenue
impose a burden or condition on the donee involving some economic liability
Code) had already expired.
for him. Art. 726 of the Tax Code provides that there is also a donation "when
the gift imposes upon the donee a burden which is less than the value of the
The same argument is advanced on the taxpayer's return for 1947, which was
thing given." Section 111 of the Tax Code has in view situations of this kind,
filed on March 1, 1948, and the return for 1948, which was filed on February
since it also prescribes that "the amount by which the value of the property
28, 1949. Respondents, on the other hand, are of the firm belief that regarding
exceeded the value of the consideration" shall be deemed a gift for the purpose
the prescriptive period for assessment of tax returns, Section 332 of the
of the tax. .
National Internal Revenue Code should apply because, as in this case, "(a) In
Petitioners finally contend that, even assuming that the donation in question is the case of a false or fraudulent return with intent to evade tax or of a failure
subject to donees' gift taxes, the imposition of the surcharge of 5% and interest to file a return, the tax may be assessed, or a proceeding in court for the
of 1% per month from March 8, 1955 was not justified because the proceeds collection of such tax may be begun without assessment, at any time within
of the life insurance policies were actually received on April 6, 1955 and May ten years after the discovery of the falsity, fraud or omission" (Sec. 332 (a) of
12, 1955 only and in accordance with Section 115(c) of the Tax Code; the filing the NIRC).
of the returns of such tax became due on March 1, 1956 and the tax became
payable on May 15, 1956, as provided for in Section 116(a) of the same Code. Petitioner argues that Sec. 332 of the NIRC does not apply because the
In other words, petitioners maintain that the assessment and demand for taxpayer did not file false and fraudulent returns with intent to evade tax, while
donees' gift taxes was prematurely made and of no legal effect; hence, they respondent Commissioner of Internal Revenue insists contrariwise, with
should not be held liable for such surcharge and interest. respondent Court of Tax Appeals concluding that the very "substantial under
declarations of income for six consecutive years eloquently demonstrate the
_____________________________________________________________ falsity or fraudulence of the income tax returns with an intent to evade the
payment of tax."
G.R. No. L-20569 August 23, 1974
JOSE B. AZNAR, in his capacity as Administrator of the Estate of the To our minds we can dispense with these controversial arguments on facts,
deceased, Matias H. Aznar vs. COURT OF TAX APPEALS and although we do not deny that the findings of facts by the Court of Tax Appeals,
COLLECTOR OF INTERNAL REVENUE supported as they are by very substantial evidence, carry great weight, by
resorting to a proper interpretation of Section 332 of the NIRC.

Facts: We believe that the proper and reasonable interpretation of said provision
Petitioner, as administrator of the estate of the deceased, Matias H. should be that in the three different cases of (1) false return, (2) fraudulent
Aznar, seeks a review and nullification of the decision of the Court return with intent to evade tax, (3) failure to file a return, the tax may be
of Tax Appeals ordering the petitioner to pay the government the assessed, or a proceeding in court for the collection of such tax may be begun
sum of P227,691.77 representing deficiency income taxes for the without assessment, at any time within ten years after the discovery of the (1)
years 1946 to 1951. falsity, (2) fraud, (3) omission. Our stand that the law should be interpreted to
mean a separation of the three different situations of false return, fraudulent
An investigation by the Commissioner of Internal Revenue (CIR) return with intent to evade tax, and failure to file a return is strengthened
ascertained the assets and liabilities of the taxpayer and it was immeasurably by the last portion of the provision which segregates the
situations into three different classes, namely "falsity", "fraud" and "omission".
discovered that from 1946 to 1951, his net worth had increased
That there is a difference between "false return" and "fraudulent return" cannot
every year, which increases in net worth was very much more than
be denied. While the first merely implies deviation from the truth, whether
the income reported during said years. The findings clearly indicated intentional or not, the second implies intentional or deceitful entry with intent
that the taxpayer did not declare correctly the income reported in to evade the taxes due.
his income tax returns for the aforesaid years. The ordinary period of prescription of 5 years within which to assess tax
liabilities under Sec. 331 of the NIRC should be applicable to normal
Petitioner avers that according to the NIRC, the right of the CIR to circumstances, but whenever the government is placed at a disadvantage so
assess deficiency income taxes of the late Aznar for the years 1946, as to prevent its lawful agents from proper assessment of tax liabilities due to
1947, and 1948 had already prescribed at the time the assessment false returns, fraudulent return intended to evade payment of tax or failure to
was made on November 28, 1952; there being a five year limitation file returns, the period of ten years provided for in Sec. 332 (a) NIRC, from the
upon assessment and collection from the filing of the returns. time of the discovery of the falsity, fraud or omission even seems to be
inadequate and should be the one enforced.
Meanwhile, respondents believe that the prescription period in the
case at bar that is applicable is under Sec. 332 of the NIRC which There being undoubtedly false tax returns in this case, We affirm the
provides that: "(a) In the case of a false or fraudulent return with conclusion of the respondent Court of Tax Appeals that Sec. 332 (a) of the
intent to evade tax or of a failure to file a return, the tax may be NIRC should apply and that the period of ten years within which to assess
assessed, or a proceeding in court for the collection of such tax may petitioner's tax liability had not expired at the time said assessment was made.
be begun without assessment, at any time within ten years after the
discovery of the falsity, fraud or omission".

Petitioner argues said provision does not apply because the taxpayer
did not file false and fraudulent returns with intent to evade tax.

Issue: W/N the deceased Aznar filed false or fraudulent income tax
returns and subsequently, whether the action has not prescribed.
No.

Ruling:

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