CommissionerofInternalRevenuevAyalaSecuritiesCorporation

No.L29485;31March1976;Esguerra,J

FACTS
1. AppealfromthedecisionoftheCTAcancellinganddeclaringofnoforceandeffectmadebythepetitioner,
CommissionerofInternalRevenue,againsttheaccumulatedsurplusoftherespondent,AyalaSecurities
Corporation.
2. AyalaSecuritiesCorporation(RESPONDENT)fileditsincometaxreturnforitsfiscalyearendingSeptember1955.
TheauditedfinancialstatementsofrespondentshowedasurplusofP2,758,442.37.Respondentpayedits
incometaxforthatfiscalyearwithinthetimeprescribedbylaw.
3. February1961:CIRadvisedrespondentofitsassessmentamountingtoP758,687.04forthesurplusincomein
1955.
4. April1961:AyalasentaletterofprotesttoCIRandaskedforareconsiderationthereof
5. May1961:CIRsentanotherlettertoAyalawiththeadvisethatyourrequestforreconsiderationwillbethe
subjectmatteroffurtherreinvestigation.Ayaladidnotexecutetherequestedwaiverofthestatuteof
limitiationsattachedintheletter.
6. February21,1963:AyalareceivedaletterdatedFeb18,1963fromtheCIRrequestingforthepaymentof
P758,687.04within5yearsfromreceiptoftheletter.Believingtheaforesaidlettertobeadenialofitsprotest,
AyalafiledwiththeCTAapetitionforreviewoftheassessment
7. ARGUMENTSOFAYALA:
a) TheassessmentinquestionwasissuedonlyonFebruary21,1961andreceivedbyAyalaonMarch22,1961.
HenceitwasissuedbeyondthefiveyearprescriptiveperiodfromthedateofthefilingofAyalasincometax
returnwhichwasonNovember59,1955.Therefore,CIRsrighttomaketheassessmenthasalready
prescribedpursuanttoSec331NIRC
b) Ayalasaccumulationofsurplusforthetaxableyear1955wasnotimproperconsideringthattheretention
ofthesurpluswasintendedforlegitimatebusinesspurposesandwasnotavailedofbythecorporationto
preventtheimpositionoftheincometaxuponitsshareholders
8. CTAruledinfavorofAyalaandcancelledtheassessmentof25%surtaxamountingtoP758,687.04

ISSUES
RELATEDTOOURTOPIC:WONthelettersentbyCIRisadenialofAyalasprotestagainsttheassessment,andassuch,is
adecisioncontemplatedundertheprovisionsofSections7and11ofRA1125YES

OTHERISSUE:WONtheassessmentonsurtaxhadalreadyprescribedYES

HELD
WHEREFOREthedecisionappealedfromisAFFIRMEDintoto.

RATIO

WONthelettersentbyCIRisadenialofAyalasprotestagainsttheassessment,andassuch,isadecision
contemplatedundertheprovisionsofSections7and11ofRANo.1125YES
1. ARGUMENTOFCIR
TheletterdatedFebruary18,1961isNOTadenialofAyalasprotestagainsttheassessment.Itismerelyan
ordinaryofficeletterdesignedtoreminddelinquenttaxpayersoftheirobligationstopaytheirtaxes
2. TheCTAisacourtofspecialappellatejurisdictioncreatedunderRANo.1125.
3. UnderSec7(1)ofRANo.1125,theCTAexercisesexclusiveappellatejurisdictiontoreviewbyappealdecisions
oftheCIRincasesinvolvingdisputedassessments,refundsofinternalrevenuetaxes,feesorothercharges,
penaltiesimposedinrelationthereto,orothermattersarisingundertheNIRCorotherlaworpartoflaw
administeredbytheBIR
4. TheFebruary18,1963letteristantamounttoadenialofthereconsiderationorprotestofAyalaonthe
assessmentmadebyCIR.Thisbeingso,thesaidletteramountstoadecision.

a) ThesaidletterisinitselfareiterationofthedemandbytheBIRforthesettlementoftheassessment
alreadymade,andfortheimmediatepaymentofP758,687.04,inspiteofthevehementprotestofthesaid
corporationonApril21,1961.
b) ItisaclearindicationofthefirmstandoftheCIRagainstthereconsiderationofthedisputedassessmentin
viewofthecontinuedrefusalofAyalatoexecutethewaiveroftheperiodoflimitationupontheassessment
inquestion.

WONtheassessmentonsurtaxhadalreadyprescribedYES.ApplicableprovisionisSec331
1. ARGUMENTOFCIR
TheapplicableprovisionisSec332(a)oftheNIRCwhichprovidesfora10yearprescriptiveperiodofthe
assessmentandnotSec331asheldbytheCTAwhichprovidesaperiodoflimitationofassessmentfor5years
onlyafterthefilingofthereturn
2. ThereisnoiotaofevidencepresentedbytehCIRastoanyfraudorfalsityonthereturnwithintenttoevade
paymentoftax,notevenintheincometaxassessmentnorintheletterdecision,norinhisanswertothe
petitionforreview.
a) Fraudisaquestionoffactandthecircumstancesconstitutingfraudmustbeallegedandprovedinthecourt
below.
b) Fraudisnevertobepresumed
3. TheapplicableprovisionisSec331providingforthefiveyearprescriptiveperiodcountedfromthefilingofthe
return.
a) AyaladesignatedSeptember30,1955asthelastdayoftheclosingofitsfiscalyearperSec46(d)ofNIRC
b) AyalacouldthereforefileitsincometaxreturnsonorbeforeJanuary15,1956
c) TheassessmentbytheCIRshallbemadewithin5yearsfromJanuary15,1956,ornotlaterthanJanuary15,
1961inaccordancewithSection331ofNIRC
d) TheassessmentwasissuedbyCIRonFebruary21,1961andreceivedbyAyalaonMarch22,1961hence
beyondthe5yearprescriptiveperiod.