Tax II Cases

VOL.
506, OCTOBER 31, 2006 427

Commissioner of Internal Revenue vs. Philippine Global
Communication, Inc.
G.R. No. 167146. October 31, 2006. *
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. PHILIPPINE

GLOBAL COMMUNICATION, INC., respondent.
Taxation; Prescription; The law increased the prescriptive period to assess or to
begin a court proceeding for the collection without an assessment to ten years when
a false or fraudulent return was filed with the intent of evading the tax or when no
return was filed at all.—The law prescribed a period of three years from the date the
return was actually filed or from the last date prescribed by law for the filing of such
return, whichever came later, within which the BIR may assess a national internal
revenue tax. However, the law increased the prescriptive period to assess or to
return was filed at all. In such cases, the ten-year period began to run only from the
date of discovery by the BIR of the falsity, fraud or omission.
Same; Same; The law provided another three years after the assessment for the
collection of the tax due thereon through the administrative process of distraint and/
or levy or through judicial proceedings—the three year period for collection of the
assessed tax began to run on the date the assessment notice had been released,
mailed or sent by the BIR.—If the BIR issued this assessment within the threeyear
period or the ten-year period, whichever was applicable, the law provided another
three years after the assessment for the collection of the tax due thereon through the
administrative process of distraint and/or levy or through judicial proceedings. The
three-year period for collection of the assessed tax began to run on the date the
assessment notice had been released, mailed or sent by the BIR.
Same; Same; The provisions on prescription in the assessment and collection of
national internal revenue taxes became law upon the recommendation of the tax
commissioner of the Philippines.—The provisions on prescription in the assessment
and collection of na-
_______________
* FIRST DIVISION.
428
428 SUPREME COURT REPORTS ANNOTATED

Communication, Inc.
tional internal revenue taxes became law upon the recommendation of the tax
commissioner of the Philippines. The report submitted by the tax commission clearly
states that these provisions on prescription should be enacted to benefit and protect
taxpayers.
Same; Statute of Limitations; The statute of limitations on the collection of taxes
should benefit both the Government and the taxpayers.—In a number of cases, this
Court has also clarified that the statute of limitations on the collection of taxes should
benefit both the Government and the taxpayers. In these cases, the Court further
illustrated the harmful effects that the delay in the assessment and collection of
Page 1 of 226
taxes inflicts upon taxpayers. In Collector of Internal Revenue v. Suyoc Consolidated
Mining Company, 104 Phil. 819 (1958), Justice Montemayor, in his dissenting
opinion, identified the potential loss to the taxpayer if the assessment and collection
of taxes are not promptly made.
Same; Same; The statute of limitations of actions for the collection of taxes is
justified by the need to protect law-abiding citizens from possible harassment.—In
Republic of the Philippines v. Ablaza, 108 Phil. 1105 (1960), this Court emphatically
explained that the statute of limitations of actions for the collection of taxes is
justified by the need to protect law-abiding citizens from possible harassment.
Same; Same; Though the statute of limitations for the collection of taxes benefits
both the Government and the taxpayer, it principally intends to afford protection to
the taxpayer against unreasonable investigation.—In the recent case Bank of the
Philippine Islands v. Commissioner of Internal Revenue, 473 SCRA 205 (2005), this
Court, in confirming these earlier rulings, pronounced that: Though the statute of
limitations on assessment and collection of national internal revenue taxes benefits
the taxpayer against unreasonable investigation. The indefinite extension of the
period for assessment is unreasonable because it deprives the said taxpayer of the
assurance that he will no longer be subjected to further investigation for taxes after
the expiration of a reasonable period of time.
Same; Same; Prescription; The law on prescription should be liberally construed in
order to protect taxpayers and that, as a corollary, the exceptions to the law on
prescription should be strictly con-
429
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Communication, Inc.
strued.—In Commissioner of Internal Revenue v. B.F. Goodrich, 303 SCRA 546
(1999), this Court affirmed that the law on prescription should be liberally construed
in order to protect taxpayers and that, as a corollary, the exceptions to the law on
prescription should be strictly construed.
Same; Same; Same; Section 271 of the 1997 Tax Code provides instances when the
running of the statute of limitations on the assessment and collection of national
internal revenue taxes could be suspended even in the absence of waiver.—The Tax
Code of 1977, as amended, provides instances when the running of the statute of
limitations on the assessment and collection of national internal revenue taxes could
be suspended, even in the absence of a waiver, under Section 271 thereof which
reads: Section 224. Suspension of running of statute.—The running of the statute of
limitation provided in Sections 268 and 269 on the making of assessments and the
beginning of distraint or levy or a proceeding in court for collection in respect of any
deficiency, shall be suspended for the period during which the Commissioner is
prohibited from making the assessment or beginning distraint or levy or a proceeding
in court and for sixty days thereafter; when the taxpayer requests for a
reinvestigation which is granted by the Commissioner; when the taxpayer cannot be
located in the address given by him in the return filed upon which a tax is being
assessed or collected x x x.
Same; Same; Same; Revenue Regulations No. 12-85, the Procedure Governing
Administrative Protests of Assessment of the Bureau of Internal Revenue, defines
Page 2 of 226
two types of protest, the request for reconsideration and the request for
reinvestigation.—Revenue Regulations No. 12-85, the Procedure Governing
Administrative Protests of Assessment of the Bureau of Internal Revenue, issued on
27 November 1985, defines the two types of protest, the request for reconsideration
and the request for reinvestigation, and distinguishes one from the other in this
manner: x x x
Same; Same; Same; The main difference between the two types of protests lies in
the records or evidence to be examined by internal revenue officers, whether there
are existing records or newly discovered or additional evidence; A request for
reinvestigation, and not a request for reconsideration, interrupts the running of the
statute of limitations on the collection of the assessed tax.—The main difference
430

Communication, Inc.
between these two types of protests lies in the records or evidence to be examined
by internal revenue officers, whether these are existing records or newly discovered
or additional evidence. A re-evaluation of existing records which results from a
request for reconsideration does not toll the running of the prescription period for the
collection of an assessed tax. Section 271 distinctly limits the suspension of the
running of the statute of limitations to instances when reinvestigation is requested by
a taxpayer and is granted by the CIR. The Court provided a clear-cut rationale in the
case of Bank of the Philippine Islands v. Commissioner of Internal Revenue, 473
SCRA 205 (2005), explaining why a request for reinvestigation, and not a request for
reconsideration, interrupts the running of the statute of limitations on the collection of
the assessed tax.
Same; Same; Same; The Court weighed the considerable time spent by the BIR to
actually conduct the reinvestigations requested by the taxpayer in deciding that the
prescription period was suspended during this time.—In Collector of Internal
Revenue v. Suyoc Consolidated Mining Company, 104 Phil. 819 (1958), the Court
weighed the considerable time spent by the BIR to actually conduct the
reinvestigations requested by the taxpayer in deciding that the prescription period
was suspended during this time.
Same; Same; Same; Where a taxpayer demands a reinvestigation, the time
employed in reinvestigating should be deducted from the total period of limitation.—
The Court reiterated the ruling in Republic v. Lopez, 7 SCRA 566 (1963), in the case
of Commissioner of Internal Revenue v. Sison, 7 SCRA 884 (1963), “that where a
taxpayer demands a reinvestigation, the time employed in reinvestigating should be
deducted from the total period of limitation.” Finally, in Republic v. Arcache, 10 SCRA
337 (1964), the Court enumerated the reasons why the taxpayer is barred from
invoking the defense of prescription, one of which was that, “In the first place, it
appears obvious that the delay in the collection of his 1946 tax liability was due to
his own repeated requests for reinvestigation and similarly repeated requests for
extension of time to pay.”
Same; Same; Same; It bears repetition that a request for reconsideration, unlike a
request for reinvestigation, cannot suspend the statute of limitations on the collection
of the assessed tax; If the taxpayer does file the protest on a patently erroneous
assessment, the
Page 3 of 226
431
VOL. 506, OCTOBER 31, 2006 431

Communication, Inc.
statute of limitations would automatically be suspended and the tax thereon may be
collected long after it was assessed.—The distinction between a request for
reconsideration and a request for reinvestigation is significant. It bears repetition that
a request for reconsideration, unlike a request for reinvestigation, cannot suspend
the statute of limitations on the collection of an assessed tax. If both types of protest
can effectively interrupt the running of the statute of limitations, an erroneous
assessment may never prescribe. If the taxpayer fails to file a protest, then the
erroneous assessment would become final and unappealable. On the other hand, if
the taxpayer does file the protest on a patently erroneous assessment, the statute of
limitations would automatically be suspended and the tax thereon may be collected
long after it was assessed. Meanwhile the interest on the deficiencies and the
surcharges continue to accumulate. And for an unrestricted number of years, the
taxpayers remain uncertain and are burdened with the costs of preserving their
books and records. This is the predicament that the law on the statute of limitations
seeks to prevent.
Same; Same; Same; The Court, in sustaining for the first time the suspension of the
running of the statute of limitations in cases where the taxpayer requested for a
reinvestigation, gave this justification that the taxpayer’s repeated requests or
positive acts the Government has been, for good reasons, persuaded to postpone
collection to make him feel that the demand was not unreasonable or that no
harassment or injustice is meant by the government.—The Court, in sustaining for
the first time the suspension of the running of the statute of limitations in cases
where the taxpayer requested for a reinvestigation, gave this justification: A taxpayer
may be prevented from setting up the defense of prescription even if he has not
previously waived it in writing as when by his repeated requests or positive acts the
Government has been, for good reasons, persuaded to postpone collection to make
him feel that the demand was not unreasonable or that no harassment or injustice is
meant by the Government.
Same; Same; Same; Given that both parties were at a deadlock, the next logical
step would have been for the BIR to issue a Decision denying respondent’s protest
and to initiate proceedings for the collection of the assessed tax and, thus allow the
respondent, should it so choose, to contest the assessment before the Court of Tax
Appeals.—
432
Communication, Inc.
This rationale is not applicable to the present case where the respondent did nothing
to prevent the BIR from collecting the tax. It did not present to the BIR any new
evidence for its re-evaluation. At the earliest opportunity, respondent insisted that the
assessment was invalid and made clear to the BIR its refusal to produce documents
that the BIR requested. On the other hand, the BIR also communicated to the
respondent its unwavering stance that its assessment is correct. Given that both
Page 4 of 226
parties were at a deadlock, the next logical step would have been for the BIR to
issue a Decision denying the respondent’s protest and to initiate proceedings for the
collection of the assessed tax and, thus, allow the respondent, should it so choose,
to contest the assessment before the CTA. Postponing the collection for eight long
years could not possibly make the taxpayer feel that the demand was not
unreasonable or that no harassment or injustice is meant by the Government. There
was no legal, or even a moral, obligation preventing the CIR from collecting the
assessed tax. In a similar case, Cordero v. Gonda, the Court did not suspend the
running of the prescription period where the acts of the taxpayer did not prevent the
government from collecting the tax.
Same; Same; Same; The three-year statute of limitations on the collection of an
assessed tax provided under Section 269 (c) of the Tax Code of 1997, a law enacted
to protect the interests of the taxpayer, must be given effect.—The three-year statute
of limitations on the collection of an assessed tax provided under Section 269(c) of
the Tax Code of 1977, a law enacted to protect the interests of the taxpayer, must be
given effect. In providing for exceptions to such rule in Section 271, the law strictly
limits the suspension of the running of the prescription period to, among other
instances, protests wherein the taxpayer requests for a reinvestigation. In this case,
where the taxpayer merely filed two protest letters requesting for a reconsideration,
and where the BIR could not have conducted a reinvestigation because no new or
additional evidence was submitted, the running of statute of limitations cannot be
interrupted. The tax which is the subject of the Decision issued by the CIR on 8
October 2002 affirming the Formal Assessment issued on 14 April 1994 can no
longer be the subject of any proceeding for its collection. Consequently, the right of
the government to collect the alleged deficiency tax is barred by prescription.
433
VOL. 506, OCTOBER 31, 2006 433
Communication, Inc.
PETITION for review on certiorari of a decision of the Court of Tax Appeals.
The facts are stated in the opinion of the Court.
The Solicitor General for petitioner.
Tan, Acut & Lopez for respondent.
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari, under Rule 45 of the Rules of
Court, seeking to set aside the en banc Decision of the Court of Tax Appeals
(CTA) in CTA EB No. 37 dated 22 February 2005, ordering the petitioner to
1
withdraw and cancel Assessment Notice No. 000688-80-7333 issued

against respondent Philippine Global Communication, Inc. for its 1990
income tax deficiency. The CTA, in its assailed en banc Decision, affirmed
the Decision of the First Division of the CTA dated 9 June 2004 and its2
Resolution dated 22 September 2004 in C.T.A. Case No. 6568.

