Prescription of government's right to assess

SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as

provided in Section 222, internal revenue taxes shall be assessed within three (3) years
after the last day prescribed by law for the filing of the return, and no proceeding in court
without assessment for the collection of such taxes shall be begun after the expiration of
such period: Provided, That in a case where a return is filed beyond the period
prescribed by law, the three (3)-year period shall be counted from the day the return
was filed. For purposes of this Section, a return filed before the last day prescribed by
law for the filing thereof shall be considered as filed on such last day.
SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of
Taxes. -
(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a
return, the tax may be assessed, or a proceeding in court for the collection of such
tax may be filed without assessment, at any time within ten (10) years after the
discovery of the falsity, fraud or omission: Provided, That in a fraud assessment
which has become final and executory, the fact of fraud shall be judicially taken
cognizance of in the civil or criminal action for the collection thereof.
(b) If before the expiration of the time prescribed in Section 203 for the assessment of the
tax, both the Commissioner and the taxpayer have agreed in writing to its
assessment after such time, the tax may be assessed within the period agreed
upon. The period so agreed upon may be extended by subsequent written
agreement made before the expiration of the period previously agreed upon.
(c) Any internal revenue tax which has been assessed within the period of limitation as
prescribed in paragraph (a) hereof may be collected by distraint or levy or by a
proceeding in court within five (5) years following the assessment of the tax.
(d) Any internal revenue tax, which has been assessed within the period agreed upon as
provided in paragraph (b) hereinabove, may be collected by distraint or levy or by a
proceeding in court within the period agreed upon in writing before the expiration of
the five (5) -year period. The period so agreed upon may be extended by
subsequent written agreements made before the expiration of the period previously
agreed upon.
(e) Provided, however, That nothing in the immediately preceding and paragraph (a)
hereof shall be construed to authorize the examination and investigation or inquiry
into any tax return filed in accordance with the provisions of any tax amnesty law or
decree.
SEC. 223. Suspension of Running of Statute of Limitations. - The running of the
Statute of Limitations provided in Sections 203 and 222 on the making of assessment
and the beginning of distraint or levy a proceeding in court for collection, in respect of
any deficiency, shall be suspended for the period during which the Commissioner is
prohibited from making the assessment or beginning distraint or levy or a proceeding in
court and for sixty (60) days thereafter; when the taxpayer requests for a reinvestigation
which is granted by the Commissioner; when the taxpayer cannot be located in the
address given by him in the return filed upon which a tax is being assessed or collected:
Provided, that, if the taxpayer informs the Commissioner of any change in address, the
running of the Statute of Limitations will not be suspended; when the warrant of distraint
or levy is duly served upon the taxpayer, his authorized representative, or a member of
his household with sufficient discretion, and no property could be located; and when the
taxpayer is out of the Philippines.

CIR v. GOODRICH
Notwithstanding the expiration of the five-year prescriptive period, may the Bureau of
Internal Revenue (BIR) still assess a taxpayer even after the latter has already paid the
tax due, on the ground that the previous assessment was insufficient or based on a
"false" return?
The Case
This is the main question raised before us in this Petition for Review on Certiorari
assailing the Decision 1 dated February 14, 1992, promulgated by the Court of Appeals
2 in CA-GR SP No. 25100. The assailed Decision reversed the Court of Tax Appeals

(CTA) 3 which upheld the BIR commissioner's assessments made beyond the five-year
statute of limitations.
The Facts
The facts undisputed. 4 Private Respondent BF Goodrich Phils., Inc. (now Sime Darby
International Tire Co, Inc.), was an American-owned and controlled corporation previous
to July 3, 1974. As a condition for approving the manufacture by private respondent of
tires and other rubber products, the Central Bank of the Philippines required that it
should develop a rubber plantation. In compliance with this requirement, private
respondent purchased from the Philippine government in 1961, under the Public Land
Act and the Parity Amendment to the 1935 Constitution, certain parcels of land located
in Tumajubong, Basilan, and there developed a rubber plantation.
More than a decade later, on August 2, 1973, the justice secretary rendered an opinion
stating that, upon the expiration of the Parity Amendment on July 3, 1974, the
ownership rights of Americans over public agricultural lands, including the right to
dispose or sell their real estate, would be lost. On the basis of this Opinion, private
respondent sold to Siltown Realty Philippines, Inc. on January 21, 1974, its Basilan
landholding for P500,000 payable in installments. In accord with the terms of the sale,
Siltown Realty Philippines, Inc. leased the said parcels of land to private respondent for
a period of 25 years, with an extension of another 25 years at the latter's option.
Based on the BIR's Letter of Authority No. 10115 dated April 14, 1975, the books and
accounts of private respondent were examined for the purpose of determining its tax
liability for taxable year 1974. The examination resulted in the April 23, 1975
assessment of private respondent for deficiency income tax in the amount of P6,005.35,
which it duly paid.
Subsequently, the BIR also issued Letters of Authority Nos. 074420 RR and 074421 RR
and Memorandum Authority Reference No. 749157 for the purpose of examining
Siltown's business, income and tax liabilities. On the basis of this examination, the BIR
commissioner issued against private respondent on October 10, 1980, an assessment
for deficiency in donor's tax in the amount of P1,020,850, in relation to the previously
mentioned sale of its Basilan landholdings to Siltown. Apparently, the BIR deemed the
consideration for the sale insufficient, and the difference between the fair market value
and the actual purchase price a taxable donation.
In a letter dated November 24, 1980, private respondent contested this assessment. On
April 9, 1981, it received another assessment dated March 16, 1981, which increased to
P 1,092,949 the amount demanded for the alleged deficiency donor's tax, surcharge,
interest and compromise penalty.
Private respondent appealed the correctness and the legality of these last two
assessments to the CTA. After trial in due course, the CTA rendered its Decision dated
March 29, 1991, the dispositive portion of which reads as follows:
WHEREFORE, the decision of the Commissioner of Internal Revenue assessing
petitioner deficiency gift tax is MODIFIED land petitioner is ordered to pay the amount of
P1,311,179.01 plus 10% surcharge and 20% annual interest from March 16, 1981 until
fully paid provided that the maximum amount that may be collected as interest on
delinquency shall in no case exceed an amount corresponding to a period of three
years pursuant to Section 130(b)(l) and (c) of the 1977 Tax Code, as amended by P.D.
No. 1705, which took effect on August 1, 1980.
SO ORDERED. 5
Undaunted, private respondent elevated the matter to the Court of Appeals, which
reversed the CTA, as follows:
What is involved here is not a first assessment; nor is it one within the 5-year period
stated in Section 331 above. Since what is involved in this case is a multiple
assessment beyond the five-year period, the assessment must be based on the
grounds provided in Section 337, and not on Section 15 of the 1974 Tax Code. Section
337 utilizes the very specific terms "fraud, irregularity, and mistake". "Falsity does not
appear to be included in this enumeration. Falsity suffices for an assessment, which is a
first assessment made within the five-year period. When it is a subsequent assessment
made beyond the five-year period, then, it may be validly justified only by "fraud,
irregularity and mistake" on the part of the
taxpayer.6
Hence, this Petition for Review under Rule 45 of the Rules of Court. 7
The Issues
Before us, petitioner raises the following issues:
I
Whether or not petitioner's right to assess herein deficiency donor's tax has indeed
prescribed as ruled by public respondent Court of Appeals
II
Whether or not the herein deficiency donor's tax assessment for 1974 is valid and in
accordance with law
Prescription is the crucial issue in the resolution of this case.
The Court's Ruling
The petition has no merit.
Main Issue: Prescription
The petitioner contends that the Court of Appeals erred in reversing the CTA on the
issue of prescription, because its ruling was based on factual findings that should have
been left undisturbed on appeal, in the absence of any showing that it had been tainted
with gross error or grave abuse of
discretion. 8 The Court is not persuaded.
True, the factual findings of the CTA are generally not disturbed on appeal when
supported by substantial evidence and in the absence of gross error or grave abuse of
discretion. However, the CTA's application of the law to the facts of this controversy is
an altogether different matter, for it involves a legal question. There is a question of law
when the issue is the application of the law to a given set of facts. On the other hand, a
question of fact involves the truth or falsehood of alleged facts. 9 In the present case, the
Court of Appeals ruled not on the truth or falsity of the facts found by the CTA, but on
the latter's application of the law on prescription.
Sec. 331 of the National Internal Revenue Code provides:
Sec. 331. Period of limitation upon assessment and collection. Except as provided in
the succeeding section, internal-revenue taxes shall be assessed within five years after
the return was filed, and no proceeding in court without assessment for the collection of
such taxes shall be begun after expiration of such period. For the purposes of this
section, a return filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day: Provided, That this limitation shall not apply to
cases already investigated prior to the approval of this Code.
Applying this provision of law to the facts at hand, it is clear that the October 16, 1980
and the March 1981 assessments were issued by the BIR beyond the five-year statute
of limitations. The Court has thoroughly studied the records of this case and found no
basis to disregard the five-year period of prescription. As succinctly pronounced by the
Court of Appeals:
The subsequent assessment made by the respondent Commissioner on October 40,
1980, modified by that of March 16, 1981, violates the law. Involved in this petition is the
income of the petitioner for the year 1974, the returns for which were required to be filed
on or before April 15 of the succeeding year. The returns for the year 1974 were duly
filed by the petitioner, and assessment of taxes due for such year including that on
the transfer of properties on June 21, 1974 was made on April 13, 1975 and
acknowledged by Letter of Confirmation No. 101155 terminating the examination on this
subject. The subsequent assessment of October 10, 1980 modified, by that of March
16, 1981, was made beyond the period expressly set in Section 331 of the National
Internal Revenue Code . . . . 10
Petitioner relies on the CTA ruling, the salient portion of which reads:
Falsity is what we have here, and for that matter, we hasten to add that the second
assessment (March 16, 1981) of the Commissioner was well-advised having been
made in contemplation of his power under Section 15 of the 1974 Code (now Section
16, of NIRC) to assess the proper tax on the best evidence obtainable "when there is
reason to believe that a report of a taxpayer is false, incomplete or erroneous. More,
when there is falsity with intent to evade tax as in this case, the ordinary period of
limitation upon assessment and collection does not apply so that contrary to the
averment of petitioner, the right to assess respondent has not prescribed.
What is the considered falsity? The transfer through sale of the parcels of land in
Tumajubong, Lamitan, Basilan in favor of Siltown Realty for the sum of P500,000.00
only whereas said lands had been sworn to under Presidential Decree No. 76 (Dec. 6,
1972) as having a value of P2,683,467 (P2,475,467 + P207,700) (see Declaration of
Real Property form, p. 28, and p. 15, no. 5, BIR Record). 11
For the purpose of safeguarding taxpayers from any unreasonable examination,
investigation or assessment, our tax law provides a statute of limitations in the collection
of taxes. Thus, the law on prescription, being a remedial measure, should be liberally
construed in order to afford such protection. 12 As a corollary, the exceptions to the law
on prescription should perforce be strictly construed.
Sec. 15 of the NIRC, on the other hand, provides that "[w]hen a report required by law
as a basis for the assessment of any national internal revenue tax shall not be
forthcoming within the time fixed by law or regulation, or when there is reason to believe
that any such report is false, incomplete, or erroneous, the Commissioner of Internal
Revenue shall assess the proper tax on the best evidence obtainable." Clearly, Section
15 does not provide an exception to the statute of limitations on the issuance of an
assessment, by allowing the initial assessment to be made on the basis of the best
evidence available. Having made its initial assessment in the manner prescribed, the
commissioner could not have been authorized to issue, beyond the five-year
prescriptive period, the second and the third assessments under consideration before
us.
Nor is petitioner's claim of falsity sufficient to take the questioned assessments out of
the ambit of the statute of limitations. The relevant part of then Section 332 of the NIRC,
which enumerates the exceptions to the period of prescription, provides:
Sec. 332. Exceptions as to period of limitation of assessment and collection of taxes.
(a) In the case of a false or fraudulent return with intent to evade a tax or of a failure to
file a return, the tax may be assessed, or a proceeding in court for the collection of such
tax may be begun without assessment, at any time within ten years after the discovery
of the falsity, fraud, or omission: . . . .
Petitioner insists that private respondent committed "falsity" when it sold the property for
a price lesser than its declared fair market value. This fact alone did not constitute a
false return which contains wrong information due to mistake, carelessness or
ignorance.13 It is possible that real property may be sold for less than adequate
consideration for a bona fide business purpose; in such event, the sale remains an
"arm's length" transaction. In the present case, the private respondent was compelled to
sell the property even at a price less than its market value, because it would have lost
all ownership rights over it upon the expiration of the parity amendment. In other words,
private respondent was attempting to minimize its losses. At the same time, it was able
to lease the property for 25 years, renewable for another 25. This can be regarded as
another consideration on the price.
Furthermore, the fact that private respondent sold its real property for a price less than
its declared fair market value did not by itself justify a finding of false return. Indeed,
private respondent declared the sale in its 1974 return submitted to the BIR. 14 Within
the five-year prescriptive period, the BIR could have issued the questioned assessment,
because the declared fair market value of said property was of public record. This it did
not do, however, during all those five years. Moreover, the BIR failed to prove that
respondent's 1974 return had been filed fraudulently. Equally significant was its failure
to prove respondent's intent to evade the payment of the correct amount of tax.
Ineludibly, the BIR failed to show that private respondent's 1974 return was filed
fraudulently with intent to evade the payment of the correct amount of tax. 15 Moreover,
even though a donor's tax, which is defined as "a tax on the privilege of transmitting
one's property or property rights to another or others without adequate and full valuable
consideration," 16 is different from capital gains tax, a tax on the gain from the sale of
the taxpayer's property forming part of capital assets, 17 the tax return filed by private
respondent to report its income for the year 1974 was sufficient compliance with the
legal requirement to file a return. In other words, the fact that the sale transaction may
have partly resulted in a donation does not change the fact that private respondent
already reported its income for 1974 by filing an income tax return.
Since the BIR failed to demonstrate clearly that private respondent had filed a
fraudulent return with the intent to evade tax, or that it had failed to file a return at all,
the period for assessments has obviously prescribed. Such instances of negligence or
oversight on the part of the BIR cannot prejudice taxpayers, considering that the
prescriptive period was precisely intended to give them peace of mind.
Based on the foregoing, a discussion of the validity and legality of the assailed
assessments has become moot and unnecessary.
WHEREFORE, the Petition for Review is DENIED and the assailed Decision of the
Court of Appeals is AFFIRMED. No costs.
SO ORDERED.