Respondent, a corporation engaged in telecommunications, filed its Annual
Income Tax Return for taxable year 1990 on 15 April 1991. On 13 April
1992, the Commissioner of Internal Revenue (CIR) issued Letter of
Authority No. 0002307, authorizing the appropriate Bureau of Internal
Page 5 of 226
Revenue (BIR) officials to examine the books of account and other
accounting records of respondent, in connection with the investigation of
respondent’s 1990 income tax liability. On 22 April 1992, the BIR sent a
letter to respondent requesting the latter to present for examination certain
records and documents, but respondent failed to present any document. On
21 April
_______________
1 Penned by Associate Justice Juanito C. Castañeda, Jr. with Presiding Justice Ernesto D.
Acosta, Associate Justice Erlinda P. Uy, Associate Justice Lovell R. Baustista, Associate
Justice Olga Palanca-Enriquez and Associate Justice Caesar A. Casanova, concurring. Rollo,
pp. 29-36.
2 Id., at pp. 37-45.
434
Communication, Inc.
1994, respondent received a Preliminary Assessment Notice dated 13 April
1994 for deficiency income tax in the amount of P118,271,672.00, inclusive
of surcharge, interest, and compromise penalty, arising from deductions that
were disallowed for failure to pay the withholding tax and interest expenses
that were likewise disallowed. On the following day, 22 April 1994,
respondent received a Formal Assessment Notice with Assessment Notice
No. 000688-80-7333, dated 14 April 1994, for deficiency income tax in the
total amount of P118,271,672.00. 3
On 6 May 1994, respondent, through its counsel Ponce Enrile Cayetano

Reyes and Manalastas Law Offices, filed a formal protest letter against
Assessment Notice No. 000688-807333. Respondent filed another protest
letter on 23 May 1994, through another counsel Siguion Reyna Montecillo &
Ongsiako Law Offices. In both letters, respondent requested for the
cancellation of the tax assessment, which they alleged was invalid for lack
of factual and legal basis. 4
On 16 October 2002, more than eight years after the assessment was
presumably issued, the Ponce Enrile Cayetano Reyes and Manalastas Law
Offices received from the CIR a Final Decision dated 8 October 2002
denying the respondent’s protest against Assessment Notice No.
000688-80-7333, and affirming the said assessment in toto. 5
On 15 November 2002, respondent filed a Petition for Review with the CTA.
After due notice and hearing, the CTA rendered a Decision in favor of
respondent on 9 June 2004. The CTA ruled on the primary issue of
6
prescription and found it unnecessary to decide the issues on the validity

and propriety of the assessment. It decided that the protest letters filed by
the respondent cannot constitute a request for reinvestiga-
_______________
3 Id., at pp. 37-38.
4 Id., at p. 38.
Page 6 of 226
5 Id., at p. 38.
6 Id., at pp. 37-45.
435
VOL. 506, OCTOBER 31, 2006 435
Communication, Inc.
tion, hence, they cannot toll the running of the prescriptive period to collect
the assessed deficiency income tax. Thus, since more than three years had
7
lapsed from the time Assessment Notice No. 000688-80-7333 was issued in
1994, the CIR’s right to collect the same has prescribed in conformity with
Section 269 of the National Internal Revenue Code of 1977 (Tax Code of 8
1977). The dispositive portion of this decision reads:

“WHEREFORE, premises considered, judgment is hereby rendered in favor of the
petitioner. Accordingly, respondent’s Final Decision dated October 8, 2002 is hereby
REVERSED and SET ASIDE and respondent is hereby ORDERED to WITHDRAW
and CANCEL Assessment Notice No. 000688-80-7333 issued against the petitioner
for its 1990 income tax deficiency because respondent’s right to collect the same
has prescribed.”9
The CIR moved for reconsideration of the aforesaid Decision but was
denied by the CTA in a Resolution dated 22 September 2004. Thereafter, 10
the CIR filed a Petition for Review with the CTA en banc, questioning the
aforesaid Decision and Resolution. In its en banc Decision, the CTA
affirmed
_______________
7 Id., at p. 44.
8 The CTA inadvertently referred to this provision as Section 223, which is the section where
this provision falls under the present tax code, the National Internal Revenue Code of 1997.
However, in the Tax Code of 1977, as amended, which was the law applicable to this case, this
provision was under Section 269, which reads:
Section 269. Exceptions as to the period of limitation of assessment and collection of taxes.—x x x
xxxx
c. Any internal revenue tax which has been assessed within the period of limitation above-prescribed may
be collected by distraint or levy or by a proceeding in court within three years following the assessment of
the tax.
9 Rollo, p. 45.
10 Id., at pp. 47-53.
436
Communication, Inc.
the Decision and Resolution in CTA Case No. 6568. The dispositive part
reads:
“WHEREFORE, premises considered, the Petition for Review is hereby DISMISSED
for lack of merit. Accordingly, the assailed Decision and Resolution in CTA Case No.
6568 are hereby AFFIRMED in toto.”11
Hence, this Petition for Review on Certiorari raising the following grounds:
Page 7 of 226
THE COURT OF TAX APPEALS, SITTING EN BANC, COMMITTED REVERSIBLE
ERROR IN AFFIRMING THE ASSAILED DECISION AND RESOLUTION IN CTA
CASE NO. 6568 DECLARING THAT THE RIGHT OF THE GOVERNMENT TO
COLLECT THE DEFICIENCY INCOME TAX FROM RESPONDENT FOR THE
YEAR 1990 HAS PRESCRIBED
A. THE PRESCRIPTIVE PERIOD WAS INTERRUPTED WHEN RESPONDENT FILED TWO
LETTERS OF PROTEST DISPUTING IN DETAIL THE DEFICIENCY ASSESSMENT IN
QUESTION AND REQUESTING THE CANCELLATION OF SAID ASSESSMENT. THE TWO
LETTERS OF PROTEST ARE, BY NATURE, REQUESTS FOR REINVESTIGATION OF THE
DISPUTED ASSESSMENT.
B. THE REQUESTS FOR REINVESTIGATION OF RESPONDENT WERE GRANTED BY
THE BUREAU OF INTERNAL REVENUE.12
This Court finds no merit in this Petition.
The main issue in this case is whether or not CIR’s right to collect
respondent’s alleged deficiency income tax is barred by prescription under
Section 269(c) of the Tax Code of 1977, which reads:
Section 269. Exceptions as to the period of limitation of assessment and collection of
taxes.—x x x
_______________
11 Id., at p. 35.
12 Id., at p. 15.
437
VOL. 506, OCTOBER 31, 2006 437
Communication, Inc.
xxxx
c. Any internal revenue tax which has been assessed within the period of limitation
above-prescribed may be collected by distraint or levy or by a proceeding in court
within three years following the assessment of the tax.
The law prescribed a period of three years from the date the return was
actually filed or from the last date prescribed by law for the filing of such
return, whichever came later, within which the BIR may assess a national
internal revenue tax. However, the law increased the prescriptive period to
13
assess or to begin a court proceeding for the collection without an

assessment to ten years when a false or fraudulent return was filed with the
intent of evading the tax or when no return was filed at all. In such cases,
14
the ten-year period began to run only from the date of discovery by the BIR
of the falsity, fraud or omission.
If the BIR issued this assessment within the three-year period or the ten-
year period, whichever was applicable, the law provided another three years
after the assessment for the collection of the tax due thereon through the
administrative
_______________
13 Section 268. Period of limitation upon assessment and collection.—Except as provided in the
succeeding section, internal revenue taxes shall be assessed within three 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:
Page 8 of 226
Provided, That in a case where a return is filed beyond the period prescribed by law, the three-
year period shall be counted from the day the return was filed. For the purposes of this section,
a return filed before the last day prescribed by law for the filing thereof shall be considered as
filed on such last day.
14 Section 269. Exceptions as to period of limitations of assessment and collection of taxes.—
(a) In the case of a false or fraudulent return with intent to evade 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 begun
without assessment, at any time within ten years after the discovery of the falsity, fraud or
omission x x x.
438
Communication, Inc.
process of distraint and/or levy or through judicial proceedings. The three- 15
year period for collection of the assessed tax began to run on the date the
assessment notice had been released, mailed or sent by the BIR. 16
The assessment, in this case, was presumably issued on 14 April 1994

since the respondent did not dispute the CIR’s claim. Therefore, the BIR
had until 13 April 1997. However, as there was no Warrant of Distraint and/
or Levy served on the respondents nor any judicial proceedings initiated by
the BIR, the earliest attempt of the BIR to collect the tax due based on this
assessment was when it filed its Answer in CTA Case No. 6568 on 9
January 2003, which was several years beyond the three-year prescriptive
period. Thus, the CIR is now prescribed from collecting the assessed tax.
The provisions on prescription in the assessment and collection of national
internal revenue taxes became law upon the recommendation of the tax
commissioner of the Philippines. The report submitted by the tax
commission clearly states that these provisions on prescription should be
enacted to benefit and protect taxpayers:
“Under the former law, the right of the Government to collect the tax does not
prescribe. However, in fairness to the taxpayer, the Government should be estopped
from collecting the tax where it failed to make the necessary investigation and
assessment within 5 years after the filing of the return and where it failed to collect
the tax within 5 years from the date of assessment thereof. Just as the government
is interested in the stability of its collections, so also are the
_______________
15 Section 269. Exceptions as to the period of limitation of assessment and collection of taxes.
—x x x
xxxx
(c) Any internal revenue tax which has been assessed within the period of limitation above-prescribed
may be collected by distraint or levy or by a proceeding in court within three years following the
assessment of the tax.
16Bank of the Philippine Islands v. Commissioner of Internal Revenue, G.R. No. 139736, 17
October 2005, 473 SCRA 205, 223.
439
VOL. 506, OCTOBER 31, 2006 439
Page 9 of 226
Communication, Inc.
taxpayers entitled to an assurance that they will not be subjected to further
investigation for tax purposes after the expiration of a reasonable period of time.
(Vol. II, Report of the Tax Commission of the Philippines, pp. 321-322).”17
In a number of cases, this Court has also clarified that the statute of
limitations on the collection of taxes should benefit both the Government
and the taxpayers. In these cases, the Court further illustrated the harmful
effects that the delay in the assessment and collection of taxes inflicts upon
taxpayers. In Collector of Internal Revenue v. Suyoc Consolidated Mining
Company, Justice Montemayor, in his dissenting opinion, identified the
18
potential loss to the taxpayer if the assessment and collection of taxes are
not promptly made.
“Prescription in the assessment and in the collection of taxes is provided by the
Legislature for the benefit of both the Government and the taxpayer; for the
Government for the purpose of expediting the collection of taxes, so that the agency
charged with the assessment and collection may not tarry too long or indefinitely to
the prejudice of the interests of the Government, which needs taxes to run it; and for
the taxpayer so that within a reasonable time after filing his return, he may know the
amount of the assessment he is required to pay, whether or not such assessment is
well founded and reasonable so that he may either pay the amount of the
assessment or contest its validity in court x x x. It would surely be prejudicial to the
interest of the taxpayer for the Government collecting agency to unduly delay the
assessment and the collection because by the time the collecting agency finally gets
around to making the assessment or making the collection, the taxpayer may then
have lost his papers and books to support his claim and contest that of the
Government, and what is more, the tax is in the meantime accumulating interest
which the taxpayer eventually has to pay.”
_______________
17 Republic of the Philippines v. Ablaza, 108 Phil. 1105, 11071108 (1960).
18 104 Phil. 819, 833-834 (1958).
440
Communication, Inc.
In Republic of the Philippines v. Ablaza, this Court emphatically explained
19
that the statute of limitations of actions for the collection of taxes is justified
by the need to protect law-abiding citizens from possible harassment:
“The law prescribing a limitation of actions for the collection of the income tax is
beneficial both to the Government and to its citizens; to the Government because tax
officers would be obliged to act promptly in the making of assessment, and to
citizens because after the lapse of the period of prescription citizens would have a
feeling of security against unscrupulous tax agents who will always find an excuse to
inspect the books of taxpayers, not to determine the latter’s real liability, but to take
advantage of every opportunity to molest, peaceful, law-abiding citizens. Without
such legal defense taxpayers would furthermore be under obligation to always keep
their books and keep them open for inspection subject to harassment by
Page 10 of 226
unscrupulous tax agents. The law on prescription being a remedial measure should
be interpreted in a way conducive to bringing about the beneficient purpose of
affording protection to the taxpayer within the contemplation of the Commission
which recommended the approval of the law.”
And again in the recent case Bank of the Philippine Islands v. Commissioner
of Internal Revenue, this Court, in confirming these earlier rulings,
20
pronounced that:
“Though the statute of limitations on assessment and collection of national internal
revenue taxes benefits both the Government and the taxpayer, it principally intends
to afford protection to the taxpayer against unreasonable investigation. The indefinite
extension of the period for assessment is unreasonable because it deprives the said
taxpayer of the assurance that he will no longer be subjected to further investigation
for taxes after the expiration of a reasonable period of time.”
Thus, in Commissioner of Internal Revenue v. B.F. Goodrich, this Court 21
affirmed that the law on prescription should

_______________
19 108 Phil. 1105, 1108 (1960).
20 G.R. No. 139736, 17 October 2005, 473 SCRA 205, 225.
21 363 Phil. 169, 178; 303 SCRA 546, 554 (1999).
441
VOL. 506, OCTOBER 31, 2006 441
Communication, Inc.
be liberally construed in order to protect taxpayers and that, as a corollary,
the exceptions to the law on prescription should be strictly construed.
The Tax Code of 1977, as amended, provides instances when the running
of the statute of limitations on the assessment and collection of national
internal revenue taxes could be suspended, even in the absence of a
waiver, under Section 271 thereof which reads:
“Section 224. Suspension of running of statute.—The running of the statute of
assessed or collected x x x.” (Emphasis supplied.)
Among the exceptions provided by the aforecited section, and invoked by
the CIR as a ground for this petition, is the instance when the taxpayer
requests for a reinvestigation which is granted by the Commissioner.
However, this exception does not apply to this case since the respondent
never requested for a reinvestigation. More importantly, the CIR could not
have conducted a reinvestigation where, as admitted by the CIR in its
Petition, the respondent refused to submit any new evidence.
Page 11 of 226
Revenue Regulations No. 12-85, the Procedure Governing Administrative
Protests of Assessment of the Bureau of Internal Revenue, issued on 27
November 1985, defines the two types of protest, the request for
reconsideration and the request for reinvestigation, and distinguishes one
from the other in this manner:
442
Communication, Inc.
Section 6. Protest.—The taxpayer may protest administratively an assessment by
filing a written request for reconsideration or reinvestigation specifying the following
particulars:
xxxx
For the purpose of protest herein—
(a) Request for reconsideration—refers to a plea for a re-evaluation of an assessment on the
basis of existing records without need of additional evidence. It may involve both a question of
fact or of law or both.
(b) Request for reinvestigation—refers to a plea for reevaluation of an assessment on the
basis of newly-discovered evidence or additional evidence that a taxpayer intends to present
in the investigation. It may also involve a question of fact or law or both.
The main difference between these two types of protests lies in the records
or evidence to be examined by internal revenue officers, whether these are
existing records or newly discovered or additional evidence. A re-evaluation
of existing records which results from a request for reconsideration does not
toll the running of the prescription period for the collection of an assessed
tax. Section 271 distinctly limits the suspension of the running of the statute
of limitations to instances when reinvestigation is requested by a taxpayer
and is granted by the CIR. The Court provided a clear-cut rationale in the
case of Bank of the Philippine Islands v. Commissioner of Internal Revenue 22
explaining why a request for reinvestigation, and not a request for