BASILAN ESTATES v. CIR

A Philippine corporation engaged in the coconut industry, Basilan Estates, Inc., with
principal offices in Basilan City, filed on March 24, 1954 its income tax returns for 1953
and paid an income tax of P8,028. On February 26, 1959, the Commissioner of Internal
Revenue, per examiners' report of February 19, 1959, assessed Basilan Estates, Inc., a
deficiency income tax of P3,912 for 1953 and P86,876.85 as 25% surtax on
unreasonably accumulated profits as of 1953 pursuant to Section 25 of the Tax Code.
On non-payment of the assessed amount, a warrant of distraint and levy was issued but
the same was not executed because Basilan Estates, Inc. succeeded in getting the
Deputy Commissioner of Internal Revenue to order the Director of the district in
Zamboanga City to hold execution and maintain constructive embargo instead. Because
of its refusal to waive the period of prescription, the corporation's request for
reinvestigation was not given due course, and on December 2, 1960, notice was served
the corporation that the warrant of distraint and levy would be executed.
On December 20, 1960, Basilan Estates, Inc. filed before the Court of Tax Appeals a
petition for review of the Commissioner's assessment, alleging prescription of the period
for assessment and collection; error in disallowing claimed depreciations, travelling and
miscellaneous expenses; and error in finding the existence of unreasonably
accumulated profits and the imposition of 25% surtax thereon. On October 31, 1963, the
Court of Tax Appeals found that there was no prescription and affirmed the deficiency
assessment in toto.
On February 21, 1964, the case was appealed to Us by the taxpayer, upon the following
issues:
1. Has the Commissioner's right to collect deficiency income tax prescribed?
2. Was the disallowance of items claimed as deductible proper?
3. Have there been unreasonably accumulated profits? If so, should the 25% surtax be
imposed on the balance of the entire surplus from 1947-1953, or only for 1953?
4. Is the petitioner exempt from the penalty tax under Republic Act 1823 amending
Section 25 of the Tax Code?
PRESCRIPTION
There is no dispute that the assessment of the deficiency tax was made on February
26, 1959; but the petitioner claims that it never received notice of such assessment or if
it did, it received the notice beyond the five-year prescriptive period. To show
prescription, the annotation on the notice (Exhibit 10, No. 52, ACR, p. 54-A of the BIR
records) "No accompanying letter 11/25/" is advanced as indicative of the fact that
receipt of the notice was after March 24, 1959, the last date of the five-year period
within which to assess deficiency tax, since the original returns were filed on March 24,
1954.
Although the evidence is not clear on this point, We cannot accept this interpretation of
the petitioner, considering the presence of circumstances that lead Us to presume
regularity in the performance of official functions. The notice of assessment shows the
assessment to have been made on February 26, 1959, well within the five-year period.
On the right side of the notice is also stamped "Feb. 26, 1959" denoting the date of
release, according to Bureau of Internal Revenue practice. The Commissioner himself
in his letter (Exh. H, p. 84 of BIR records) answering petitioner's request to lift, the
warrant of distraint and levy, asserts that notice had been sent to petitioner. In the letter
of the Regional Director forwarding the case to the Chief of the Investigation Division
which the latter received on March 10, 1959 (p. 71 of the BIR records), notice of
assessment was said to have been sent to petitioner. Subsequently, the Chief of the
Investigation Division indorsed on March 18, 1959 (p. 24 of the BIR records) the case to
the Chief of the Law Division. There it was alleged that notice was already sent to
petitioner on February 26, 1959. These circumstances pointing to official performance of
duty must necessarily prevail over petitioner's contrary interpretation. Besides, even
granting that notice had been received by the petitioner late, as alleged, under Section
331 of the Tax Code requiring five years within which to assess deficiency taxes, the
assessment is deemed made when notice to this effect is released, mailed or sent by
the Collector to the taxpayer and it is not required that the notice be received by the
taxpayer within the aforementioned five-year period.1
ASSESSMENT
The questioned assessment is as follows:
Net Income per return P40,142.90
Ad Over-claimed depreciation P10,500.49
d: Mis. expenses disallowed 6,759.17