reconsideration, interrupts the running of the statute of limitations on the
collection of the assessed tax:
“Undoubtedly, a reinvestigation, which entails the reception and evaluation of
additional evidence, will take more time than a reconsideration of a tax assessment,
which will be limited to the evidence already at hand; this justifies why the former
can suspend
_______________
22 G.R. No. 139736, 17 October 2005, 473 SCRA 205, 230-231.
443
VOL. 506, OCTOBER 31, 2006 443
Communication, Inc.
the running of the statute of limitations on collection of the assessed tax, while the
latter cannot.”
In the present case, the separate letters of protest dated 6 May 1994 and 23
May 1994 are requests for reconsideration. The CIR’s allegation that there
Page 12 of 226
was a request for reinvestigation is inconceivable since respondent
consistently and categorically refused to submit new evidence and
cooperate in any reinvestigation proceedings. This much was admitted in
the Decision dated 8 October 2002 issued by then CIR Guillermo Payarno,
Jr.
“In the said conference-hearing, Revenue Officer Alameda basically testified that
Philcom, despite repeated demands, failed to submit documentary evidences in
support of its claimed deductible expenses. Hence, except for the item of interest
expense which was disallowed for being not ordinary and necessary, the rest of the
claimed expenses were disallowed for non-withholding. In the same token, Revenue
Officer Escober testified that upon his assignment to conduct the re-investigation, he
immediately requested the taxpayer to present various accounting records for the
year 1990, in addition to other documents in relation to the disallowed items (p. 171).
This was followed by other requests for submission of documents (pp. 199 & 217)
but these were not heeded by the taxpayer. Essentially, he stated that Philcom did
not cooperate in his reinvestigation of the case.
In response to the testimonies of the Revenue Officers, Philcom thru Atty. Consunji,
emphasized that it was denied due process because of the issuance of the Pre-
Assessment Notice and the Assessment Notice on successive dates. x x x Counsel
for the taxpayer even questioned the propriety of the conference-hearing inasmuch
as the only question to resolved (sic) is the legality of the issuance of the
assessment. On the disallowed items, Philcom thru counsel manifested that it has
no intention to present documents and/or evidences allegedly because of the
pending legal question on the validity of the assessment.”23
_______________
23 Rollo, p. 104.
444
Communication, Inc.
Prior to the issuance of Revenue Regulations No. 12-85, which
distinguishes a request for reconsideration and a request for reinvestigation,
there have been cases wherein these two terms were used interchangeably.
But upon closer examination, these cases all involved a reinvestigation that
was requested by the taxpayer and granted by the BIR.
In Collector of Internal Revenue v. Suyoc Consolidated Mining Company, 24
the Court weighed the considerable time spent by the BIR to actually
conduct the reinvestigations requested by the taxpayer in deciding that the
prescription period was suspended during this time.
“Because of such requests, several reinvestigations were made and a hearing was
even held by the Conference Staff organized in the collection office to consider
claims of such nature which, as the record shows, lasted for several months. After
inducing petitioner to delay collection as he in fact did, it is most unfair for
respondent to now take advantage of such desistance to elude his deficiency
income tax liability to the prejudice of the Government invoking the technical ground
of prescription.”
Page 13 of 226
Although the Court used the term “requests for reconsideration” in reference
to the letters sent by the taxpayer in the case of Querol v. Collector of
Internal Revenue, it took into account the reinvestigation conducted soon
25
after these letters were received and the revised assessment that resulted
from the reinvestigations.
“It is true that the Collector revised the original assessment on February 9, 1955;
and appellant avers that this revision was invalid in that it was not made within the
five-year prescriptive period provided by law (Collector vs. Pineda, 112 Phil. 321).
But that fact is that the revised assessment was merely a result of petitioner Querol’s
requests for reconsideration of the original assessment, contained in his letters of
December 14, 1951 and May 25, 1953. The records of the Bureau of Internal
Revenue show that after receiving
_______________
24 104 Phil. 819, 822-823 (1958).
25 116 Phil. 615, 618-619; 6 SCRA 304, 308 (1962).
445
VOL. 506, OCTOBER 31, 2006 445
Communication, Inc.
the letters, the Bureau conducted a reinvestigation of petitioner’s tax liabilities, and,
in fact, sent a tax examiner to San Fernando, La Union, for that purpose; that
because of the examiner’s report, the Bureau revised the original assessment, x x x.
In other words, the reconsideration was granted in part, and the original assessment
was altered. Consequently, the period between the petition for reconsideration and
the revised assessment should be subtracted from the total prescriptive
period” (Republic vs. Ablaza, 108 Phil 1105).
The Court, in Republic v. Lopez, even gave a detailed accounting of the
26
time the BIR spent for each reinvestigation in order to deduct it from the
five-year period set at that time in the statute of limitations:
“It is now a settled ruled in our jurisdiction that the five-year prescriptive period fixed
by Section 332(c) of the Internal Revenue Code within which the Government may
sue to collect an assessed tax is to be computed from the last revised assessment
resulting from a reinvestigation asked for by the taxpayer and (2) that where a
deducted from the total period of limitation.
xxxx
The first reinvestigation was granted, and a reduced assessment issued on 29 May
1954, from which date the Government had five years for bringing an action to
collect.
The second reinvestigation was asked on 16 January 1956, and lasted until it was
decided on 22 April 1960, or a period of 4 years, 3 months, and 6 days, during which
the limitation period was interrupted.”
The Court reiterated the ruling in Republic v. Lopez in the case of
Commissioner of Internal Revenue v. Sison, “that where a taxpayer
27
demands a reinvestigation, the time employed in reinvestigating should be

deducted from the total period of limitation.” Finally, in Republic v. Arcache, 28
the
Page 14 of 226
_______________
26 117 Phil. 575, 578; 7 SCRA 566, 568-569 (1963).
27 117 Phil. 892, 895; 7 SCRA 884, 886 (1963).
28 119 Phil. 604, 610; 10 SCRA 337, 342 (1964).
446
Communication, Inc.
Court enumerated the reasons why the taxpayer is barred from invoking the
defense of prescription, one of which was that, “In the first place, it appears
obvious that the delay in the collection of his 1946 tax liability was due to his
own repeated requests for reinvestigation and similarly repeated requests
for extension of time to pay.”
In this case, the BIR admitted that there was no new or additional evidence
presented. Considering that the BIR issued its Preliminary Assessment
Notice on 13 April 1994 and its Formal Assessment Notice on 14 April 1994,
just one day before the three-year prescription period for issuing the
assessment expired on 15 April 1994, it had ample time to make a factually
and legally well-founded assessment. Added to the fact that the Final
Decision that the CIR issued on 8 October 2002 merely affirmed its earlier
findings, whatever examination that the BIR may have conducted cannot
possibly outlast the entire three-year prescriptive period provided by law to
collect the assessed tax, not to mention the eight years it actually took the
BIR to decide the respondent’s protest. The factual and legal issues
involved in the assessment are relatively simple, that is, whether certain
income tax deductions should be disallowed, mostly for failure to pay
withholding taxes. Thus, there is no reason to suspend the running of the
statute of limitations in this case.
The distinction between a request for reconsideration and a request for
reinvestigation is significant. It bears repetition that a request for
reconsideration, unlike a request for reinvestigation, cannot suspend the
statute of limitations on the collection of an assessed tax. If both types of
protest can effectively interrupt the running of the statute of limitations, an
erroneous assessment may never prescribe. If the taxpayer fails to file a
protest, then the erroneous assessment would become final and
unappealable. On the other hand, if the
29
_______________
29 Revenue Regulations No. 12-85 provides that:
447
VOL. 506, OCTOBER 31, 2006 447
Communication, Inc.
taxpayer does file the protest on a patently erroneous assessment, the
statute of limitations would automatically be suspended and the tax thereon
Page 15 of 226
may be collected long after it was assessed. Meanwhile the interest on the
deficiencies and the surcharges continue to accumulate. And for an
unrestricted number of years, the taxpayers remain uncertain and are
burdened with the costs of preserving their books and records. This is the
predicament that the law on the statute of limitations seeks to prevent.
The Court, in sustaining for the first time the suspension of the running of
the statute of limitations in cases where the taxpayer requested for a
reinvestigation, gave this justification:
“A taxpayer may be prevented from setting up the defense of prescription even if he
has not previously waived it in writing as when by his repeated requests or positive
acts the Government has been, for good reasons, persuaded to postpone collection
to make him feel that the demand was not unreasonable or that no harassment or
injustice is meant by the Government.
xxxx
This case has no precedent in this jurisdiction for it is the first time that such has
risen, but there are several precedents that may be invoked in American
jurisprudence. As Mr. Justice Cardozo has said: “The applicable principle is
fundamental and unquestioned. ‘He who prevents a thing from being done may not
avail himself of the nonperformance which he himself occasioned, for the law says to
him in effect “this is your own act, and
_______________
Section 7. When to File Protest.—A protest must be filed within thirty (30) days from receipt of
the assessment.
Section 9. Finality of Assessments.—If a taxpayer who receives an assessment from the
Bureau of Internal Revenue fails to file a protest within the period prescribed in Section 7 of
these regulations, the said assessment shall become final and unappealable and the taxpayer
is thereby precluded from disputing the assessment.
448
Communication, Inc.
therefore you are not damnified.’ ” (R.H. Stearns Co. v. U.S., 78 L. ed., 647).
(Emphasis supplied.)”30
This rationale is not applicable to the present case where the respondent
did nothing to prevent the BIR from collecting the tax. It did not present to
the BIR any new evidence for its re-evaluation. At the earliest opportunity,
respondent insisted that the assessment was invalid and made clear to the
BIR its refusal to produce documents that the BIR requested. On the other
hand, the BIR also communicated to the respondent its unwavering stance
that its assessment is correct. Given that both parties were at a deadlock,
the next logical step would have been for the BIR to issue a Decision
denying the respondent’s protest and to initiate proceedings for the
collection of the assessed tax and, thus, allow the respondent, should it so
choose, to contest the assessment before the CTA. Postponing the
collection for eight long years could not possibly make the taxpayer feel that
the demand was not unreasonable or that no harassment or injustice is
Page 16 of 226
meant by the Government. There was no legal, or even a moral, obligation
preventing the CIR from collecting the assessed tax. In a similar case,
Cordero v. Gonda, the Court did not suspend the running of the
31
prescription period where the acts of the taxpayer did not prevent the
“The government also urges that partial payment is “acknowledgement of the tax
obligation,” hence a “waiver on the defense of prescription.” But partial payment
would not prevent the government from suing the taxpayer. Because, by such act of
payment, the government is not thereby “persuaded to postpone collection to make
meant.” Which, as stated in Collector v. Suyoc Consolidated Mining Co., et al.,
L-11527, November 25, 1958, is the underlying reason behind the rule that
prescriptive period is arrested by the taxpayer’s request for reexamination or
reinvestiga
_______________
30 Collector of Internal Revenue v. Suyoc Consolidated Mining Company, 104 Phil. 819, 823
(1958).
31 124 Phil. 927, 932; 18 SCRA 331, 336-337 (1966).
449
VOL. 506, OCTOBER 31, 2006 449
Communication, Inc.
tion—even if “he has not previously waived it [prescription] in writing.”
The Court reminds us, in the case of Commissioner of Internal Revenue v.
Algue, Inc., of the need to balance the conflicting interests of the
32
government and the taxpayers.

“Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance. On the other hand, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for government
itself. It is therefore necessary to reconcile the apparently conflicting interest of the
authorities and the taxpayers so that the real purpose of taxation, which is the
promotion of common good, may be achieved.”
Thus, the three-year statute of limitations on the collection of an assessed
tax provided under Section 269(c) of the Tax Code of 1977, a law enacted to
protect the interests of the taxpayer, must be given effect. In providing for
exceptions to such rule in Section 271, the law strictly limits the suspension
of the running of the prescription period to, among other instances, protests
wherein the taxpayer requests for a reinvestigation. In this case, where the
taxpayer merely filed two protest letters requesting for a reconsideration,
and where the BIR could not have conducted a reinvestigation because no
new or additional evidence was submitted, the running of statute of
limitations cannot be interrupted. The tax which is the subject of the
Decision issued by the CIR on 8 October 2002 affirming the Formal
Assessment issued on 14 April 1994 can no longer be the subject of any
proceeding for its collection. Consequently, the right of the government to
collect the alleged deficiency tax is barred by prescription.
Page 17 of 226
IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The
assailed en banc Decision of the CTA in CTA EB No. 37 dated 22 February
2005, cancelling Assessment Notice No. 000688-80-7333 issued against
Philippine Global
_______________
32 G.R. No. L-18896, 17 February 1988, 158 SCRA 9, 11.
450