Officer's travelling expenses

2,300.40 19,560.06
disallowed

Net Income per Investigation P59,702.96

20% tax on P59,702.96 11,940.00
Less: Tax already assessed 8,028.00

Deficiency income tax P3,912.00

Add: Additional tax of 25% on P347,507.01 86,876.75

Tax Due & Collectible P90,788.75

=========
The Commissioner disallowed:
Over-claimed depreciation P10,500.49
Miscellaneous expenses 6,759.17
Officer's travelling expenses 2,300.40
DEDUCTIONS
A. Depreciation. Basilan Estates, Inc. claimed deductions for the depreciation of its
assets up to 1949 on the basis of their acquisition cost. As of January 1, 1950 it
changed the depreciable value of said assets by increasing it to conform with the
increase in cost for their replacement. Accordingly, from 1950 to 1953 it deducted from
gross income the value of depreciation computed on the reappraised value.
In 1953, the year involved in this case, taxpayer claimed the following depreciation
deduction:
Reappraised assets P47,342.53
New assets consisting of hospital building and equipment 3,910.45
Total depreciation
P51,252.98
Upon investigation and examination of taxpayer's books and papers, the Commissioner
of Internal Revenue found that the reappraised assets depreciated in 1953 were the
same ones upon which depreciation was claimed in 1952. And for the year 1952, the
Commissioner had already determined, with taxpayer's concurrence, the depreciation
allowable on said assets to be P36,842.04, computed on their acquisition cost at rates
fixed by the taxpayer. Hence, the Commissioner pegged the deductible depreciation for
1953 on the same old assets at P36,842.04 and disallowed the excess thereof in the
amount of P10,500.49.
The question for resolution therefore is whether depreciation shall be determined on the
acquisition cost or on the reappraised value of the assets.
Depreciation is the gradual diminution in the useful value of tangible property resulting
from wear and tear and normal obsolescense. The term is also applied to amortization
of the value of intangible assets, the use of which in the trade or business is definitely
limited in duration.2 Depreciation commences with the acquisition of the property and its
owner is not bound to see his property gradually waste, without making provision out of
earnings for its replacement. It is entitled to see that from earnings the value of the
property invested is kept unimpaired, so that at the end of any given term of years, the
original investment remains as it was in the beginning. It is not only the right of a
company to make such a provision, but it is its duty to its bond and stockholders, and, in
the case of a public service corporation, at least, its plain duty to the public.3
Accordingly, the law permits the taxpayer to recover gradually his capital investment in
wasting assets free from income tax.4 Precisely, Section 30 (f) (1) which states:
(1)In general. A reasonable allowance for deterioration of property arising out of its
use or employment in the business or trade, or out of its not being used: Provided, That
when the allowance authorized under this subsection shall equal the capital invested by
the taxpayer . . . no further allowance shall be made. . . .
allows a deduction from gross income for depreciation but limits the recovery to the
capital invested in the asset being depreciated.
The income tax law does not authorize the depreciation of an asset beyond its
acquisition cost. Hence, a deduction over and above such cost cannot be claimed and
allowed. The reason is that deductions from gross income are privileges, 5 not matters of
right.6 They are not created by implication but upon clear expression in the law. 7
Moreover, the recovery, free of income tax, of an amount more than the invested capital
in an asset will transgress the underlying purpose of a depreciation allowance. For then
what the taxpayer would recover will be, not only the acquisition cost, but also some
profit. Recovery in due time thru depreciation of investment made is the philosophy
behind depreciation allowance; the idea of profit on the investment made has never
been the underlying reason for the allowance of a deduction for depreciation.
Accordingly, the claim for depreciation beyond P36,842.04 or in the amount of
P10,500.49 has no justification in the law. The determination, therefore, of the
Commissioner of Internal Revenue disallowing said amount, affirmed by the Court of
Tax Appeals, is sustained.
B. Expenses. The next item involves disallowed expenses incurred in 1953, broken
as follows:
Miscellaneous expenses P6,759.17
Officer's travelling expenses 2,300.40

Total
P9,059.57
These were disallowed on the ground that the nature of these expenses could not be
satisfactorily explained nor could the same be supported by appropriate papers.
Felix Gulfin, petitioner's accountant, explained the P6,759.17 was actual expenses
credited to the account of the president of the corporation incurred in the interest of the
corporation during the president's trip to Manila (pp. 33-34 of TSN of Dec. 5, 1962); he
stated that the P2,300.40 was the president's travelling expenses to and from Manila as
to the vouchers and receipts of these, he said the same were made but got burned
during the Basilan fire on March 30, 1962 (p. 40 of same TSN). Petitioner further argues
that when it sent its records to Manila in February, 1959, the papers in support of these
miscellaneous and travelling expenses were not included for the reason that by
February 9, 1959, when the Bureau of Internal Revenue decided to investigate,
petitioner had no more obligation to keep the same since five years had lapsed from the
time these expenses were incurred (p. 41 of same TSN). On this ground, the petitioner
may be sustained, for under Section 337 of the Tax Code, receipts and papers
supporting such expenses need be kept by the taxpayer for a period of five years from
the last entry. At the time of the investigation, said five years had lapsed. Taxpayer's
stand on this issue is therefore sustained.
UNREASONABLY ACCUMULATED PROFITS
Section 25 of the Tax Code which imposes a surtax on profits unreasonably
accumulated, provides:
Sec. 25. Additional tax on corporations improperly accumulating profits or surplus (a)
Imposition of tax. If any corporation, except banks, insurance companies, or personal
holding companies, whether domestic or foreign, is formed or availed of for the purpose
of preventing the imposition of the tax upon its shareholders or members or the
shareholders or members of another corporation, through the medium of permitting its
gains and profits to accumulate instead of being divided or distributed, there is levied
and assessed against such corporation, for each taxable year, a tax equal to twenty-five
per centum of the undistributed portion of its accumulated profits or surplus which shall
be in addition to the tax imposed by section twenty-four, and shall be computed,
collected and paid in the same manner and subject to the same provisions of law,
including penalties, as that tax.1awphl.nt
The Commissioner found that in violation of the abovequoted section, petitioner had
unreasonably accumulated profits as of 1953 in the amount of P347,507.01, based on
the following circumstances (Examiner's Report pp. 62-68 of BIR records):
1. Strong financial position of the petitioner as of December 31, 1953. Assets were
P388,617.00 while the liabilities amounted to only P61,117.31 or a ratio of 6:1.
2. As of 1953, the corporation had considerable capital adequate to meet the
reasonable needs of the business amounting to P327,499.69 (assets less liabilities).
3. The P200,000 reserved for electrification of drier and mechanization and the P50,000
reserved for malaria control were reverted to its surplus in 1953.
4. Withdrawal by shareholders, of large sums of money as personal loans.
5. Investment of undistributed earnings in assets having no proximate connection with
the business as hospital building and equipment worth P59,794.72.
6. In 1953, with an increase of surplus amounting to P677,232.01, the capital stock was
increased to P500,000 although there was no need for such increase.
Petitioner tried to show that in considering the surplus, the examiner did not take into
account the possible expenses for cultivation, labor, fertilitation, drainage, irrigation,
repair, etc. (pp. 235-237 of TSN of Dec. 7, 1962). As aptly answered by the examiner
himself, however, they were already included as part of the working capital (pp. 237-238
of TSN of Dec. 7, 1962).
In the unreasonable accumulation of P347,507.01 are included P200,000 for
electrification of driers and mechanization and P50,000 for malaria control which were
reserved way back in 1948 (p. 67 of the BIR records) but reverted to the general fund
only in 1953. If there were any plans for these amounts to be used in further expansion
through projects, it did not appear in the records as was properly indicated in 1948
when such amounts were reserved. Thus, while in 1948 it was already clear that the
money was intended to go to future projects, in 1953 upon reversion to the general
fund, no such intention was shown. Such reversion therefore gave occasion for the
Government to consider the same for tax purposes. The P250,000 reverted to the
general fund was sought to be explained as later used elsewhere: "part of it in the
Hilano Industries, Inc. in building the factory site and buildings to house technical men .
. . part of it was spent in the facilities for the waterworks system and for industrialization
of the coconut industry" (p. 117 of TSN of Dec. 6, 1962). This is not sufficient
explanation. Persuasive jurisprudence on the matter such as those in the United States
from where our tax law was derived,8 has it that: "In order to determine whether profits
were accumulated for the reasonable needs of the business or to avoid the surtax upon
shareholders, the controlling intention of the taxpayer is that which is manifested at the
time of the accumulation, not subsequently declared intentions which are merely the
products of after-thought."9 The reversion here was made because the reserved amount
was not enough for the projects intended, without any intent to channel the same to
some particular future projects in mind.
Petitioner argues that since it has P560,717.44 as its expenses for the year 1953, a
surplus of P347,507.01 is not unreasonably accumulated. As rightly contended by the
Government, there is no need to have such a large amount at the beginning of the
following year because during the year, current assets are converted into cash and with
the income realized from the business as the year goes, these expenses may well be
taken care of (pp. 238 of TSN of Dec. 7, 1962). Thus, it is erroneous to say that the
taxpayer is entitled to retain enough liquid net assets in amounts approximately equal to
current operating needs for the year to cover "cost of goods sold and operating
expenses" for "it excludes proper consideration of funds generated by the collection of
notes receivable as trade accounts during the course of the year." 10 In fact, just
because the fatal accumulations are less than 70% of the annual operating expenses of
the year, it does not mean that the accumulations are reasonable as a matter of law." 11
Petitioner tried to show that investments were made with Basilan Coconut Producers
Cooperative Association and Basilan Hospital (pp. 103-105 of TSN of Dec. 6, 1962)
totalling P59,794.72 as of December 31, 1953. This shows all the more the
unreasonable accumulation. As of December 31, 1953 already P59,794.72 was spent
yet as of that date there was still a surplus of P347,507.01.
Petitioner questions why the examiner covered the period from 1948-1953 when the
taxable year on review was 1953. The surplus of P347,507.01 was taken by the
examiner from the balance sheet of petitioner for 1953. To check the figure arrived at,
the examiner traced the accumulation process from 1947 until 1953, and petitioner's
figure stood out to be correct. There was no error in the process applied, for previous
accumulations should be considered in determining unreasonable accumulations for the
year concerned. "In determining whether accumulations of earnings or profits in a
particular year are within the reasonable needs of a corporation, it is neccessary to take
into account prior accumulations, since accumulations prior to the year involved may
have been sufficient to cover the business needs and additional accumulations during
the year involved would not reasonably be necessary." 12
Another factor that stands out to show unreasonable accumulation is the fact that large
amounts were withdrawn by or advanced to the stockholders. For the year 1953 alone
these totalled P197,229.26. Yet the surplus of P347,507.01 was left as of December 31,
1953. We find unacceptable petitioner's explanation that these were advances made in
furtherance of the business purposes of the petitioner. As correctly held by the Court of
Tax Appeals, while certain expenses of the corporation were credited against these
amounts, the unspent balance was retained by the stockholders without refunding them
to petitioner at the end of each year. These advances were in fact indirect loans to the
stockholders indicating the unreasonable accumulation of surplus beyond the needs of
the business.
ALLEGED EXEMPTION
Petitioner wishes to avail of the exempting proviso in Sec. 25 of the Internal Revenue
Code as amended by R.A. 1823, approved June 22, 1957, whereby accumulated profits
or surplus if invested in any dollar-producing or dollar-earning industry or in the
purchase of bonds issued by the Central Bank, may not be subject to the 25% surtax.
We have but to point out that the unreasonable accumulation was in 1953. The
exemption was by virtue of Republic Act 1823 which amended Sec. 25 only on June 22,
1957 more than three years after the period covered by the assessment.
In resume, Basilan Estates, Inc. is liable for the payment of deficiency income tax and
surtax for the year 1953 in the amount of P88,977.42, computed as follows:
Net Income per return P40,142.90
Add: Over-claimed depreciation 10,500.49

Net income per finding P50,643.39

20% tax on P50,643.39 P10,128.67

Less: Tax already assessed 8,028.00

Deficiency income tax P2,100.67

Add: 25% surtax on P347,507.01 86,876.75

Total tax due and collectible P88,977.42

===========
WHEREFORE, the judgment appealed from is modified to the extent that petitioner is
allowed its deductions for travelling and miscellaneous expenses, but affirmed insofar
as the petitioner is liable for P2,100.67 as deficiency income tax for 1953 and
P86,876.75 as 25% surtax on the unreasonably accumulated profit of P347,507.01. No
costs. So ordered.