Communication, Inc.
Communication, Inc. for its 1990 income tax deficiency for the reason that it
is barred by prescription, is hereby AFFIRMED. No costs.
SO ORDERED.
Panganiban (C.J., Chairperson), Ynares-Santiago, Austria-Martinez and
Callejo, Sr., JJ., concur.
Petition denied, assailed en banc decision affirmed.
Notes.—The period within which to assess tax in cases of fraudulent
returns, false returns and failure to return is ten years from discovery of the
fraud, falsification or omission. (Commissioner of Internal Revenue vs.
Estate of Benigno P. Toda, Jr., 438 SCRA 290 [2004])
A waiver of the statute of limitations under the NIRC, to a certain extent,
is a derogation of the taxpayers’ right to security against prolonged and
unscrupulous investigations and must therefore be carefully and strictly
construed. The law on prescription, being a remedial measure, should be
liberally construed in order to afford such protection. (Philippine Journalists,
Inc. vs. Commissioner of Internal Revenue, 447 SCRA 214 [2004])
——o0o——
451
© Copyright 2019 Central Book Supply, Inc. All rights reserved.
Page 18 of 226
Commissioner of Internal Revenue vs. Phoenix Assurance
Co., Ltd.
No. L-19727. May 20, 1965.
THE COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. PHOENIX
ASSURANCECO., LTD., respondent.
No. L-19903. May 20, 1965.
PHOENIX ASSURANCE CO., LTD., petitioner, vs. COMMISSIONER OF
INTERNAL REVENUE, respondent.
Taxation; Income tax; Reinsurance premiums subject to withholding tax.—
Reinsurance premiums ceded to foreign reinsurers not doing business in the
Philippines pursuant to reinsurance contracts executed abroad are income from
sources within the Philippines subject to withholding tax under Sections 53 and 54 of
the Tax Code.
Same; Same; Period of prescription to assess deficiency income tax commences
from filing of amended return.—Where the deficiency assessment is based on the
amended return, which is substantially different from the original return, the period of
prescription of the right to issue the same should be counted from the filing of the
amended, not the original income tax return.
Same; Same; Taxpayer may claim lesser deduction than allowed by law.—For
income tax purposes a taxpayer is free to deduct from its gross income a lesser
amount, or not to claim any deduction at all. What is prohibited by the income tax
law is to claim a deduction beyond the amount authorized therein.
Same; Same; Items of income not belonging to Philippines excluded in determining
expenses allocable to Philippines.—Since the items of income not belonging to its
Philippine business’ are not taxable to its Philippine branch, they should be excluded
in determining the head expenses allocable to a Philpine branch of a foreign
corporation.
Same; Same; Interest on taxes unpaid due to Commissioner’s opinion imposed only
from failure to comply with court’s final judgment.—Where the taxpayer’s failure to
pay the withholding tax was due to the Commissioner’s opinion that no withholding
tax was due, the taxpayer can be held liable for the payment; of statutory penalties
only upon its failure to comply with the Court’s final judgment.
APPEALS from a judgment of the Court of Tax Appeals
Solicitor General for petitioner-respondent Commissioner of Internal
Revenue.
53
VOL. 14, MAY 20, 1965 53
Co., Ltd.
Sycip, Salazar, Luna & Associates and A. S. Monzon, B. V. Abela & J. M.
Castillo for respondent-petitioner Phoenix Assurance Co., Ltd.
BENGZON, J.P., J.:
From a judgment of the Court of Tax Appeals in C.T.A. Cases Nos. 305 and
543, consolidated and jointly heard therein, these two appeals were taken.
Page 19 of 226
Since they involve the same facts, and interrelated issues, the appeals are
herein decided together.
Phoenix Assurance Co., Ltd., a foreign insurance corporation organized
under the laws of Great Britain, is licensed to do business in the Philippines
with head office in London. Through its head office, it entered in London into
worldwide reinsurance treaties with various foreign insurance companies. It
agree to cede a portion of premiums received on original insurances
underwritten by its head office, subsidiaries, and branch offices throughout
the world, in consideration for assumption by the foreign insurance
companies of an equivalent portion of the liability from such original
insurances.
Pursuant to such reinsurance treaties, Phoenix Assurance Co., Ltd., ceded
portions of the premiums it earned from its underwriting business in the
Philippines, as follows:
Year Amount Ceded
1952 P316,526.75
1953 P246,082.04
1954 P203,384.69
upon which the Commissioner of Internal Revenue, by letter of May 6, 1958,
assessed the following withholding tax:
Year Withholding Tax
1952 P 75,966.42
1953 59,059.68
1954 48,812.32
Total P 183,838.42
On April 1, 1951, Phoenix Assurance Co., Ltd. Filed its
54
Co., Ltd.
Philippine income tax return for 1950, claiming therein, among others, a
deduction of P37,147.04 as net addition to marine insurance reserve
equivalent to 40% of the gross marine insurance premiums received during
the year. The Commissioner of Internal Revenue disallowed P11,772.57 of
such claim for deduction and subsequently assessed against Phoenix
Assurance Co., Ltd. the sum of Pl,884.00 as deficiency income tax. The
disallowance resulted from the fixing by the Commissioner of the net
addition to the marine insurance reserve at 100% of the marine insurance
premiums received during the last three months of the year. The
Commissioner assumed that “ninety and thirty days are approximately the
length of time required before shipments reach their destination or before
claims are received by the insurance companies.”
Page 20 of 226
On April 1, 1953, Phoenix Assurance Co., Ltd. filed its Philippine income tax
return for 1952, declaring therein a deduction from gross income of
P35,912.25 as part of the head office expenses incurred for its Philippine
business, computed at 5% on its gross Philippine income.
On August 30, 1955 it amended its income tax return for 1952 by excluding
from its gross income the amount of P316,526.75 representing reinsurance
premiums ceded to foreign reinsurers and further eliminating deductions
corresponding to the ceded premiums. The amended return showed an
income tax due in the amount of P2,502.00. The Commissioner of Internal
Revenue disallowed P15,826.-35 of the claimed deduction for head office
expenses and assessed a deficiency tax of P5,667.00 on July 24, 1958.
On April 30, 1954, Phoenix Assurance Co., Ltd. filed its Philippine income
tax return for 1953 and claimed therein a deduction from gross income of
P33,070.88 as head office expenses allocable to its Philippine business,
equivalent to 5% of its gross Philippine income. On August 30, 1955 it
amended its 1953 income tax return to exclude from its gross income the
amount of P246,082.04 representing reinsurance premiums ceded to
foreign reinsurers. At the same time, it requested the refund of P23,409.00
as overpaid income tax for 1953. To avoid the prescriptive period provided
for in Section 306 of the Tax Code, it filed
55
VOL. 14, MAY 20, 1965 55
Co., Ltd.
a petition for review on April 11, 1936 in the Court of Tax Appeals praying for
such refund. After verification of the amended income tax return the
Commissioner of Internal Revenue disallowed P12,304.10 of the deduction
representing head office expenses allocable to Philippine business thereby
reducing the refundable amount to P20,180.00 On April 29, 1955, Phoenix
Assurance Co., Ltd, filed its Philippine income tax return for 1954 claiming
therein, among others, a deduction from gross income of P29,-624.75 as
head office expenses allocable to its Philippine business, computed at 5%
of its gross Philippine income. It also excluded from its gross income the
amount of P203,-384.69 representing reinsurance premiums ceded to
foreign reinsurers not doing business in the Philippines.
On August 1, 1958 the Bureau of Internal Revenue released the following
assessment for deficiency income tax for the years 1952 and 1954 against
Phoenix Assurance Co, Ltd.:
1952
Net income per audited return P
12,511.61
Unallowable deductions &
additional income:
Page 21 of 226
Overclaimed Head Office
expenses:
Amount claimed P55,912.2
5
Amount allowed 20,085.90 15,826.35
Net income per investigation P
23,337.96
Tax due thereon P 5,667.00
1954
Net income per audited return P160,320.2
1
Unallowable deductions &
additional income:
Overclaimed Head Office
expenses:
Amount claimed P29,624.7
3
Amount allowed 19,455.50 10,169.23
Net income per investigation P170,489.4
4
Tax due thereon P
39,737.00
Less: Amount already assessed 36,890.00
DEFICIENCY TAX DUE P2,847.00
56
Co., Ltd.
The above assessment resulted from the disallowance of a portion of the
deduction claimed by Phoenix Assurance Co., Ltd. as head office expenses
allocable to its business in the Philippines fixed by the Commissioner at 5%
of the net Philippine income instead of 5% of the gross Philippine income as
claimed in the returns.
Phoenix Assurance Co., Ltd. protested against the aforesaid assessments
for withholding tax and deficiency income tax. However, the Commissioner
of Internal Revenue denied such protest. Subsequently, Phoenix Assurance
Co., Ltd. appealed to the Court of Tax Appeals. In a decision dated February
14, 1962, the Court of Tax Appeals allowed in full the decision claimed by
Phoenix Assurance Co., Ltd. for 1950 as net addition to marine insurance
reserve; determined the allowable head office expenses allocable to
Philippine business to be 5% of the net income in the Philippines; declared
the right of the Commissioner of Internal Revenue to assess deficiency
income tax for 1952 to have prescribed; absolved Phoenix Assurance Co.,
Page 22 of 226
Ltd. from payment of the statutory penalties for non-filing of withholding tax
return; and, rendered the following judgment:
“WHEREFORE, petitioner Phoenix Assurance Company, Ltd. is hereby ordered to
pay the Commissioner of Internal Revenue the respective amounts of P75,966.42,
P59,059.68 and P48,812.32, as withholding tax for the years 1952, 1953 and 1954,
and P2,847.00 as income tax for 1954, or the total sum of P186,685.42 within thirty
(30) days from the date this decision becomes final. Upon the other hand, the
respondent Commissioner is ordered to refund to petitioner the sum of P20,-180.00
as overpaid income tax for 1953, which sum is to be deducted from the total sum of
P186,685.42 due as taxes.
“If any amount of the tax is not paid within the time prescribed above, there shall be
collected a surcharge of 5% of the tax unpaid, plus interest at the rate of 1% a month
from the date of delinquency to the date of payment, provided that the maximum
amount that may be collected as interest shall not exceed the amount corresponding
to a period of three (3) years. Without pronouncement as to costs.”
Phoenix Assurance Co., Ltd. and the Commissioner of Inaternal Revenue
have appealed to this Court raising the
57
VOL. 14, MAY 20, 1965 57
Co., Ltd.
following issues: (1) Whether or not reinsurance premiums ceded to foreign
reinsurers not doing business in the Philippines pursuant to reinsurance
contracts executed abroad are subject to withholding tax; (2) Whether or not
the right of the Commissioner of Internal Revenue to assess deficiency
income tax for the year 1952 against Phoenix Assurance Co., Ltd. has
prescribed; (3) Whether or not the deduction claimed by Phoenix Assurance
Co., Ltd. as net addition to reserve for the year 1950 is excessive; (4)
Whether or not the deductions claimed by Phoenix Assurance Co., Ltd. for
head office expenses allocable to Philippine business for the years 1952,
1953 and 1954 are excessive.
The question of whether or not reinsurance premiums ceded to foreign
reinsurers not doing business in the Philippines pursuant to contracts
executed abroad are income from sources within the Philippines subject to
withholding tax under Sections 53 and 54 of the Tax Code has already been
resolved in the affirmative in British Traders’ Insurance Co., Ltd. v.
Commissioner of Internal Revenue, L-20501, April 30, 1965. 1
We come to the issue of prescription. Phoenix Assurance Co., Ltd. filed its
income tax return for 1952 on April 1, 1953 showing a loss of P199,583.93.
It amended said return on August 30, 1955 reporting a tax liability of
P2,502.00. On July 24, 1958, after examination of the amended return, the
Commissioner of Internal Revenue assessed deficiency income tax in the
sum of P5,667.00. The Court of Tax Appeals found the right of the
Commissioner of Internal Revenue barred by prescription, the same having
been exercised more than five years from the date the original return was
Page 23 of 226
filed. On the other hand, the Commissioner of Internal Revenue insists that
his right to issue the assessment has not prescribed inasmuch as the same
was availed of before the 5-year period provided for
_______________
1 See also Alexander Howden & Co., Ltd. v. Commissioner of Internal Revenue, L-19392, April
14, 1965; Philippine Guaranty Co., Inc. v. Commissioner of Internal Revenue, L-22074, April
30, 1965.
58
Co., Ltd.
in Section 331 of the Tax Code expired, counting the running of the period
from August 30, 1955, the date when the amended return was filed.
Section 331 of the Tax Code, which limits the right of the Commissioner of
Internal Revenue to assess income tax within five years from the filing of the
income tax return, states:
“SEC. 331. Period of limitation upon assessment and collection.—Except as
provided in the succeeding section, internalrevenue 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 the 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.”
The question is: Should the running of the prescriptive period commence
from the filing of the original or amended return?
The Court of Tax Appeals ruled that the original return was a complete
return containing “information on various items of income and deduction
from which respondent may intelligently compute and determine the tax
liability of petitioner,” hence, the prescriptive period should be counted from
the filing of said original return. On the other hand, the Commissioner of
Internal Revenue maintains that:
‘xxx the deficiency income tax in question could not possibly be determined, or
assessed, on the basis of the original return filed on April 1, 1953, for considering
that the declared loss amounted to P199,583.93, the mere disallowance of part of
the head office expenses could not possibly result in said loss being completely
wiped out and Phoenix being liable to deficiency tax. Not until the amended return
was filed on August 30, 1955 could the Commissioner assess the deficiency income
tax in question.”
Accordingly, he would wish to press for the counting of the prescriptive
period from the filing of the amended return.
59
VOL. 14, MAY 20, 1965 59
Co., Ltd.
Page 24 of 226
To our mind, the Commissioner’s view should be sustained. The changes
and alterations embodied in the amended income tax return consisted of the
exclusion of reinsurance premiums received from domestic insurance
companies by Phoenix Assurance Co., Ltd.’s London head office,
reinsurance premiums ceded to foreign reinsurers not doing business in the
Philippines and various items of deduction attributable to such excluded
reinsurance premiums thereby substantially modifying the original return.
Furthermore, although the deduction for head office expenses allocable to
Philippine business, whose disallowance gave rise to the deficiency tax,
was claimed also in the original return, the Commissioner could not have
possibly determined a deficiency tax thereunder because Phoenix
Assurance Co., Ltd. declared a loss of P199,583.93 therein which would
have more than offset such disallowance of P15,826.35. Considering that
the deficiency assessment was based on the amended return which, as
aforestated, is substantially different from the original return, the period of
limitation of the right to issue the same should be counted from the filing of
the amended income tax return. From August 30, 1955, when the amended
return was filed, to July 24, 1958, when the deficiency assessment was
issued, less than five years elapsed. The right of the Commissioner to
assess the deficiency tax on such amended return has not prescribed.
To strengthen our opinion, we believe that to hold otherwise, we would be
paving the way for taxpayers to evade the payment of taxes by simply
reporting in their original return heavy losses and amending the same more
than five years later when the Commissioner of Internal Revenue has lost
his authority to assess the proper tax thereunder. The object of the Tax
Code is to impose taxes for the needs of the Government, not to enhance
tax avoidance to its prejudice.
We next consider Phoenix Assurance Co., Ltd.’s claim for deduction of
P37,147.04 for 1950 representing net addition to reserve computed at 40%
of the marine insurance premiums received during the year. Treating said
de-
60
Co., Ltd.
duction to be excessive, the Commisisoner of Internal Revenue reduced the
same to P25,374.47 which is equivalent to 100% of all marine insurance
premiums received during the last months of the year.
Paragraph (a) of Section 32 of the Tax Code states:
“SEC. 32. Special provisions regarding income and deductions of insurance
companies, whether domestic or foreign.—(a) Special deductions allowed to
insurance companies.—In the case of insurance companies, except domestic life
insurance companies and foreign life insurance companies doing business in the
Philippines, the net additions, if any, required by law to be made within the year to
Page 25 of 226
reserve funds and the sums other than dividends paid within the year on policy and
annuity contracts may be deducted from their gross income: Provided, however,
That the released reserve be treated as income for the year of release.”
Section 186 of the Insurance Law requires the setting up of reserves for
liability on marine insurance:
“SEC. 186. x x x Provided, That for marine risks the insuring company shall be
required to charge as the liability for reinsurance fifty per centum of the premiums
written in the policies upon yearly risks, and the full premiums written in the policies
upon all other marine risks not terminated.” (Italics supplied.)
The reserve required for marine insurance is determined on two bases: 50%
of premiums under policies on yearly risks and 100% of premiums under
policies of marine risks not terminated during the year. Section 32 (a) of the
Tax Code quoted above allows the full amount of such reserve to be
deducted from gross income.
It may be noteworthy to observe that the formulas for determining the
marine reserve employed by Phoenix Assurance Co., Ltd. and the
Commissioner of Internal Revenue—40% of premiums received during the
year and 100% of premiums received during the last three months of the
year, respectively—do not comply with Section 186. Said determination runs
short of the requirement. For purposes of the Insurance Law, this Court
therefore cannot countenance the same. The reserve called for in Section
186 is a safeguard to the general public and should be strictly followed not
only because it is an express provision but also as a matter of public policy.
However, for
61
VOL. 14, MAY 20, 1965 61
Co., Ltd.
income tax purposes a taxpayer is free to deduct from its gross income a
lesser amount, or not to claim any deduction at all. What is prohibited by the
income tax law is to claim a deduction beyond the amount authorized
therein.
Phoenix Assurance Co., Ltd.’s claim for deduction of P37,147.04 being less
than the amount required in Section 186 of the Insurance Law, the same
cannot be and is not excessive, and should therefore be fully allowed.
We come now to the controversy on the taxpayer’s claim for deduction on
head office expenses incurred during 1952, 1953, and 1954 allocable to its
Philippine business computed at 5% of its gross income in the Philippines.
The Commissioner of Internal Revenue redetermined such deduction at 5%
on Phoenix Assurance Co., Ltd.’s net income thereby partially disallowing
the latter’s claim. The parties are agreed as to the percentage—5%—but
differ as to the basis of computation. Phoenix Assurance Co. Ltd. insists that
the 5% head office expenses be determined from the gross income, while
the Commissioner wants the computation to be made on the net income.
Page 26 of 226
What, therefore, needs to be resolved is: Should the 5% be computed on
the gross or net income?
The record shows that the gross income of Phoenix Assurance Co., Ltd.
consists of income from its Philippine business as well as reinsurance
premiums received for its head office in London and reinsurance premiums
ceded to foreign reinsurance. Since the items of income not belonging to its
Philippine business are not taxable to its Philippine branch, they should be
excluded in determining the head office expenses allocable to said
Philippine branch. This conclusion finds support in paragraph 2, subsection
(a), Section 30 of the Tax Code, quoted hereunder:
_______________
* See Maryland Casualty Co. v. U.S., 251 U.S. 342, 64 L. Ed. 297; State Farm Mutual
Automotive Insurance Company v. Duel, 324 U.S. 154, 89 L. Ed. 812; Insurance Company of
North America v. McCoach, D.C. Pa., 218 F. 905; City of Newark v. State Board of Equalization
of Taxes, 79343, 81 N.J.L. 416; interpreting charges for liability on insurance contracts as
reserves.
62
Co., Ltd.
“(2) Expenses allowable to non-resident alien individuals and foreign corporations. In
the case of a non-resident alien individual or a foreign corporation, the expenses
deductible are the necessary expenses paid or incurred in carrying on any business
or trade conducted within the Philippines exclusively.” (Italics supplied.)
Consequently, the deficiency assessments for 1952, 1953 and 1954,
resulting from partial disallowance of deduction representing head office
expenses, are sustained.
Finally, the Commissioner of Internal Revenue assails the dispositive portion
of the Tax Court’s decision limiting the maximum amount of interest
collectible for delinquency to an amount corresponding to a period of three
years. He contends that since such limitation was incorporated into Section
51 of the Tax Code by Republic Act 2343 which took effect only on June 20,
1959, it must not be applied retroactively on withholding tax for the years
1952, 1953 and 1954.
The imposition of interest on unpaid taxes is one of the statutory penalties
for tax delinquency, from the payments of which the Court of Tax Appeals
absolved the Phoenix Assurance Co., Ltd. on the equitable ground that the
latter’s failure to pay the withholding tax was due to the Commissioner’s
opinion that no withholding tax was due. Consequently, the taxpayer could
be held liable for the payment of statutory penalties only upon its failure to
comply with the Tax Court’s judgment rendered on February 14, 1962, after
Republic-Act 2343 took effect. This part of the ruling of the lower court ought
not to be disturbed.
WHEREFORE, the decision appealed from is modified, Phoenix
Assurance Co., Ltd. is hereby ordered to pay the Commissioner of Internal
Page 27 of 226
Revenue the amount of P75,966.-42, P59,059.68 and P48.812.32 as
withholding tax for the years 1952, 1953 and 1954, respectively, and the
sums of P5,667.00 and P2,847.00 as income tax for 1952 and 1954 or a
total of P192,352.42. The Commissioner of Internal Revenue is ordered to
refund to Phoenix Assurance Co., Ltd. the amount of P20,180.00 as
overpaid income tax for 1953, which should be deducted from the amount of
P192,-352.42.
63
VOL. 14, MAY 20, 1965 63
People vs. San Antonio
If the amount of P192,352.42 or a portion thereof is not paid within thirty
(30) days from the date this judgment becomes final, there should be
collected a surcharge and interest as provided for in Section 51(c) (2) of the
Tax Code. No costs. It is so ordered.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera,
Paredes, Dizon, Regala, Makalintal and Zaldivar, JJ., concur.
Decision modified.
———o0o———
Page 28 of 226
Commissioner of Internal Revenue vs. B.F. Goodrich Phils.,
Inc.
G.R. No. 104171. February 24, 1999. *
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. B.F.