TUPAZ v. ULEP
The case before us is a special civil action for certiorari with application for temporary
restraining order seeking to enjoin respondent Judge Benedicto B. Ulep of the Regional
Trial Court, Quezon City, Branch 105, from trying Criminal Case No. Q-91-17321, and
to nullify respondent judge's order reviving the information therein against petitioner, for
violation of the Tax Code, as the offense charged has prescribed or would expose
petitioner to double jeopardy.1wphi1.nt
The facts are as follows:
On June 8, 1990, State Prosecutor (SP) Esteban A. Molon, Jr. filed with the
Metropolitan Trial Court (MeTC), Quezon City, Branch 33, an information against
accused Petronila C. Tupaz and her late husband Jose J. Tupaz, Jr., as corporate
officers of El Oro Engravers Corporation, for nonpayment of deficiency corporate
income tax for the year 1979, amounting to P2,369,085.46, in violation of Section 51 (b)
in relation to Section 73 of the Tax Code of
1977. 1 On September 11, 1990, the MeTC dismissed the information for lack of
jurisdiction. On November 16, 1990, the trial court denied the prosecution's motion for
reconsideration.
On January 10, 1991, SP Molon filed with the Regional Trial Court, Quezon City, two (2)
informations, docketed as Criminal Case Nos. Q-91-17321 2 and Q-9l-17322, 3 against
accused and her late husband, for the same alleged nonpayment of deficiency
corporate income tax for the year 1979. Criminal Case No. Q-91-17321 was raffled to
Branch 105, 4 presided over by respondent Judge Benedicto B. Ulep; Q-91-17322 was
raffled to Branch 86, then presided over by Judge Antonio P. Solano. The identical
informations read as follows:
That in Quezon City, Metro Manila and within the jurisdiction of this Honorable Court
and upon verification and audit conducted by the Bureau of Internal Revenue on the
1979 corporate annual income tax return and financial statements of El Oro Engravers
Corp., with office address at 809 Epifanio delos Santos Avenue, Quezon City, Metro
Manila, it was ascertained that said corporation was found liable to pay the amount of
P2,369,085.46, as deficiency corporate income tax for the year 1979 and that, despite
demand of the payment of the aforesaid deficiency tax by the Bureau of Internal
Revenue and received by said corporation, which demand has already become final,
said El Oro Engravers Corp., through above-named accused, the responsible
corporate-officers of said corporation, failed and refused, despite repeated demands,
and still fail and refuse to pay said tax liability.
CONTRARY TO LAW. 5
On September 25, 1991, both accused posted bail bond in the sum of P1,000.00 each,
for their provisional liberty.
On November 6, 1991, accused filed with the Regional Trial Court, Quezon City, Branch
86, a motion to dismiss/quash 6 information (Q-91-17322) for the reason that it was
exactly the same as the information against the accused pending before RTC, Quezon
City, Branch 105 (Q-91-17321). However, on November 11, 1991, Judge Solano denied
the motion. 7
In the meantime, on July 25, 1993, Jose J. Tupaz, Jr. died in Quezon City.
Subsequently, accused Petronila C. Tupaz filed with the Regional Trial Court, Quezon
City, Branch 105, a petition for reinvestigation, which Judge Ulep granted in an order
dated August 30, 1994. 8
On September 5, 1994, Senior State Prosecutor Bernelito R. Fernandez stated that no
new issues were raised in the request for reinvestigation, and no cogent reasons
existed to alter, modify or reverse the findings of the investigating prosecutor. He
considered the reinvestigation as terminated, and recommended the prompt
arraignment and trial of the accused. 9
On September 20, 1994, the trial court (Branch No. 105) arraigned accused Petronila C.
Tupaz in Criminal Case No. Q-91-17321, and she pleaded not guilty to the information
therein.
On October 17, 1994, the prosecution filed with the Regional Trial Court, Quezon City,
Branch 105, a motion for leave to file amended information in Criminal Case No. Q91-
17321 to allege expressly the date of the commission of the offense, to wit: on or about
August 1984 or subsequently thereafter. Despite opposition of the accused, on March 2,
1995, the trial court granted the motion and admitted the amended information. 10
Petitioner was not re-arraigned on the amended information. However, the amendment
was only on a matter of form. 11 Hence, there was no need to re-arraign the accused. 12
On December 5, 1995, accused filed with the Regional Trial Court, Quezon City, Branch
105, a motion for leave to file and admit motion for reinvestigation. The trial court
granted the motion in its order dated December 13, 1995.
Prior to this, on October 18, 1995, Judge Ulep issued an order directing the prosecution
to withdraw the information in Criminal Case No. Q-91-17322, pending before Regional
Trial Court, Quezon City, Branch 86, after discovering that said information was
identical to the one filed with Regional Trial Court, Quezon City, Branch 105. On April
16, 1996, State Prosecutor Alfredo P. Agcaoili filed with the trial court a motion to
withdraw information in Criminal Case No. Q-91-17321. Prosecutor Agcaoili thought that
accused was charged in Criminal Case No. Q-91-17321, for nonpayment of deficiency
contractor's tax, but found that accused was exempted from paying said tax.
On May 15, 1996, Prosecutor Agcaoili filed with the Regional Trial Court, Quezon City,
Branch 86, a motion for consolidation of Criminal Case No. Q-91-17322 with Criminal
Case No. Q-91-17321 pending before the Regional Trial Court, Quezon City, Branch
105. On the same date, the court 13 granted the motion for consolidation.
On May 20, 1996, Judge Ulep of Regional Trial Court, Quezon City, Branch 105,
granted the motion for withdrawal of the information in Criminal Case No. Q-91-17321
and dismissed the case, as prayed for by the prosecution.
On May 28, 1996, Prosecutor Agcaoili filed with the Regional Trial Court, Quezon City,
Branch 105, a motion to reinstate information in Criminal Case Q-91-17321, 14 stating
that the motion to withdraw information was made through palpable mistake, and was
the result of excusable neglect. He thought that Criminal Case No. Q-91-17321 was
identical to Criminal Case No. Q-90-12896, wherein accused was charged with
nonpayment of deficiency contractor's tax, amounting to P346,879.29.
Over the objections of accused, on August 6, 1996, the Regional Trial Court, Quezon
City, Branch 105, granted the motion and ordered information in Criminal Case No. Q-
91-17321 reinstated. 15 On September 24, 1996, accused filed with the trial court a
motion for reconsideration. On December 4, 1996, the trial court denied the motion.
Hence, this petition.
On July 9, 1997, we required respondents to comment on the petition within ten (10)
days from notice. On October 10, 1997, the Solicitor General filed his comment. 16
On October 26, 1998, the Court resolved to give due course to the petition and required
the parties to file their respective memoranda within twenty (20) days from notice. The
parties have complied.
Petitioner submits that respondent judge committed a grave abuse of discretion in
reinstating the information in Criminal Case No. Q-91-17321 because (a) the offense
has prescribed; or (b) it exposes her to double jeopardy.
As regards the issue of prescription, petitioner contends that: (a) the period of
assessment has prescribed, applying the three (3) year period provided under Batas
Pambansa No. 700; (b) the offense has prescribed since the complaint for preliminary
investigation was filed with the Department of Justice only on June 8, 1989, and the
offense was committed in April 1980 when she filed the income tax return covering
taxable year 1979.
Petitioner was charged with nonpayment of deficiency corporate income tax for the year
1979, which tax return was filed in April 1980. On July 16, 1984, the Bureau of Internal
Revenue (BIR) issued a notice of assessment. Petitioner contends that the July 16,
1984 assessment was made out of time.
Petitioner avers that while Sections 318 and 319 of the NIRC of 1977 provide a five (5)
year period of limitation for the assessment and collection of internal revenue taxes,
Batas Pambansa Blg. 700, enacted on February 22, 1984, amended the two sections
and reduced the period to three (3) years. As provided under B.P. Blg. 700, the BIR has
three (3) years to assess the tax liability, counted from the last day of filing the return, or
from the date the return is filed, whichever comes later. Since the tax return was filed in
April 1980, the assessment made on July 16, 1984 was beyond the three (3) year
prescriptive period.
Petitioner submits that B.P. Blg. 700 must be given retroactive effect since it is favorable
to the accused. Petitioner argues that Article 22 of the Revised Penal Code, regarding
the allowance of retroactive application of penal laws when favorable to the accused
shall apply in this case.
The Solicitor General, in his comment, maintains that the prescriptive period for
assessment and collection of petitioner's deficiency corporate income tax was five (5)
years. The Solicitor General asserts that the shortened period of three (3) years
provided under B.P. Blg. 700 applies to assessments and collections of internal revenue
taxes beginning taxable year 1984. Since the deficiency corporate income tax was for
taxable year 1979, then petitioner was still covered by the five (5) year period. Thus, the
July 16, 1984 tax assessment was made within the prescribed period.1wphi1.nt
At the outset, it must be stressed that "internal revenue taxes are self-assessing and no
further assessment by the government is required to create the tax liability. An
assessment, however, is not altogether inconsequential; it is relevant in the proper
pursuit of judicial and extra judicial remedies to enforce taxpayer liabilities and certain
matters that relate to it, such as the imposition of surcharges and interest, and in the
application of statues of limitations and in the establishment of tax liens." 17
An assessment contains not only a computation of tax liabilities, but also a demand for
payment within a prescribed period. The ultimate purpose of assessment is to ascertain
the amount that each taxpayer is to pay. 18 An assessment is a notice to the effect that
the amount therein stated is due as tax and a demand for payment thereof. 19
Assessments made beyond the prescribed period would not be binding on the taxpayer.
20

We agree with the Solicitor General that the shortened period of 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 period of three years shall apply to
assessments and collections of internal revenue taxes beginning taxable year 1984.
Assessments made on or after April 5, 1984 are governed by the five-year period if the
taxes assessed cover taxable years prior to January 1,
1984. 21 The deficiency income tax under consideration is for taxable year 1979. Thus,
the period of assessment is still five (5) years, under the old law. The income tax return
was filed in April 1980. Hence, the July 16, 1984 tax assessment was issued within the
prescribed period of five (5) years, from the last day of filing the return, or from the date
the return is filed, whichever comes later.
Art. 22 of the Revised Penal Code finds no application in this case for the simple reason
that the provisions on the period of assessment can not be considered as penal in
nature.
Petitioner also asserts that the offense has prescribed. Petitioner invokes Section 340
(now 281 of 1997 NIRC) of the Tax Code which provides that violations of any provision
of the Code prescribe in five (5) years. Petitioner asserts that in this case, it began to
run in 1979, when she failed to pay the correct corporate tax due during that taxable
year. Hence, when the BIR instituted criminal proceedings on June 8, 1989, by filing a
complaint for violation of the Tax Code with the Department of Justice for preliminary
investigation it was beyond the prescriptive period of five (5) years. At most, the BIR
had until 1984 to institute criminal proceedings.
On the other hand, the Solicitor General avers that the information for violation of the
Tax Code was filed within the prescriptive period of five (5) years provided in Section
340 (now 281 in 1997 NIRC) of the Code. It is only when the assessment has become
final and unappealable that the five (5) year period commences to run. A notice of
assessment was issued on July 16, 1984. When petitioner failed to question or protest
the deficiency assessment thirty (30) days therefrom, or on August 16, 1984, it became
final and unappealable. Consequently, it was from this period that the prescriptive
period of five (5) years commenced. Thus, the complaint filed with the Department of
Justice on June 8, 1989 was within the prescribed period.
We agree with the Solicitor General that the offense has not prescribed. Petitioner was
charged with failure to pay deficiency income tax after repeated demands by the taxing
authority. In Lim, Sr. v. Court of Appeals, 22 we stated that 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 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 assessment, the taxpayer has not committed any violation for
nonpayment of the tax. The offense was committed only after the finality of the
assessment coupled with taxpayer's willful refusal to pay the taxes within the allotted
period. In this case, when the notice of assessment was issued on July 16, 1984, the
taxpayer still had thirty (30) days from receipt thereof to protest or question the
assessment. Otherwise, the assessment would become final and unappealable. 23 As
he did not protest, the assessment became final and unappealable on August 16, 1984.
Consequently, when the complaint for preliminary investigation was filed with the
Department of Justice on June 8, 1989, the criminal action was instituted within the five
(5) year prescriptive period.
Petitioner contends that by reinstating the information, the trial court exposed her to
double jeopardy. Neither the prosecution nor the trial court obtained her permission
before the case was dismissed. She was placed in jeopardy for the first time after she
pleaded to a valid complaint filed before a competent court and the case was dismissed
without her express consent. When the trial court reinstated the information charging
the same offense, it placed her in double jeopardy.
Petitioner also asserts that the trial court gravely erred when, over her objections, it
admitted the amended information. She submits that the amendment is substantial in
nature, and would place her in double jeopardy.
On the other hand, the Solicitor General contends that reinstating the information does
not violate petitioner's right against double jeopardy. He asserts that petitioner induced
the dismissal of the complaint when she sought the reinvestigation of her tax liabilities.
By such inducement, petitioner waived or was estopped from claiming her right against
double jeopardy.
The Solicitor General further contends that, assuming arguendo that the case was
dismissed without petitioner's consent, there was no valid dismissal of the case since
Prosecutor Agcaoili was under a mistaken assumption that it was a charge of
nonpayment of contractor's tax.
We sustain petitioner's contention. The reinstatement of the information would expose
her to double jeopardy. An accused is placed in double jeopardy if he is again tried for
an offense for which he has been convicted, acquitted or in another manner in which the
indictment against him was dismissed without his consent. In the instant case, there
was a valid complaint filed against petitioner to which she pleaded not guilty. The court
dismissed the case at the instance of the prosecution, without asking for accused-
petitioner's consent. This consent cannot be implied or presumed. 24 Such consent must
be expressed as to have no doubt as to the accused's conformity. 25 As petitioner's
consent was not expressly given, the dismissal of the case must be regarded as final
and with prejudice to the re-filing of the case. 26 Consequently, the trial court committed
grave abuse of discretion in reinstating the information against petitioner in violation of
her constitutionally protected right against double jeopardy.
WHEREFORE, we GRANT the petition. We enjoin the lower court, the Regional Trial
Court of Quezon City, Branch 105, from trying Criminal Case No. Q-91-17321 and order
its dismissal. Costs de oficio.
SO ORDERED.