GOODRICH PHILS., INC. (now SIME DARBY INTERNATIONAL TIRE CO.,
INC.) and THE COURT OF APPEALS, respondents.
Taxation; Words and Phrases; Questions of Law; Questions of Fact; 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; There is a
question of law when the issue is the application of the law to a given set of facts; A
question of fact involves the truth or falsehood of alleged facts.—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. 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.
Same; Prescription; Tax Assessments; 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.—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. As a corollary, the exceptions to the law
on prescription should perforce be strictly construed.
Same; Same; Same; Section 15 of the NIRC 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, and having
made its initial assessment in
_______________
* THIRD DIVISION.
547
VOL. 303, FEBRUARY 24, 1999 547

Commissioner of Internal Revenue vs. B.F. Goodrich Phils., Inc.
the manner prescribed, the Commissioner of Internal Revenue could not have been
authorized to issue, beyond the five-year prescriptive period, the second and third
assessments.—Section 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
Page 29 of 226
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.
Same; Same; Same; The fact alone that a taxpayer may have sold its property for a
price lesser than its declared fair market value does not constitute a false return
which contains wrong information due to mistake, carelessness or ignorance, for it is
possible that real property may be sold for less than adequate consideration for a
bona fide business purpose.—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. 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.
Same; Same; Same; The fact that a taxpayer sells its real property for a price less
than its declared fair market value did not by itself justify a finding of false return.—
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. In-
548

deed, private respondent declared the sale in its 1974 return submitted to the BIR.
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.
Same; Same; Same; Words and Phrases; “Donor’s Tax” and “Capital Gains Tax,”
Defined; The fact that the sale transaction may have partly resulted in a donation
does not change the fact that the taxpayer already reported its income for a
particular year by filing an income tax return.—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. 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,” is different from capital
gains tax, a tax on the gain from the sale of the taxpayer’s property forming part of
capital assets, 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
Page 30 of 226
does not change the fact that private respondent already reported its income for
1974 by filing an income tax return.
Same; Same; Same; Instances of negligence or oversight on the part of the BIR with
regard to make timely assessments cannot prejudice taxpayers, considering that the
prescriptive period was precisely intended to give them peace of mind.—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.
PETITION for review on certiorari of a decision of the Court of Appeals.
549
VOL. 303, FEBRUARY 24, 1999 549
Inc.
Wilfredo U. Villanueva for private respondent.
PANGANIBAN, J.:
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 dated February 14, 1992, promulgated by
1
the Court of Appeals in CA-GR SP No. 25100. The assailed Decision

2
reversed the Court of Tax Appeals (CTA) which upheld the BIR3
commissioner’s assessments made beyond the five-year statute of

limitations.
The Facts
The facts are undisputed. Private Respondent BF Goodrich Phils., Inc.
4
(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 require-
________________
1 Rollo, pp. 29-38.
2 Special Eleventh Division composed of J. Nathanael P. de Pano, Jr., chairman and ponente;
and JJ. Fortunato A. Vailoces and Luis L. Victor, members, concurring.
3 Rollo, pp. 39-53.
4 See Memorandum of private respondent, pp. 2-4 and Memorandum of petitioner, pp. 2-5;
rollo, pp. 123-125 and 151-154, respectively. See also Decision of the CTA, pp. 1-3; rollo, pp.
39-41.
550
Page 31 of 226
Inc.
ment, 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
551
VOL. 303, FEBRUARY 24, 1999 551
Inc.
P1,092,949 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:
Page 32 of 226
“WHEREFORE, the decision of the Commissioner of Internal Revenue assessing
petitioner deficiency gift tax is MODIFIED and 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)(1) 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
___________________
5 Decision of the CTA, p. 14; rollo, p. 52.
6 Decision of the Court of Appeals, pp. 6-7; rollo, pp. 34-35.
7 The case was submitted for resolution on March 25, 1997, when the Memorandum for
petitioner was received by the Court.
552
Inc.
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 petition has no merit.
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. The Court is not persuaded.
8
Page 33 of 226
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
___________________
Private respondent’s Memorandum was received earlier on February 2, 1996.
8 Memorandum for the petitioner, pp. 12-13; rollo, pp. 161-162.
553
VOL. 303, FEBRUARY 24, 1999 553
Inc.
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. In the present case, the
9
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.
Section 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
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
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
10, 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
__________________
9 Commissioner of Internal Revenue v. Court of Appeals, et al., GR No. 124043, October 14, 1998, pp.
8-10; citing Ramos, et al. v. Pepsi Cola Bottling Co. of the P.I., et al., 19 SCRA 289, 292, February 9,
1997.
554
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,
Page 34 of 226
was made beyond the period expressly set in Section 331 of the National Internal
Revenue Code x x x.”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. As a corollary, the exceptions to the law on prescription should
12
perforce be strictly construed.

___________________
10 Decision of the Court of Appeals, pp. 5-6; rollo, pp. 33-34.
11 Decision of the CTA, pp. 9-10; rollo, pp. 47-48.
12 Report of the Tax Commission, Vol. I, p. 98 and Republic v. Ablaza, 108 Phil. 1105, 1108
(1960); cited in Vitug, Compendium of Tax Law and Jurisprudence, p. 252, 2nd revised ed.
(1989); Hector S. de Leon, The National Internal Revenue Code Annotated, p. 509,
555
VOL. 303, FEBRUARY 24, 1999 555
Inc.
Section 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.
Page 35 of 226
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: x x x.”
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. It is possible that real prop-
13
______________________
1991 ed.; and Ruben E. Agpalo, Statutory Construction, p. 227, 2nd ed. (1990).
13 Aznar v. Court of Tax Appeals, 58 SCRA 519, 541, August 23, 1974. The word “false” is
defined as an adjective which means not true or not correct (Dictionary of Law, 2nd ed., Peter
Collin Publishing [1997]).
556
Inc.
erty 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. Within the five-year prescriptive period, the
14
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. Moreover, even though a donor’s tax, which is defined as “a tax on the
15
privilege of transmitting one’s property or property rights to another or others

Page 36 of 226
without adequate and full valuable considera-tion,” is different from capital
16
gains tax, a tax on the gain from the sale of the taxpayer’s property forming
part of capital assets, the tax return filed by private respondent to report its
17
income for the year 1974 was sufficient compliance with the legal
requirement to file a return. In other words, the
________________________
14 Memorandum for private respondent, p. 5; rollo, p. 126.
15 Aznar, supra, p. 541.
16 Vitug, supra, p. 192.
17 Tuason, Jr. v. Lingad, 58 SCRA 170, 176, July 31, 1974.
557
VOL. 303, FEBRUARY 24, 1999 557
Inc.
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.
Romero (Chairman), Purisima and Gonzaga-Reyes, JJ., concur.
Vitug, J., On official leave.
Petition denied, judgment affirmed.
Note.—Even an assessment based on estimates is prima facie valid and
lawful where it does not appear to have been arrived at arbitrarily or
capriciously. (Marcos II vs. Court of Appeals, 273 SCRA 47 [1997])
——o0o——
558
Page 37 of 226
VOL. 16, FEBRUARY 28, 1966 277
Butuan Sawmill, Inc. vs. Court of Tax Appeals, et al.
No. L-20601. February 28, 1966.
BUTUAN SAWMILL, INC., petitioner, vs. HON. COURT OF TAX APPEALS,
ET AL., respondents.
Taxation; Sales tax; Sale of logs “F.O.B., Agusan”.—Petitioner sold logs to Japanese
firms at prices FOB Agusan. The FOB feature of the sales indicated that the parties
intended the title to pass to the buyer upon delivery of the logs in Agusan on board
the vessels that took the goods to Japan. The
278

sales being domestic or local, they are subject to sales tax under Section 186 of the
Tax Code, as amended.
Same; Title to goods deliverable to order of seller or his agent may pass upon
delivery to the carrier.—The specification in the bill of lading that the goods are
deliverable to the order of the seller or his agent does not necessarily negative the
passing of title to the goods upon delivery to the carrier. (Art. 1503, New Civil Code).
Same; Prescription; Income tax return is not deemed a return for sales tax purposes.
—For purposes of computing the period of prescription under Section 331 of the Tax
Code, an income tax return cannot be considered as a return for compensating tax
or sales tax purposes. The taxpayer must file a return for the particular tax required
by law in order to avail himself of the benefits of the law. If he does not file such a
return, an assessment may be made within ten (10) years from and after the
discovery of the omission to file the return. (Section 332[a] of the Tax Code; Cf.
Bisaya Land Transportation Co., Inc. vs. Collector of Internal Revenue and Collector
of Internal Revenue vs. Bisaya Land Transportation Co., Inc., G.R. Nos. L-12100 &
L-11812, May 29, 1959.)
Tax Court.—In petitions to review decisions of the Tax Court only legal questions
may be raised and passed upon by the Supreme Court (Gutierrez vs. Court of Tax
Appeals, 101 Phil. 713; Sanchez vs. Commissioner of Customs, 102 Phil. 37).
PETITION for review by certiorari of a decision of the Court of Tax Appeals.
David G. Nitafan for the petitioner.
Solicitor General for the respondents.
REYES, J.B.L., J.:
Appeal from a decision of the Court of Tax Appeals, in its CTA Case No.
965, ordering petitioner herein, Bu-tuan Sawmill, Inc., to pay respondent
Commissioner of Internal Revenue the sum of P36,107.74 as deficiency
sales tax and surcharge due on its sales of logs to buyers in Japan from
January 31, 1951 to June 8, 1953.
The facts, as found and stated by the lower court in its decision, are in full
accord with the evidences presented therein; hence, we quote them
hereunder:
Page 38 of 226
“x x x that during the period from January 31, 1951 to June 8, 1953, it sold logs to
Japanese firms at prices FOB
279
VOL. 16, FEBRUARY 28, 1966 279
Vessel Magallanes, Agusan (in some cases FOB Vessel, Nasipit, also in Agusan);
that the FOB prices included costs of loading, wharfage stevedoring and other costs
in the Philippines; that the quality, quantity and measurement specifications of the
logs were certified fry the Bureau of Forestry that the freight was paid by the
Japanese buyers; and the payments of the logs were effected by means of
irrevocable letters of credit in favor of petitioner and payable through the Philippine
National Bank or any other bank named by it.
“Upon investigation by the Bureau of Internal Revenue, it was ascertained that no
sales tax return was filed by the petitioner and neither did it pay the corresponding
tax on the sales. On the basis of agent Antonio Mole’s report dated September 17,
1957, respondent, on August 27, 1958, determined against petitioner the sum of
P40,004.01 representing sales tax, surcharge and compromise penalty on its sales
[tax, surcharge and compromise penalty on its sales] of logs from January 1951 to
June 1953 pursuant to Sections 183, 186 and 209 of the National Internal Revenue
Code (Exhibit “E”, p. 14, CTA rec. & p. 14, BIR rec). And in consequence of a
reinvestigation, respondent, on November 6, 1958, amended the amount of the
previous assessment to P38,917.74 (Exh. “F”, p. 52, BIR rec). Subsequent requests
for reconsideration of the amended assessment having been denied (Exh. “G”, p.
55, BIR rec; Exh. “H”, pp. 75-76, BIR rec: Exh. “I”, pp. 79-80, BIR rec; Exh. “J”, p. 81,
BIR rec), petitioner filed the instant petition for review on November 7, 1960.”
On the bases of the above-quoted findings and circumstances, the lower
court upheld the legality and correctness of the amended assessment of the
sales tax and surcharge, ruling that the sales in question, in the light of our
previous decisions , were domestic or “local” sales, and, therefore, subject
1
to sales tax under the provision of section 186 of the Tax Code, as amended
by Republic Acts Nos. 558 and 594; and that the assessment thereof was
made well within the ten-year period prescribed by Section 332 (a) of the
same Code, since petitioner herein omitted to file its sales tax returns for the
years 1951, 1952 and 1953, and this omission was discovered only
________________
1 Taligaman Lumber Co., Inc vs. Collector of Internal Revenue, L-15716, March 31, 1962; Bislig
Bay Lumber Co., Inc. vs. Collector of Internal Revenue, L-13186, January 28, 1961; Western
Mindanao Development Lumber Co., Inc. vs. CTA, et al., L-11710, June 30, 1958; and Misamis
Lumber Co., Inc. vs. Collector of Internal Revenue, L-10131, September 30, 1957; 56 O.G.
517.
280
Butuan Sawmill, Inc, vs. Court of Tax Appeals, et al.
on September 17, 1957. The imposition of the compromise penalty was,
however, eliminated therefrom for want of agreement between the taxpayer
and the Collector (now Commissioner) of Internal Revenue. A motion to
Page 39 of 226
reconsider said decision having been denied, petitioner herein interposed
the present appeal before this Court.
The issues presented in this appeal are: whether or not petitioner herein is
liable to pay the 5% sales tax as then prescribed by Section 186 of the Tax
Code on its sales of logs to the Japanese buyers; and whether or not the
assessment thereof was made within the prescriptive period provided by law
therefor.
On the first issue, petitioner herein insists that the circumstances
enumerated in the above finding, which this Court had, in previous decisions
(Cf. footnote [1]), considered as determinative of the place of transfer of
ownership of the logs sold, for purposes of taxation, are not in themselves
evidentiary indications to show that the parties intended the title of the logs
to pass to the Jap-anese buyers in Japan. Thus, it points out that the “FOB”
feature of the sales contract was made only to fix its price and not to fix the
place of delivery; that the requirement of certification of quality, quantity, and
measurement specifications of the logs by local authorities was done to
comply with local laws, rules, and regulations, and was not a part of the
sales arrangement; that the payment of freight by the Japanese buyers is
not an uncommon feature of “FOB” shipments; and that the payment of
prices by means of irrevocable letters of credit is but a common established
business practice to secure payment of the price to the seller. It also insists
that, even assuming that the “FOB” feature of the disputed sales determines
the situs of transfer of ownership, the same is merely a prima facie
presumption which yields to contrary proof such as that the logs were made
deliverable to the “order of the shipper” and the logs were shipped at the
risk of the shipper, which circumstances, if considered, would negate the
above implications. Hence, petitioner herein contends that the disputed
sales were
281
VOL. 16, FEBRUARY 28, 1966 281
consummated in Japan, and, therefore, not subject to the taxing jurisdiction
of our Government.
The above contentions of petitioner are devoid of merit. In a decided case
with practically identical set of facts obtaining in the case at bar, this Court
declared:
“x x x it is admitted that the agreed price was ‘F.O.B. Agusan’, thus indicating,
although prima facie, that the parties intended the title to pass to the buyer upon
delivery of the logs in Agusan; on board the vessels that took the goods to Japan.
Moreover, said prima facie proof was bolstered up by the following circumstances,
namely:
1. 1. 
Irrevocable letters of credit were opened by the Japanese buyers in favor of
the petitioners.
Page 40 of 226
2. 2. 
Payment of freight charges of every shipment by the Japanese buyers.
3. 3. 
The Japanese buyers chartered the ships that carried the logs they purchased
from the Philippines to Japan.
4. 4. 
The Japanese buyers insured the shipment of logs and collected the insurance
coverage in case of loss in transit.
5. 5. 
The petitioner collected the purchase price of every shipment of logs by
surrendering the covering letter of credit, bill of lading, which was indorsed in
blank, tally sheet, invoice and export entry, to the corresponding bank in Manila
of the Japanese agent bank with whom the Japanese buyers opened letters of
credit.
6. 6. 
In case of natural defects in logs shipped to the buyers discovered in Japan,
instead of returning such defective logs, accepted them, but were granted a
corresponding credit based on the contract price.
7. 7. 
The logs purchased by the Japanese buyers were measured by a
representative of the Director of Forestry and such measurement was final,
thereby making the Government of the Philippines a sort of agent of the
Japanese buyers.
“Upon the foregoing facts and authority of Bislig (Bay) Lumber Co., Inc. vs. Collector
of Internal Revenue, G.R. No. L-13186 (January 28, 1961), Misamis Lumber Co.,
Inc. vs. Collector of Internal Revenue (56 Off. Gaz. 517) and Western Mindanao
Lumber Development Co., Inc. vs. Court of Tax Appeals, et al. (G.R. No. L-11710,
June 30, 1958), it is clear that said export sales had been consummated in the
Philippines and were, accordingly, subject to sales tax therein.” (Taligaman Lumber
Co., Inc. vs. Collector of Internal Revenue, G.R. No. L-15716, March 31, 1962).
With respect to petitioner’s contention that there are proofs to rebut the
prima facie finding and circumstances
282
that the disputed sales were consummated here in the Philippines, we find
that the allegation is not borne out by the law or the evidence.
That the specification in the bill of lading to the effect that the goods are
deliverable to the order of the seller or his agent does not necessarily
negate the passing of title to the goods upon delivery to the carrier is clear
from the second part of paragraph 2 of Article 1503 of the Civil Code of the
Philippines (which appellant’s counsel improperly omits from his citation):
“Where goods are shipped, and by the bill of lading the goods are deliverable to the
seller or his agent, or to the order of the seller or of his agent, the seller thereby
reserves the ownership in the goods. But, if except for the form of the bill of lading,
the ownership would have passed to the buyer on shipment of the goods, the
Page 41 of 226
sellers’s property in the goods shall be deemed to be only for the purpose of
securing performance by the buyer of his obligations under the contract.”
Moreover, it has been “a settled rule that in petitions to review decisions of
the Court of Tax Appeals, only questions of law may be raised and may be
passed upon by this Court” (Gutierrez vs. Court of Tax Appeals & Collector
of Internal Revenue vs. Gutierrez, G.R. Nos. L-7938 & L-9771, May 21,
1957, cited in Sanchez vs. Commissioner of Customs, G.R. No. L-8556,
September 30, 1957); and it having been found that there is no proof to
substantiate the foregoing contention of petitioner, the same should also be
ruled as devoid of merit.
On the second issue, petitioner avers that the filing of its income tax returns,
wherein the proceeds of the disputed sales were declared, is substantial
compliance with the requirement of filing a sales tax return, and, if there
should be deemed a return filed, Section 331, and not Section 332(a), of the
Tax Code providing for a five-year prescriptive period within which to make
an assessment and collection of the tax in question from the time the return
was deemed filed, should be applied to the case at bar. Since petitioner filed
its income tax returns for the years 1951, 1952 and 1953, and the
assessment was made in 1957 only, it further contends that the assessment
of the sales tax corresponding to the years 1951
283
VOL. 16, FEBRUARY 28, 1966 283
and 1952 has already prescribed for having been made outside the five-
year period prescribed in Section 331 of the Tax Code and should,
therefore, be deducted from the assessment of the deficiency sales tax
made by respondent.
The above contention has already been raised and rejected as not
meritorious in a previous case decided by this Court. Thus, we held that an
income tax return cannot be considered as a return for compensating tax for
purposes of computing the period of prescription under Section 331 of the
Tax Code, and that the taxpayer must file a return for the particular tax
required by law in order to avail himself of the benefits of Section 331 of the
Tax Code; otherwise, if he does not file a return, an assessment may be
made within tho time stated in Section 332 (a) of the same Code (Bisaya
Land Transportation Co., Inc. vs. Collector of Internal Revenue & Collector
of Internal Revenue vs. Bisaya Land Transportation Co., Inc., G.R. Nos.
L-12100 & L-11812, May 29, 1959). The principle enunciated in this last
cited case is applicable by analogy to the case at bar.
It being undisputed that petitioner failed to file a return for the disputed sales
corresponding to the years 1951, 1952 and 1953, and this omission was
discovered only on September 17, 1957, and that under Section 332 (a) of
the Tax Code assessment thereof may be made within ten (10) years from
and after the discovery of the omission to file the return, it is evident that the
Page 42 of 226
lower court correctly held that the assessment and collection of the sales tax
in question has not yet prescribed.
Wherefore, the decision appealed from should be, as it is hereby
affirmed, with costs against petitioner.
Chief Justice Bengzon and Justices Bautista Angelo, Concepcion,
Barrera, Dizon, Regala, Makalintal, J.P. Bengzon, Zaldivar and Sanchez,
concur.
Decision affirmed.
Note.—As to finality of Tax Court’s factual findings, see Felipe Yupangco &
Sons, Inc. vs. Commissioner of Customs, L-22259, Jan. 19, 1966, page 1,
ante.
284
Page 43 of 226
VOL. 58, AUGUST 23, 1974 519
Aznar vs. Court of Tax Appeals
No. L-20569. August 23, 1974. *
JOSE B. AZNAR, in his capacity as Administrator of the Estate of the