NAVA v. CIR
Gonzalo P. Nava prosecuted this appeal against a decision dated September 25, 1961
by the Court of Tax Appeals (C.T.A. Case No. 568) holding him liable in the amount of
P3,052.00 as deficiency income tax for the year 1950 as well as from its order dated
February 10, 1962 denying a motion to reconsider said decision.
The undisputed facts are: that on May 15, 1951, Nava filed his income tax return for the
year 1950, and, on the same date, he was assessed by respondent Commissioner
(formerly Collector) of Internal Revenue in the sum of P4,952.00, based solely on said
return. Nava paid one-half of the tax due, leaving a balance of P2,491.00.
Subsequently, Nava offered his backpay certificate to pay said balance, but respondent
refused the offer. On July 28, 1953, he requested the respondent to hold in abeyance
the collection of said balance until the question of whether or not he was entitled to pay
the same out of his backpay shall have been decided, but this was also rejected by the
latter in a reply letter dated January 5, 1954. This rejection was followed by two more
letters or notices demanding payment of the balance thereof, the last of which was
dated February 22, 1955.
On March 30, 1955, after investigation of petitioner's 1950 income tax return,
respondent Collector issued a deficiency income tax assessment notice (Exhibit "4")
requiring petitioner to pay not later than April 30, 1955 the sum of P9,124.50, that
included the balance of P2,491.00, still unpaid under the original assessment, plus a
50% surcharge. Several notices of this revised assessment are alleged to have been
issued to the taxpayer, but Nava claims to have learned of it for the first time on
December 19, 1956, more than five years since the original tax return was filed, and
testified to that effect in the court below. In a letter of January 10, 1957, Nava called
attention to the fact that more than six years had elapsed, protested the assessment,
and contended that it was a closed issue. The Director insisted upon his demand that
the new assessment be paid (registered letter of Mach 25, 1957, Exhibit "5"). Nava
asked for reconsideration, and on June 16, 1958 was informed that reinvestigation
would be granted provided the taxpayer waived the statute of limitations (Exh. "7"), a
condition that was rejected (Exh. "8"). Thereupon, the reconsideration of the
assessment was denied by the Collector's letter of July 22, 1958 (Exh. "9"), and on
August 8, 1958 Nava filed a petition for review with the Court of Tax Appeals. The latter
reduced the deficiency to P3,052.00, and cancelled the 50% surcharge. The petitioner
appealed to this Court.
The principal issue in this appeal is whether the enforcement of the tax assessment has
prescribed. The Court of Tax Appeals ruled that it had not, stating that:
The duplicate copy of the income tax assessment notice indicates that it was issued on
March 30, 1955 (Exh. 4, page 7, B.I.R. records). "Call-up" letters were sent to petitioner
reminding him of the obligation. These call-up letters or notices were recorded in Exh. C
for petitioner (Exh. 3 for respondent, page 6, B.I.R. records), to wit:
1st notice 4/10/56
2nd notice 7/3/56
Final 9/25/56
In addition to the written notice sent to petitioner, he was also personally interviewed. A
report on these written notices and personal interviews appears in the memorandum of
an agent of the Bureau of Internal Revenue dated December 10, 1956, the pertinent
portion of which reads as follows.
"Several call-up letters and repeated demands have been made to subject taxpayers
but in spite of the considerable length of time that has elapsed the above accounts still
remain unsettled. The warrant assemblies of the above-stated tax cases were assigned
to Agent A. H. Aguilar and an interview with Mr. G. P. Nava revealed that the latter
refused to pay alleging that these cases come within the purview of the Avelino case,
hence, the
B.I.R. has no more right to collect from him." (Exh. D, page 8, B.I.R. records).
Petitioner's claim that he came to know of the assessment only on or about December
19, 1956 can not be given much credence. We are inclined to believe that the
assessment notice dated March 30, 1955 and the several call-up letters sent to him
were received by him in due course of mail but that he ignored them because of his
belief that the right of the Government to collect the tax had prescribed in view of the
decision in the Avelino case. This conclusion finds support in a note sent or delivered by
petitioner to an employee of the Bureau who interviewed him, wherein he stated:
"This is to certify that I have received today, second final notice from the Bureau of
Internal Revenue delivered by Mrs. Canlas. My reply to your said final notice, as per
your request, will be sent to you on or before January 3, 1957, in view of the fact that I
may not be able to contact right away my Accountant." (Exh. E, page 9, B.I.R. records;
Emphasis ours.)
The fact that petitioner admitted receipt of the "second final notice" without protest is an
indication that he received the previous notices
Assuming that petitioner received the income tax assessment notice dated March 30,
1955 in due course of mail, that is, not later than April 10, 1955, the assessment was
made within the five-year period since he filed his income tax return on May 15, 1951,
even granting that the ten-year period applicable to fraud cases does not apply to this
case. (The assessment includes the fraud penalty.) Since the deficiency income tax was
assessed on or about April 10, 1955, the Government is authorized to collect the same
by distraint or levy or by judicial action within five years from that date, or not later than
April 10, 1960. Judicial action was instituted in the Court of First Instance of Manila in
Civil Case No. 32796 for collection of said amount, followed by the institution of the
instant appeal in this Court by petitioner himself on August 8, 1958, both within the five-
year period. Therefore, we are of the opinion that the right of the Government to assess
and collect said deficiency income tax has not prescribed." (Annex "O", petition, pp.
134-137, records).
It is to be noted that in its decision the Court of Tax Appeals relied mainly on the
duplicate copy of the deficiency income tax notice found in the Bureau of Internal
Revenue file of petitioner Nava (Exhibit "4", page 7, B.I.R. records). On the
corresponding blank space for the date of issue of said duplicate copy was typed
"3/30/55". Petitioner Nava denied having received the original copy of said notice. The
Revenue Commissioner, on the other hand, presented a witness (Mr. Pablo Sangil, an
employee [clerk] of the B.I.R.) who attempted to establish that the original copy thereof
was actually issued or sent on March 30, 1955. This witness, however, disclaimed
having personal knowledge of its issuance or release on said date either by mail or
personal delivery because, according to him, he was assigned in the income tax section
of the Bureau of Internal Revenue in October, 1956 only. Sangil also declared that there
is no notation whatsover in said file copy (Exhibit "4"), nor even a slip of paper attached
to the records, to show that the original copy of said exhibit was ever actually issued or
sent to the taxpayer. He even admitted that he had no hand in the preparation or
sending of written notices or demand letters of the Bureau of Internal Revenue to the
taxpayers, his duties being merely to keep the dockets of taxpayers pertaining to
income tax, to post and transmit papers to the other branches of the Bureau for action,
and to keep letters of taxpayers, memorandum and other official matters. Respondent
presented another witness, Mr. Eliseo B. Fernandez, whose duties, as record clerk of
the Records Control Section of the Bureau of Internal Revenue since 1957 (already past
the limitation period of this case), are to send mail and to keep a record book of letters
which are mailed to the taxpayers. Insofar as the testimony of this witness is concerned,
he only declared as to the fact that there appears in his record book a note (Exhibit
"10") that a letter dated March 15, 1957 was mailed by special delivery with return card
to Gonzalo P. Nava. He admitted, however, that he was not the one who prepared such
entry in the record book. What was the nature of the letter does not appear; at any rate,
it was mailed beyond the 5-year limitation period.
The lower court also relied on the supposed notices noted in ink (followed by an illegible
initial) in Exhibit "3" for respondent (page 6, B.I.R. records), the first of which was
purportedly sent on April 10, 1956, the second on July 3, 1956, and the final one on
August 25, 1956, as well as on the supposed "call-up" or demand letters referred to in a
memorandum of an agent (Mrs. Canlas) of the Bureau of Internal Revenue. (Exhibit "D",
page 8, B.I.R. records). No witness for the respondent testified to the issuance or
sending of any of these supposed written demand letters or notices, nor was there any
duplicate or even a simple copy thereof found in petitioner Nava's Bureau of Internal
Revenue file. Although witness Sangil testified as to the meaning of the dates noted in
Exhibit "3", his testimony cannot be given much credence because those supposed
notices were sent on or before August 25, 1956 at the latest, and, as hereinabove
pointed out, the witness was assigned in the income tax section of the Bureau of
Internal Revenue since October, 1956 only.
Thus, contrary to the finding of the Court of Tax Appeals, respondent utterly failed to
prove by substantial evidence that the assessment notice dated March 30, 1955 and the
other supposed written demand letters or notices subsequent thereto were in fact
issued or sent to taxpayer Nava. The presumption that a letter duly directed and mailed
was received in the regular course of mail (Sec. 5 [v], Rule 131, revised Rules of Court)
cannot be applied to the case at bar.
The facts to be proved to raise this presumption are (a) that the letter was properly
addressed with postage prepaid, and (b) that it was mailed. Once these facts are
proved, the presumption is that the letter was received by the addressee as soon as it
could have been transmitted to him in the ordinary course of the mail. But if one of the
said facts fails to appear, the presumption does not lie." (VI, Moran, Comments on the
Rules of Court, 1963 ed., 56-57; citing Enriquez vs. Sun Life Assurance of Canada, 41
Phil. 269) (Emphasis supplied).
Since none of these requirements have been shown, there has been no valid and
effective issuance or release of said deficiency income tax assessment notice dated
March 30, 1955 and of the other demand letters or notices subsequent thereto, the
latest of which was purportedly sent on August 25, 1956, and these dates cannot be
reckoned with in computing the period of prescription within which a court action to
collect the same may be brought.
The fact that in Exhibit "E" Nava acknowledged receipt of the second final notice
personally delivered to him is no proof that he received the first notice by mail. There is
a difference between receiving a second final notice and receiving a final notice for the
second time.
It being undisputed that an original assessment of Nava's 1950 income tax return was
made on May 15, 1951, and no valid and effective notice of the re-assessment having
been made against the petitioner after that date (May 15, 1951), it is evident that the
period under Section 331 of the Tax Code within which to make a re-assessment
expired on May 15, 1956. Since the notice of said deficiency income tax was effectively
made on December 19, 1956 at the earliest, the judicial action to collect any deficiency
tax on Nava's 1950 income tax return has already prescribed under Section 332 (c) of
the Tax Code, it having been found by the Tax Appeals court that said return was not
false or fraudulent.
While we have held that an assessment is made when sent within the prescribed
period, even if received by the taxpayer after its expiration (Coll. of Int. Rev. vs.
Bautista, L-12250 and L-12259, May 27, 1959), this ruling makes it the more imperative
that the release, mailing, or sending of the notice be clearly and satisfactorily proved.
Mere notations made without the taxpayer's intervention, notice, or control, without
adequate supporting evidence, cannot suffice; otherwise, the taxpayer would be at the
mercy of the revenue offices, without adequate protection or defense.
Having reached the conclusion that the action to collect said deficiency income tax has
already prescribed, it is unnecessary to discuss the other issues raised by petitioner
Nava in the instant appeal.1wph1.t
WHEREFORE, the decision of the Court of Tax Appeals under review is reversed,
without costs.

REPUBLIC v. CA
This is a petition for review on certiorari of the decision of the respondent Court of
Appeals 1 in CA G.R. No. 37417-R, dated 3 April 1974, reversing the decision of the
then Court of First Instance of Manila which ordered private respondent Nielson & Co.,
Inc. to pay the Government the amount of P11,496.00 as ad valorem tax, occupation
fees, additional residence tax and 25% surcharge for late payment, for the years 1949
to 1952, and costs of suit, and of the resolution of the respondent Court, dated 31 May
1974, denying petitioner's motion for reconsideration of said decision of 3 April 1974.
In a demand letter, dated 16 July 1955 (Exhibit A), the Commissioner of Internal
Revenue assessed private respondent deficiency taxes for the years 1949 to 1952,
totalling P14,449.00, computed as follows:
1-1/2% ad valorem tax on P448,000.00..........................P7,320.00
25% surcharge for late payment......................................1,830.00
Occupation fees for the years 1949
to 1952 at P1.00 per ha. per
year on 1, 230 hectares.....................................4,920.00
Additional residence tax on P79,000.00
at P1.00 per every P5,000.00
per year or P75.00 x 4 years................................303.20
25% surcharge for late payment.........................................75.00
TOTAL AMOUNT DUE............................ P14,449.00 2
Petitioner reiterated its demand upon private respondent for payment of said amount,
per letters dated 24 April 1956 (Exhibit D), 19 September 1956 (Exhibit E) and 9
February 1960 (Exhibit F). Private respondent did not contest the assessment in the
Court of Tax Appeals. On the theory that the assessment had become final and
executory, petitioner filed a complaint for collection of the said amount against private
respondent with the Court of First Instance of Manila, where it was docketed as Civil
Case No. 42911. However, for failure to serve summons upon private respondent, the
complaint was dismissed, without prejudice, in the Court's order dated 30 June 1961.
On motion, the order of dismissal was set aside, at the same time giving petitioner sixty
(60) days within which to serve summons upon private respondent.
For failure anew to serve summons, the Court of First Instance of Manila issued an
order dated 4 October 1962 dismissing Civil Case No. 42911 without prejudice. The
order of dismissal became final on 5 November 1962.
On 15 November 1962, the complaint against private respondent for collection of the
same tax was refiled, but the same was erroneously docketed as Civil Case No. 42911,
the same case previously dismissed without prejudice. Without correcting this error,
another complaint was filed on 26 November 1963, docketed as Civil Case No. 55817,
the subject matter of the present appeal.
As herein earlier stated, the Court a quo rendered a decision against the private
respondent. On appeal to the respondent Court of Appeals, the decision was reversed.
Petitioner, Republic of the Philippines, filed a motion for reconsideration which was
likewise denied by said Court in a resolution dated 31 May 1974. Hence, this petition,
with the following assignment of errors:
I
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE LETTER OF
ASSESSMENT DATED JULY 16, 1955, EXHIBIT "A," WAS RECEIVED BY PRIVATE
RESPONDENT IN THE ORDINARY COURSE OF THE MAIL PURSUANT TO
SECTION 8, RULE 13 OF THE REVISED RULES OF COURT.
II
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PRIVATE
RESPONDENT FAILED TO REBUT THE PRESUMPTION THAT THE LETTER
ASSESSMENT DATED JULY 16, 1955, HAVING BEEN DULY DIRECTED AND
MAILED WAS RECEIVED IN THE REGULAR COURSE OF THE MAIL AND THAT
OFFICIAL DUTY HAS BEEN REGULARLY PERFORMED.
III
THAT, ASSUMING, WITHOUT ADMITTING, THAT THE LETTER DATED JULY 16,
1955 (EXHIBIT "A") CANNOT BE CONSIDERED AS AN ASSESSMENT, ON THE
THEORY THAT THE SAME HAS NOT BEEN RECEIVED BY PRIVATE
RESPONDENT, THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
LETTER OF THE DEPUTY COLLECTOR (NOW DEPUTY COMMISSIONER) OF
INTERNAL REVENUE DATED SEPTEMBER 19, 1956 (EXHIBIT "E") IS ITSELF AN
ASSESSMENT WHICH WAS DULY RECEIVED BY PRIVATE RESPONDENT.
Relying on the provisions of Section 8, Rule 13 and Section 5, paragraphs m & v. Rule
131 of the Revised Rules of Court, petitioner claims that the demand letter of 16 July
1955 showed an imprint indicating that the original thereof was released and mailed on
4 August 1955 by the Chief, Records Section of the Bureau of Internal Revenue, and
that the original letter was not returned to said Bureau; thus, said demand letter must be
considered to have been received by the private respondent. 3 According to petitioner, if
service is made by ordinary mail, unless the actual date of receipt is shown, service is
deemed complete and effective upon the expiration of five (5) days after mailing. 4 As
the letter of demand dated 16 July 1955 was actually mailed to private respondent,
there arises the presumption that the letter was received by private respondent in the
absence of evidence to the contrary. 5 More so, where private respondent did not offer
any evidence, except the self-serving testimony of its witness, that it had not received
the original copy of the demand letter dated 16 July 1955. 6
We do not agree with petitioner's above contentions. As correctly observed by the
respondent court in its appealed decision, while the contention of petitioner is correct
that a mailed letter is deemed received by the addressee in the ordinary course of mail,
stilt this is merely a disputable presumption, subject to controversion, and a direct denial
of the receipt thereof shifts the burden upon the party favored by the presumption to
prove that the mailed letter was indeed received by the addressee. Thus:
Appellee contends that per Exhibit A, the notice was released and mailed to the
appellant by the BIR on Aug. 4, 1955 under the signature of the Chief, Records Section,
Office; that since the original thereof was not returned to the appellee, the presumption
is that the appellant received the mailed notice. This is correct, but this being merely a
mere disputable presumption, the same is subject to controversion, and a direct denial
of the receipt thereof shifts the burden upon the party favored by the presumption to
prove that the mailed letter was received by the addressee. The appellee, however,
argues that since notice was rc-,Ieased and mailed and the fact of its release was
admitted by the appellant the admission is proof that he received the mailed notice of
assessment. We do not think so. It is true the Court a quo made such a finding of fact,
but as pointed out by the appehant in its brief, and as borne out by the records, no such
admission was ever made by the appellant in the answer or in any other pleading, or in
any declaration, oral or documentary before the trial court. We note that the appellee
has not met this challenge, and after a review of the records, we find appeflant's
assertion well-taken. 7
Since petitioner has not adduced proof that private respondent had in fact received the
demand letter of 16 July 1955, it can not be assumed that private respondent received
said letter. Records, however, show that petitioner wrote private respondent a follow-up
letter dated 19 September 1956, reiterating its demand for the payment of taxes as
originally demanded in petitioner's letter dated 16 July 1955. This follow-up letter is
considered a notice of assessment in itself which was duly received by private
respondent in accordance with its own admission. 8 The aforesaid letter reads:
September 19, 1956
Nielson and Company, Inc.
Ayala Boulevard, Manila
Gentlemen:
In reply to you (sic) letter dated June 1, 1956 relative to your pending internal revenue
tax liability involving the amount of P15,649.00 as annual occupation fees, ad valorem
and additional residence taxes, surcharges and penalty, originally demanded of you on
July 16, 1955, I have the honor to inform you that investigation conducted by an agent
of this office show that you and the Hixbar Gold Mining Co., Inc. entered into an
agreement in 1938 whereby you were given full exclusive and irrevocable control of all
the operations, development, processing and marketing of mineral products from the
latter's mines and that au the assessments, taxes and fees of any nature in connection
with the said operation, development, proceeding and marketing of these products shall
be paid by you. In view thereof, and it appearing that the aforesaid tax liabilities accrued
when your contract was in fun force and effect, you are therefore, the party hable for the
payment thereof, notwithstanding the alleged contract subsequently entered into by you
and the Hixbar Gold Mining Co., Inc. on September 9, 1954.
It is therefore, again requested that payment of the aforesaid amount of P15,649.00 be
made to the City Treasurer, Manila within five (5) days from your receipt hereof so that
this case may be closed.
You are further requested to pay the sum of P150.00 as compromise suggested in our
letter to you dated February 24, 1955, it appearing that the same has not as yet been
paid up to the present.
Very respectfully yours,
JOSE ARANAS
Deputy Collector of Internal Revenue 9
Under Section 7 of Republic Act No. 1125, the assessment is appealable to the Court of
Tax Appeals within thirty (30) days from receipt of the letter. The taxpayer's failure to
appeal in due time, as in the case at bar, makes the assessment in question final,
executory and demandable. Thus, private respondent is now barred from disputing the
correctness of the assessment or from invoking any defense that would reopen the
question of its liability on the merits. 10
In Mamburao Lumber Co. vs. Republic, 11 this Court further said:
In a suit for collection of internal revenue taxes, as in this case, where the assessment
has already become final and executory, the action to collect is akin to an action to enforce
a judgment. No inquiry can be made therein as to the merits of the original case or the
justness of the judgment relied upon. ...
ACCORDINGLY, the appealed decision is hereby reversed. The decision of the Court a
quo is hereby reinstated. No costs.
SO ORDERED.

CIR v. WESTERN PACIFIC

On March 2, 1959, the respondent Western Pacific Corporation, was assessed for
P3,731.00, as deficiency income tax for the year 1953. This assessment was brought
about by the disallowance of P8,265.82, listed in respondent's return for 1953, as
expense items, and P10,387.50, as written off "bad debts." The assessment was
received by respondent on the same date (March 2, 1959). On March 5, 1959, the
Commissioner of Internal Revenue wrote the respondent corporation a letter of demand
for the payment of the amount, including therein a breakdown of said assessment.
Under date of June 29, 1959, respondent corporation, thru Ruifino Melo & Company,
Consulting and Examining Auditors, requested for non-assessment, claiming that there
has been prescription in making the assessment, that the expense items and bad debts
were allowable deduction. The letter was accompanied by a Resolution of the
corporation, dated February 2, 1954, where it was resolved to write off the debts of the
people appearing in another annex. The Commissioner on July 30, 1959 replied to the
request, denying the same, and demanding the payment of the amount due within thirty
(30) days from receipt of said demand. On September 19, 1958, respondent corporation
requested that it be permitted until September 25, 1959, to submit formal objections to
the assessment. The formal objections appearing in the letter of September 22, 1959,
were identical to those of the June 29, 1959 communication, reason for which the
Commissioner did not give any favorable action. The last letter of the Commissioner,
dated October 28, 1959, among others, requested payment of the assessment within
ten (10) days from receipt thereof.
On December 18, 1959, respondent Western Pacific Corporation, presented with the
Court of Tax Appeals a petition for Review of assessment made by the Commissioner,
on three (3) counts, to wit:
(1) whether or not the making of the assessment had prescribed;
(2) whether expenses incurred in securing IGC Licenses are capital expenditures, and,
as such, not deductible from the income; and
(3) whether the bad debts written off should likewise be deducted.
When the issues were joined, by the filing of the Answer, and after hearing, the CTA
rendered judgment absolving the Western Pacific Corporation from the assessment. It,
however, ruled out prescription, stating that March 2, 1959, was the last day of the five
(5) year period within which to make the assessment. On this point, the CTA ruled:
However, we do not agree with petitioner that the assessment in question was issued
beyond the 5-year statutory limitation. February 28, 1959 fell on a Saturday. Pursuant to
Republic Act No. 1880, as, implemented by Executive Order No. 25, effective July 1,
1959, all bureaus and offices of the government, except schools, court, hospitals and
health clinics, hold office only five days a week or from Monday to Friday. Saturday and
Sunday, are constituted public holidays or days of exemption from labor or work as far
as government offices, including that of respondent Commissioner, are concerned. The
offices and bureaus concerned are officially closed on those days. So that on February
28, 1959 and March 1, 1959, which were Saturday and Sunday, respectively, the office
of respondent was officially closed. And where the last day for doing an act required by
law falls on a holiday, the act may be done on the next succeeding business day.
(Section 31, Revised Administrative Code.) Similarly, in computing any period of time
prescribed by statute, the day of the act after which the designated period of time
begins to run is not included. But the last day of the period so computed is to be
included, unless it is a Sunday or a legal holiday, in which event the time shall run until
the end of the next day which is neither a Sunday or a holiday (Section 1, Rule 28,
Rules of Court). Consequently, since February 28, 1959 was a Saturday and the next
day, March 1, 1959, a Sunday, respondent had until the next succeeding business day,
March 2, 1959, Monday, within which to issue the deficiency assessment. The
assessment in question having been issued on March 2, 1959, it was, therefore,
seasonably made.
We concur in the above findings and conclusions, convinced as We are, that they are
actually and legally correct..
The above ruling notwithstanding, the Commissioner of Internal Revenue appealed
against the judgment which absolved respondent Western Pacific Corporation from
liability, alleging that the CTA erred:.
(1) In taking cognizance of the case, notwithstanding lack of jurisdiction; and
(2) Granting it had jurisdiction, in considering the expense items and the written off bad
debts as deductible.1wph1.t
Without going into the merits of the decision absolving the respondent corporation of tax
liability, We find that the assessment made by the Commissioner should be maintained,
for the simple reason that when the petition for review was brought to the CTA by the
respondent corporation, the said Court no longer had jurisdiction to entertain the same.
The assessment had long become final. A petition for review should be presented,
within the reglementary period, as provided for in Section 11, Republic Act No. 1125,
which is "thirty (30) days from receipt of the assessment." The thirty (30) day period is
jurisdictional (Pangasinan Transportation Co. vs. Blaquera, L-13101, April 29, 1960).
It will be noted that the assessment was received by the respondent corporation on
March 2, 1959. It was only on June 29, 1959, when said corporation formally assailed
the assessment, on the grounds of prescription in making the assessment and the
impropriety of the disallowance of the listed deductions. From March 3 to June 29,
1959, manifestly more than thirty (30) days had lapsed and the assessment became
final, executory and demandable (Ventanilla vs. Bd. of Tax Appeals, et al., L-7384, Dec.
19, 1955). Of course, in the interim, a number of communications were exchanged
between the parties, the latest of which was dated October 28, 1959. Even if this date is
considered as the commencement of the thirty (30) day period, still the petition for
review with the CTA was out of time, because it was only on December 18, 1959, that
said petition was presented. Failure to comply with the thirty-day statutory period would
bar appeal and deprive the CTA of its jurisdiction to entertain and determine the
correctness of the assessment (Gibbs & Gibbs vs. Coll. of Int. Rev. & CTA, L-13453,
Feb. 29, 1960).
IN VIEW OF THE FOREGOING, the decision of the CTA is hereby set aside for having
been rendered without jurisdiction, the assessment in question having been already
final, executory and demandable before the petition for review was presented; and
another entered, ordering respondent Western Pacific Corporation to pay the
assessment made by the Collector of Internal Revenue, and the further amount of 5%
surcharge and 1% monthly interest on the amount assessed, from April 1, 1959 until
date of full payment. Costs against the respondent corporation.