deceased, Matias H. Aznar, petitioner, vs. COURT OF TAX APPEALS and
COLLECTOR OF INTERNAL REVENUE, respondents.
________________
* FIRST DIVISION.
520
520 SUPREME.COURT REPORTS ANNOTATED
Taxation; Income Tax; Assessments; Prescription; Proceeding for collection of
deficiency taxes based on false return, fraudulent return or failure to file a return
prescribes in ten years.—In the three different cases of (1) false return, (2)
fraudulent return with intent to evade tax, (3) 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.
Same; Same; Words and phrases; Distinction between false return and fraudulent
return explained.—Our stand that the law should be interpreted to mean a
separation of the three different situations of false return, fraudulent return with intent
to evade tax, and failure to file a return is strengthened immeasurably by the last
portion of the provision which segregates the situations into three different classes,
namely—“falsity”, “fraud” and “omission”. That there is a difference between “false
return” and “fraudulent return” cannot be denied. While the first merely implies
deviation from the truth, whether intentional or not, the second implies intentional or
deceitful entry with intent to evade the taxes due.
Same; Same; Assessments; Prescription; Ten year period of prescription applies
where the government is prevented from making proper assessments.—The
ordinary period of prescription of 5 years within which to assess tax liabilities under
Sec. 331 of the NIRC should be applicable to normal circumstances, but whether the
government is placed at a disadvantage so as to prevent its lawful agents from
proper assessment of tax liabilities due to false returns, fraudulent returns intended
to evade payment of tax or failure to file returns, the period of ten years provided for
in Sec. 332 (a) NIRC, from the time of the discovery of the falsity, fraud or omission
even seems to be inadequate and should be the one enforced.
Same; Court of Tax Appeals; Findings of fact of the tax court will not be disturbed if
supported by substantial evidence.—As to the alleged errors committed by the Court
of Tax Appeals in not deducting from the alleged undeclared income of the taxpayer
for 1946 the proceeds from the sale of jewelries valued at P30,000; in not excluding
from other schedules of assets of the taxpayer certain items, these issues would
depend for their resolution on determination of questions of facts based on an
evaluation of evidence, and the general rule is that the findings of fact of the Court of
Tax Appeals supported by substantial evidence should not be disturbed upon review
of its decision.
Same; Income tax; Assessments; Reconstruction of property does
521
Page 44 of 226
VOL. 58, AUGUST 23, 1974 521
not render it valueless as an asset.—Regarding a house in Talisay, Cebu (covered
by Tax Declaration No. 8165) which was listed as an asset during the years 1945
and 1947 to 1951, but which was not listed as an asset in 1946 because of a
notation in the tax declaration that it was reconstructed in 1947, the lower court
correctly concluded that the reconstruction of the property did not render it valueless
during the time it was being reconstructed and consequently it should be listed as an
asset as of January 1, 1946, with the same valuation as in 1945, that is P1,500.
Same; Same; Same; Taxpayer’s statements to the bank as to his assets prevail over
contrary claims made during the hearing.—On the question of accounts receivables,
doubtful accounts (bad debts), and valuation of buildings, it is clear that they were
included in the taxpayer’s statements given to the Philippine National Bank. These
statements are to be given greater credit over subsequent claims tending to alter the
taxpayer’s own estimate of his assets.
Same; Same; Same; Buildings destroyed by typhoon should be written off as assets
of the taxpayer.—Petitioner did not question the inclusion of these buildings in the
inventory for the years prior to 1950, but objected to their inclusion as assets as of
January 1, 1950, because both buildings were destroyed by a typhoon in November
of 1949. There is sufficient evidence (Exh. G-1, etc.) to prove that the two buildings
were really destroyed by typhoon in 1949 and, therefore, should be eliminated from
the petitioner’s inventory of assets beginning December 31, 1949.
Same; Same; Same; Expenses in hollow-blocks business are investments and
should be treated as assets.—The inclusion of expenses (labor and raw materials)
as part of the hollow block business is sanctioned in the inventory method of tax
verification. It is a sound accounting practice to include raw materials that will be
used for future manufacture. Inclusion of direct labor is also proper, as all these
items are to be embodied in a summary of assets. There is no evidence to show that
there was duplication in the inclusion of the building used for hollow blocks business
as part of petitioner’s investment as this building was not included in the listing of
real properties of petitioner (Exh. 45-C p. 187 B.I.R. rec.).
Same; Same; Penalties; Actual fraud, not constructive fraud, is subject to 50%
surcharge as penalty.—The lower court’s conclusion regarding the existence of
fraudulent intent to evade payment of taxes was based merely on a presumption and
not on evidence establishing a willful filing of false and fraudulent returns so as to
warrant the
522
522 SUPREME.COURT REPORTS ANNOTATED