CIR v. PRIMETOWN PROPERTY

This petition for review on certiorari1 seeks to set aside the August 1, 2003 decision2 of
the Court of Appeals (CA) in CA-G.R. SP No. 64782 and its February 9, 2004 resolution
denying reconsideration.3
On March 11, 1999, Gilbert Yap, vice chair of respondent Primetown Property Group,
Inc., applied for the refund or credit of income tax respondent paid in 1997. In Yap's
letter to petitioner revenue district officer Arturo V. Parcero of Revenue District No. 049
(Makati) of the Bureau of Internal Revenue (BIR),4 he explained that the increase in the
cost of labor and materials and difficulty in obtaining financing for projects and collecting
receivables caused the real estate industry to slowdown.5 As a consequence, while
business was good during the first quarter of 1997, respondent suffered losses
amounting to 71,879,228 that year.6
According to Yap, because respondent suffered losses, it was not liable for income
taxes.7 Nevertheless, respondent paid its quarterly corporate income tax and remitted
creditable withholding tax from real estate sales to the BIR in the total amount of
26,318,398.32.8 Therefore, respondent was entitled to tax refund or tax credit. 9
On May 13, 1999, revenue officer Elizabeth Y. Santos required respondent to submit
additional documents to support its claim.10 Respondent complied but its claim was not
acted upon. Thus, on April 14, 2000, it filed a petition for review11 in the Court of Tax
Appeals (CTA).
On December 15, 2000, the CTA dismissed the petition as it was filed beyond the two-
year prescriptive period for filing a judicial claim for tax refund or tax credit.12 It invoked
Section 229 of the National Internal Revenue Code (NIRC):
Sec. 229. Recovery of Taxes Erroneously or Illegally Collected. -- No suit or proceeding
shall be maintained in any court for the recovery of any national internal revenue tax
hereafter alleged to have been erroneously or illegally assessed or collected, or of any
penalty claimed to have been collected without authority, or of any sum alleged to have
been excessively or in any manner wrongfully collected, until a claim for refund or credit
has been duly filed with the Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has been paid under protest or
duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2)
years from the date of payment of the tax or penalty regardless of any
supervening cause that may arise after payment: Provided, however, That the
Commissioner may, even without a claim therefor, refund or credit any tax, where on
the face of the return upon which payment was made, such payment appears clearly to
have been erroneously paid. (emphasis supplied)
The CTA found that respondent filed its final adjusted return on April 14, 1998. Thus, its
right to claim a refund or credit commenced on that date.13
The tax court applied Article 13 of the Civil Code which states:
Art. 13. When the law speaks of years, months, days or nights, it shall be 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 number of
days which they respectively have.
In computing a period, the first day shall be excluded, and the last included. (emphasis
supplied)
Thus, according to the CTA, the two-year prescriptive period under Section 229 of the
NIRC for the filing of judicial claims was equivalent to 730 days. Because the year 2000
was a leap year, respondent's petition, which was filed 731 days14 after respondent filed
its final adjusted return, was filed beyond the reglementary period. 15
Respondent moved for reconsideration but it was denied.16 Hence, it filed an appeal in
the CA.17
On August 1, 2003, the CA reversed and set aside the decision of the CTA.18 It ruled
that Article 13 of the Civil Code did not distinguish between a regular year and a leap
year. According to the CA:
The rule that a year has 365 days applies, notwithstanding the fact that a particular year
is a leap year.19
In other words, even if the year 2000 was a leap year, the periods covered by April 15,
1998 to April 14, 1999 and April 15, 1999 to April 14, 2000 should still be counted as
365 days each or a total of 730 days. A statute which is clear and explicit shall be
neither interpreted nor construed.20
Petitioners moved for reconsideration but it was denied.21 Thus, this appeal.
Petitioners contend that tax refunds, being in the nature of an exemption, should be
strictly construed against claimants.22 Section 229 of the NIRC should be strictly applied
against respondent inasmuch as it has been consistently held that the prescriptive
period (for the filing of tax refunds and tax credits) begins to run on the day claimants
file their final adjusted returns.23 Hence, the claim should have been filed on or before
April 13, 2000 or within 730 days, reckoned from the time respondent filed its final
adjusted return.
The conclusion of the CA that respondent filed its petition for review in the CTA within
the two-year prescriptive period provided in Section 229 of the NIRC is correct. Its
basis, however, is not.
The rule is that the two-year prescriptive period is reckoned from the filing of the final
adjusted return.24 But how should the two-year prescriptive period be computed?
As already quoted, Article 13 of the Civil Code provides that when the law speaks of a
year, it is understood to be equivalent to 365 days. In National Marketing Corporation v.
Tecson,25 we ruled that a year is equivalent to 365 days regardless of whether it is a
regular year or a leap year.26
However, in 1987, EO27 292 or the Administrative Code of 1987 was enacted. Section
31, Chapter VIII, Book I thereof provides:
Sec. 31. Legal Periods. "Year" shall be understood to be twelve calendar
months; "month" of thirty days, unless it refers to a specific calendar month in which
case it shall be computed according to the number of days the specific month contains;
"day", to a day of twenty-four hours and; "night" from sunrise to sunset. (emphasis
supplied)
A calendar month is "a month designated in the calendar without regard to the number
of days it may contain."28 It is the "period of time running from the beginning of a certain
numbered day up to, but not including, the corresponding numbered day of the next
month, and if there is not a sufficient number of days in the next month, then up to and
including the last day of that month."29 To illustrate, one calendar month from December
31, 2007 will be from January 1, 2008 to January 31, 2008; one calendar month from
January 31, 2008 will be from February 1, 2008 until February 29, 2008. 30
A law may be repealed expressly (by a categorical declaration that the law is revoked
and abrogated by another) or impliedly (when the provisions of a more recent law
cannot be reasonably reconciled with the previous one).31 Section 27, Book VII (Final
Provisions) of the Administrative Code of 1987 states:
Sec. 27. Repealing clause. All laws, decrees, orders, rules and regulation, or portions
thereof, inconsistent with this Code are hereby repealed or modified accordingly.
A repealing clause like Sec. 27 above is not an express repealing clause because it fails
to identify or designate the laws to be abolished.32 Thus, the provision above only
impliedly repealed all laws inconsistent with the Administrative Code of 1987.1avvphi1
Implied repeals, however, are not favored. An implied repeal must have been clearly
and unmistakably intended by the legislature. The test is whether the subsequent law
encompasses entirely the subject matter of the former law and they cannot be logically
or reasonably reconciled.33
Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the
Administrative Code of 1987 deal with the same subject matter the computation of
legal periods. Under the Civil Code, a year is equivalent to 365 days whether it be a
regular year or a leap year. Under the Administrative Code of 1987, however, a year is
composed of 12 calendar months. Needless to state, under the Administrative Code of
1987, the number of days is irrelevant.
There obviously exists a manifest incompatibility in the manner of computing legal
periods under the Civil Code and the Administrative Code of 1987. For this reason, we
hold that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the
more recent law, governs the computation of legal periods. Lex posteriori derogat priori.
Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this
case, the two-year prescriptive period (reckoned from the time respondent filed its final
adjusted return34 on April 14, 1998) consisted of 24 calendar months, computed as
follows:
Year 1 1st April 15, 1998 t May 14, 1998
calendar month o
2nd May 15, 1998 t June 14, 1998
calendar month o
3rd June 15, 1998 t July 14, 1998
calendar month o
4th July 15, 1998 t August 14, 1998
calendar month o
5th August 15, 1998 t September 14, 1998
calendar month o
6th September 15, 1998 t October 14, 1998
calendar month o
7th October 15, 1998 t November 14, 1998
calendar month o
8th November 15, 1998 t December 14, 1998
calendar month o
9th December 15, 1998 t January 14, 1999
calendar month o
10th January 15, 1999 t February 14, 1999
calendar month o
11th February 15, 1999 t March 14, 1999
calendar month o
12th March 15, 1999 t April 14, 1999
calendar month o
Year 2 13th April 15, 1999 t May 14, 1999
calendar month o
14th May 15, 1999 t June 14, 1999
calendar month o
15th June 15, 1999 t July 14, 1999
calendar month o
16th July 15, 1999 t August 14, 1999
calendar month o
17th calendar month August 15, 1999 t September 14, 1999
 o
18th September 15, 1999 t October 14, 1999
calendar month o
19th October 15, 1999 t November 14, 1999
calendar month o
20th November 15, 1999 t December 14, 1999
calendar month o
21st December 15, 1999 t January 14, 2000
calendar month o
22n January 15, 2000 t February 14, 2000
d calendar month o
23rd February 15, 2000 t March 14, 2000
calendar month o
24th March 15, 2000 t April 14, 2000
calendar month o
We therefore hold that respondent's petition (filed on April 14, 2000) was filed on the
last day of the 24th calendar month from the day respondent filed its final adjusted
return. Hence, it was filed within the reglementary period.
Accordingly, the petition is hereby DENIED. The case is REMANDED to the Court of
Tax Appeals which is ordered to expeditiously proceed to hear C.T.A. Case No. 6113
entitled Primetown Property Group, Inc. v. Commissioner of Internal Revenue and
Arturo V. Parcero.
No costs.
SO ORDERED.