imposition of the fraud penalty. The fraud contemplated by law is actual and not
constructive. It must be intentional fraud, consisting of deception willfully and
deliberately done or resorted to in order to induce another to give up some legal
right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to
evade the tax contemplated by law. It must amount to intentional wrong-doing with
the sole object of avoiding the tax.
PETITION for review of a decision of the Court of Tax Appeals.
The f acts are stated in the opinion of the Court.
Page 45 of 226
Sato, Enad & Garcia for petitioner.
Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and
Special Attorney Librada R. Natividad for respondents.
ESGUERRA, J.:
Petitioner, as administrator of the estate of the deceased, Matias H. Aznar,
seeks a review and nullification of the decision of the Court of Tax Appeals
in C.T.A. Case No. 109, modifying the decision of respondent Commissioner
of Internal Revenue and ordering the petitioner to pay the government the
sum of P227,691.77 representing deficiency income taxes for the years
1946 to 1951, inclusive, with the condition that if the said amount is not paid
within thirty days from the date the decision becomes final, there shall be
added to the unpaid amount the surcharge of 5%, plus interest at the rate of
12% per annum from the date of delinquency to the date of payment, in
accordance with Section 51 of the National Internal Revenue Code, plus
costs against the petitioner.
It is established that the late Matias H. Aznar who died on May 18, 1958,
predecessor in interest of herein petitioner, during his lifetime as a resident
of Cebu City, filed his income tax returns on the cash and disbursement
basis, reporting therein the following:
“Year Net Amount Exhibit
lncome of
Tax Paid
1945 P12,822.0 P114.66 pp. 85–88 B.I.R. rec.
0
1946 9,910.94 114.66 38-A (pp. 329–332 B.I.R.
rec.)
1947 10,200.00 132.00 39 (pp. 75–78 B.I.R. rec.)
1948 9,148.34 68.90 40 (pp. 70–73 B.I.R. rec.)
1949 8,990.66 59.72 41 (pp. 64–67 B.I.R. rec.)
523
VOL. 58, AUGUST 23, 1974 523
1950 8,364.50 28.22 42 (pp. 59–62, BIR rec.)"
1951 6,800.00 none 43 (pp. 54–57 BIR rec.)"
The Commissioner of Internal Revenue having his doubts on the veracity of
the reported income of one obviously wealthy, pursuant to the authority
granted him by Section 38 of the National Internal Revenue Code, caused
B.I.R. Examiner Honorio Guerrero to ascertain the taxpayer’s true income
for said years by using the net worth and expenditures method of tax
investigation. The assets and liabilities of the taxpayer during the above-
mentioned years were ascertained and it was discovered that from 1946 to
1951, his net worth had increased every year, which increases in net worth
was very much more than the income reported during said years. The
Page 46 of 226
findings clearly indicated that the taxpayer did not declare correctly the
income reported in his income tax returns for the aforesaid years.
Based on the above findings of Examiner Guerrero, respondent
Commissioner, in his letter dated November 28, 1952, notified the taxpayer
(Matias H. Aznar) of the assessed tax delinquency to the amount of
P723,032.66, plus compromise penalty. The taxpayer requested a
reinvestigation which was granted for the purpose of verifying the merits of
the various objections of the taxpayer to the deficiency income tax
assessment of November 28, 1952.
After the reinvestigation, another deficiency assessment to the reduced
amount of P381,096.07 dated February 16, 1955, superseded the previous
assessment and notice thereof was received by Matias H. Aznar on March
2, 1955.
The new deficiency assessment was based on the following computations:
1946
Net income per return ………………… P 9,910.94
Add: Underdeclared income ………………… 22,559.51
Net income per investigation ………………… P 32,470.45
Deduct: Personal and additional exemptions 6,917.00
…………………
Amount of income subject to tax P 25,553.45
…………………
524
Total tax liability P 3,801.76
Deduct: Income tax liability per return as 114.66
assessed
Balance of tax due P 3,687.10
Add: 50% surcharge 1,843.55
DEFICIENCY INCOME TAX P 5,530.65
1947
Net income per return P 10,200.00
Add: Underdeclared income 90,413.56
Net income per reinvestigation P 100,613.56
Deduct: Personal and additional exemption 7,000.00
assessed
Page 47 of 226
1948
Total tax liability 2,201.40
assessed
DEFICIENCY INCOME TAX ………… P 3,198.75
1949
525
VOL. 58, AUGUST 23, 1974 525
Deduct: Personal and additional exemptions P 7,000.00
assessed
1950
Amount of income subject to tax 366,143.26
Total tax liability 185,883.00
assessed
Add: 50% surcharge 92.928.00
1 9 51
Page 48 of 226
Deduct: Income tax liability per return as -o-
assessed
526
SUMMARY
1946 …… P 5,530.65
1947 …… 36,931.73
1948 …… 3,198.75
1949 …… 45,125.94
1950 …… 278,783.00
1951 …… 11,526.00
Total P 381,096.07
In determing the unreported income, the respondent Commissioner of
Internal Revenue resorted to the networth method which is based on the
following computations:
1945
Real estate inventory P 64,738.00
Other assets 37,606.87
Total assets P 102,344.87
Less: Depreciation allowed 2,027.00
Networth as of Dec. 31, 1945 P 100,316.97
1946
Net assets P 142,870.42
Less: Liabilities P 17,000.00
Networth as P100,316.97
of Jan. 1,1946 P117,316.97
Increase in networth 25,553.45
Add: Estimated living expenses 6,917.00
Page 49 of 226
Net income P 32,470.45
194 7
Net assets P 279,483.98
Less: Liabilities P 60,000.00
527
VOL. 58, AUGUST 23, 1974 527
Networth as of Jan. 1, 1947 125,870.42 P
185,870.42
Increase in networth P 93,613.56
1948
Real estate in ventory P244,824.18
Total assets P363,544.78
Net assets P342,608.75
Less: Liabilities P105,351.80
Networth as 219,483.98
of Jan. 1,1948 P324,835.78
1949
Real estate inventory P400,515.52
Investment in schools and other 23,105.29
colleges
of Jan. 1,1949 P353,865.54
Increase in networth P107.409.19
Net income P114,409.19
Page 50 of 226
1950
Investment in Schools and other 193,460.99
colleges
528
of Jan. 1, 1950 P503,010.13
Increase in networth P366,143.26
1951
Investment in schools and other 214,016.21
colleges
of Jan. 1, 1951 P851,268.43
(Exh. 45-B, BIR rec. p. 188)
On February 20, 1953, respondent Commissioner of Internal Revenue, thru
the City Treasurer of Cebu, placed the properties of Matias H. Aznar under
distraint and levy to secure payment of the deficiency income tax in
question. Matias H. Aznar filed his petition for review of the case with the
Court of Tax Appeals on April 1, 1955, with a subsequent petition
immediately thereafter to restrain respondent from collecting the deficiency
tax by summary method, the latter petition being granted on February 8,
1956, per C.T.A. resolution, without requiring petitioner to file a bond. Upon
review, this Court set aside the C.T.A. resolution and required the petitioner
to deposit with the Court of Tax Appeals the amount demanded by the
Page 51 of 226
Commissioner of Internal Revenue for the years 1949 to 1951 or furnish a
surety bond for not more than double the amount.
On March 5, 1962, in a decision signed by the presiding judge and the two
associate judges of the Court of Tax Appeals, the lower court concluded that
the tax liability of the late Matias H. Aznar for the year 1946 to 1951,
inclusive should be
529
VOL. 58, AUGUST 23, 1974 529
P227,788.64 minus P96.87 representing the tax credit for 1945, or
P227,691.77, computed as follows:
1946
Less: Personal and additional exemptions 6,917.00
Income subject to tax P25,553.45
Less: Tax already assessed 114.66
Deficiency income tax P 5,530.65
194 7
Net income per return P10,200.00
Tax due thereon P13,420.38
Balance of tax due P13,288.38
Deficiency income tax P19,932.57
1948
Balance of tax due 960.77
Page 52 of 226
Add: 50% surcharge 480.38
530
1949
Income subject to tax P45,709.19.
1950
Income subject to tax P 32,955.80
Less: Tax already assessed -o-
1951
Tax due thereon P1
17,348.00
Balance of tax due P1
17,320.00
531
VOL. 58, AUGUST 23, 1974 531
Page 53 of 226
SUMMARY
1946 P 5,530.65
1947 19,932.57
1948 1,441.15
1949 13,378.27
1950 175,980.00
1951 11,526.00
P227,788.64
I
The first vital issue to be decided here is whether or not the right of the
Commissioner of Internal Revenue to assess deficiency income taxes of the
late Matias H. Aznar for the years 1946, 1947, and 1948 had already
prescribed at the time the assessment was made on November 28, 1952.
Petitioner’s contention is that the provision of law applicable to this case is
the period of five years limitation upon assessment and collection from the
filing of the returns provided for in Sec. 331 of the National Internal Revenue
Code. He argues that since the 1946 income tax return could be presumed
filed before March 1, 1947 and the notice of final and last assessment was
received by the taxpayer on March 2, 1955, a period of about 8 years had
elapsed and the five year period provided by law (Sec. 331 of the National
Internal Revenue Code) had already expired. The same argument is
advanced on the taxpayer’s return for 1947, which was filed on March 1,
1948, and the return for 1948, which was filed on February 28, 1949.
Respondents, on the other hand, are of the firm belief that regarding the
prescriptive period for assessment of tax returns, Section 332 of the
National Internal Revenue Code should apply because, as in this case, "(a,)
In the case of a false or fraudulent return with intent to evade 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 f alsity, fraud or omission” (Sec.
332 (a) of the NIRC).
Petitioner argues that Sec. 332 of the NIRC does not apply because the
taxpayer did not file false and fraudulent returns with intent to evade tax,
while respondent Commissioner of Internal Revenue insists contrariwise,
with respondent Court
532
of Tax Appeals concluding that the very “substantial underdeclarations of
income for six consecutive years eloquently demonstrate the falsity or
fraudulence of the income tax returns with an intent to evade the payment of
tax.”
Page 54 of 226
To our minds we can dispense with these controversial arguments on facts,
although we do not deny that the findings of f acts by the Court of Tax
Appeals, supported as they are by very substantial evidence, carry great
weight, by resorting to a proper interpretation of Section 332 of the NIRC.
We believe that the proper and reasonable interpretation of said provision
should be that in the three different cases of (1) false return, (2) fraudulent
return with intent to evade tax, (3) 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 (1) falsity, (2) fraud, (3) omission. Our stand that the law should be
interpreted to mean a separation of the three different situations of false
return, fraudulent return with intent to evade tax, and failure to file a return is
strengthened immeasurably by the last portion of the provision which
segregates the situations into three different classes, namely -“falsity”,
“fraud” and “omission”. That there is a difference between “false return” and
“fraudulent return” cannot be denied. While the first merely implies deviation
from the truth, whether intentional or not, the second implies intentional or
deceitful entry with intent to evade the taxes due.
The ordinary period of prescription of 5 years within which to assess tax
liabilities under Sec. 331 of the NIRC should be applicable to normal
circumstances, but whenever the government is placed at a disadvantage
so as to prevent its lawful agents from proper assessment of tax liabilities
due to false returns, fraudulent return intended to evade payment of tax or
failure to file returns, the period of ten years provided for in Sec. 332 (a)
NIRC, from the time of the discovery of the falsity, fraud or omission even
seems to be inadequate and should be the one enforced.
There being undoubtedly false tax returns in this case, We affirm the
conclusion of the respondent Court of Tax Appeals that Sec. 332 (a) of the
NIRC should apply and that the period of ten years within which to assess
petitioner’s tax liability had not expired at the time said assessment was
made.
533
VOL. 58, AUGUST 23, 1974 533
II
As to the alleged errors committed by the Court of Tax Appeals in not
deducting from the alleged undeclared income of the taxpayer for 1946 the
proceeds from the sale of jewelries valued at P30,000; in not excluding from
other schedules of assets of the taxpayer (a) accounts receivable from
customers in the amount of P38,000 for 1948, P126,816.50 for 1950, and
provisions for doubtful accounts in the amount of P41,810.56 for 1950; (b)
over valuation of hospital and dental buildings for 1949 in the amount of
P32,000 and P6,191.32 respectively; (c) investment in hollow block
Page 55 of 226
business in the amount of P8,603.22 for 1949; (d) over valuation of surplus
goods in the amount of P23,000 for the year 1949; (e) various lands and
buildings included in the schedule of assets for the years 1950 and 1951 in
the total amount of P243,717.42 for 1950 and P62,564.00 for 1951, these
issues would depend for their resolution on determination of questions of
facts based on an evaluation of evidence, and the general rule is that the
findings of fact of the Court of Tax Appeals supported by substantial
evidence should not be disturbed upon review of its decision (Section 2,
Rule 44, Rules of Court).
On the question of the alleged sale of P30,000 worth of jewelries in 1946,
which amount petitioner contends should be deducted from the taxpayer’s
net worth as of December 31, 1946, the record shows that Matias H. Aznar,
when interviewed by B.I.R. Examiner Guerrero, stated that at the beginning
of 1945 he had P60,000 worth of jewelries inherited from his ancestors and
were disposed off as follows: 1945, P10,000; 1946, P20,000; 1947,
P10,000; 1948, P10,000; 1949, P7,000; (Report of B.I.R. Examiner
Guerrero, B.I.R. rec. pp. 90–94).
During the hearing of this case in the Court of Tax Appeals, petitioner’s
accountant testified that on January 1, 1945, Matias H. Aznar had jewelries
worth P60,000 which were acquired by purchase during the Japanese
occupation (World War II) and sold on various occasions, as follows: 1945,
P5,000 and 1946, P30,000. To corroborate the testimony of the accountant,
Mrs. Ramona Agustines testified that she bought from the wife of Matias H.
Aznar in 1946 a diamond ring and a pair of earrings for P30,000; and in
1947 a wrist watch with diamonds, together with antique jewelries, for
P15,000. Matias H. Aznar, on the other hand testified that in 1945, his wife
sold to Sards Pariño jewelries for P5,000 and others to Mrs. Ramona
534
Agustines for about P35,000. In answer to another question, Mr. Aznar
stated that his transaction with Sards Pariño, with respect to the sale of
jewelries, amounted to P15,000.
The lower court did not err in finding material inconsistencies in the
testimonies of Matias H. Aznar and his witnesses with respect to the values
of the jewelries allegedly disposed off as stated by the witnesses. Thus, Mr.
Aznar stated to the B.I.R. examiner that jewelries worth P10,000 were sold
in 1945, while his own accountant testified that the same jewelries were sold
for only P5,000. Mr. Aznar also testified that Mrs. Agustines purchased from
his wife jewelries for P35,000, and yet Mrs. Agustines herself testified that
she bought jewelries for P30,000 and P15,000 on two occasions, or a total
of P45,000.
Page 56 of 226
We do not see any plausible reason to challenge the fundamentally sound
basis advanced by the Court of Tax Appeals in considering the
inconsistencies of the witnesses’ testimony as material, in the following
words:
“We do not say that witnesses testifying on the same transaction should give
identical testimonies. Because of the frailties and the limitations of the human mind,
witnesses’ statements are apt to be inconsistent in certain points, but usually the
inconsistencies refer to the minor phases of the transaction. It is the insignificance of
the detail of an occurrence that fails to impress the human mind. When that same
mind, made to recall what actually happened, the insignificant point which it failed to
take note is naturally left out. But, it is otherwise as regards significant matters, for
they leave indelible imprints upon the human mind. Hence, testimonial
inconsistencies on the minor details of an occurrence are dismissed lightly by the
courts, while discrepancies on significant points are taken seriously and weigh
adversely to the party affected thereby.”
There is no sound basis for deviating from the lower court’s conclusion that:
“Taxwise, in view of the aforesaid inconsistencies, which we deem material
and significant, we dismiss as without factual basis petitioner’s allegation
that jewelries form part of his inventory of assets for the purpose of
establishing his net worth at the beginning of 1946."
As to the accounts receivable from the United States government for the
amount of P38,254.90, representing a claim for goods commandered by the
U.S. Army during World War
535
VOL. 58, AUGUST 23, 1974 535
II, and which amount petitioner claimed should be included in his net worth
as of January 1, 1946, the Court of Tax Appeals correctly concluded that the
uncontradicted evidence showed that “the collectible accounts of Mr. Aznar
from the U.S. Government in the sum of P38,254.90 should be added to his
assets (under accounts receivable) as of January 1, 1946. As of December
31, 1947, and December 31, 1948, the years within which the accounts
were paid to him, the ‘accounts receivable’ shall decrease by P31,362.37
and P6,892.53, respectively.”
Regarding a house in Talisay Cebu, (covered by Tax Declaration No. 8165)
which was listed as an asset during the years 1945 and 1947 to 1951, but
which was not listed as an asset in 1946 because of a notation in the tax
declaration that it was reconstructed in 1947, the lower court correctly
concluded that the reconstruction of the property did not render it valueless
during the time it was being reconstructed and consequently it should be
listed as an asset as of January 1, 1946, with the same valuation as in
1945, that is P1,500.
On the question of accounts receivable from customers in the amount of
P38,000 for 1948, and P123,816.58 for the years 1950 and 1951, which
were included in the assets of Mr. Aznar for those years by the respondent
Page 57 of 226
Commissioner of Internal Revenue, it is very clear that those figures were
taken from the statements (Exhs. 31 and 32) filed by Mr. Matias H. Aznar
with the Philippine National Bank when he was intending to obtain a loan.
These statements were under oath and the natural implication is that the
information therein reflected must be the true and accurate financial
condition of the one who executed those statements. To believe the
petitioner’s argument that the late Mr. Aznar included those figures in his
sworn statement only for the purpose of obtaining a bigger credit from the
bank is to cast suspicion on the character of a man who can no longer
defend himself. It would be as if pointing the finger of accusation on the late
Mr. Aznar that he intentionally falsified his sworn statements (Exhs. 31 and
32) to make it appear that there were non-existent accounts receivable just
to increase his assets by fictitious entries so that his credit with the
Philippine National Bank could be enhanced. Besides, We do not lose sight
of the fact that those statements (Exhs. 31 and 32) were executed before
this tax controversy arose and the disputable presumptions that a person is
innocent of crime or wrong; that a person intends the
536
ordinary consequences of his voluntary act; that a person takes ordinary
care of his concerns; that private transaction have been fair and regular;
that the ordinary course of business has been followed; that things have
happened according to the ordinary course of nature and the ordinary habits
of life; that the law has been obeyed (Sec. 5, (a), (c), (d), (p), (q), (z), (ff),
Rule 131 of the Rules of Court), together with the conclusive presumption
that “whenever a party has, by his own declaration, act, or omission,
intentionally and deliberately led another to believe a particular thing true,
and to act upon such belief, he cannot, in any litigation arising out of such
declaration, act or omission, be permitted to falsify it” (Sec. 3 (a), Rule 131,
Rules of Court), convincingly indicate that the accounts receivable stated by
Mr. Aznar in Exhibits 31 and 32 were true, in existence, and accurate to the
very amounts mentioned.
There is no merit to petitioners argument that those statements were only
for the purpose of obtaining a bigger credit from the bank (impliedly stating
that those statements were false) and those accounts were allegedly back
accounts of students of the Southwestern Colleges and were worthless, and
if collected, would go to the funds of the school. The statement of the late
Mr. Aznar that they were accounts receivable from customers should prevail
over the mere allegation of petitioner, unsupported as they are by
convincing evidence. There is no reason to disturb the lower court’s
conclusion that the amounts of P38,000 and P123,816.58 were accounts
Page 58 of 226
receivable from customers and as such must be included as petitioner’s
assets for the years indicated.
As to the questions of doubtful accounts (bad debts), for the amount of
P41,810.56, it is clear that said amount is taken from Exhibit 31, the sworn
statement of financial condition filed by Mr. Matias H. Aznar with the
Philippine National Bank. The lower court did not commit any error in again
giving much weight to the statement of Mr. Aznar and in concluding that
inasmuch as this is an item separate and apart from the taxpayer’s
accounts receivable and non-deductible expense, it should be reverted to
the accounts receivable and, consequently, considered as an asset in 1950.
On the alleged over valuation of two buildings (hospital building which
respondent Commissioner of Internal Revenue
537
VOL. 58, AUGUST 23, 1974 537
listed as an asset from 1949–1951 at the basic valuation of P130,000, and
which petitioner claims to be over valued by P32,000; dentistry building
valued by respondent Commissioner of Internal Revenue at P36,191.34,
which petitioner claims to be over valued by P6,191.34), We find no
sufficient reason to alter the conclusion of respondent Court of Tax Appeals
sustaining the respondent Commissioner of Internal Revenue’s valuation of
both properties.
Respondent Commissioner of Internal Revenue based his valuation of the
hospital building on the representation of Mr. Matias H. Aznar himself who,
in his letter (Exh. 35) to the Philippine National Bank dated September 5,
1949, stated that the hospital building cost him P132,000. However in view
of the effect of a typhoon in 1949 upon the building, the value allowed was
P130,000. Exhibit 35, contrary to petitioner’s contention, should be given
probative value because, although it is an unsigned plain copy, that exhibit
was taken by the investigating examiner of the B.I.R. from the files of the
Southwestern Colleges and formed part of his report of investigation as a
public official. The estimates of an architect and a civil engineer who agreed
that a value of P84,240 is fair for the hospital building, made years after the
building was constructed, cannot prevail over the petitioner’s own estimate
of his property’s value.
Respondent Commissioner of Internal Revenue’s valuation of P36,191.34 of
the Dentistry Building is based on the letter of Mr. and Mrs. Matias H. Aznar
to the Southwestern Colleges, dated December 15, 1950, which is
embodied in the minutes of the meeting of the Board of Trustees of the
Southwestern Colleges held on May 7, 1951 (Exhibit G-1). In Exhibit 26 A,
which is the cash book of the Southwestern Colleges, this building was
listed as of the same amount. Petitioner’s estimate of P30,000 for this
building, based on Architect Paca’s opinion, cannot stand against the
Page 59 of 226
owner’s estimate and that which appears in the cash book of the
Southwestern Colleges, if we take into consideration that the owner’s (Mr.
Matias H. Aznar) letter was written long before this tax proceeding was
initiated, while architect Paca’s estimate was made upon petitioner’s request
solely for the purpose of evidence in this tax case.
In the inventory of assets of petitioner, respondent Commissioner of Internal
Revenue included the administrative
538
building valued at P19,200 for the years 1947 and 1948, and P16,700 for
the years 1949 to 1951; and a high school building valued at P48,000 for
1947 and 1948, and P45,000 for 1949, 1950 and 1951. The reduced
valuation for the latter years are due to allowance for partial loss resulting
from the 1949 typhoon. Petitioner did not question the inclusion of these
buildings in the inventory for the years prior to 1950, but objected to their
inclusion as assets as of January 1, 1950, because both buildings were
destroyed by a typhoon in November of 1949. There is sufficient evidence
(Exh. G-1, affidavit of Jesus S. Intan, employee in the office of City Assessor
of Cebu City, Exh. 18, Mr. Intan’s testimony, a copy of a letter of the City
Assessor of Cebu City) to prove that the two buildings were really destroyed
by typhoon in 1949 and, therefore, should be eliminated from the
petitioner’s inventory of assets beginning December 31, 1949.
On the issue of investment in the hollow blocks business, We see no
compelling reason to alter the lower court’s conclusion that “whatever was
spent in the hollow blocks business is an investment, and being an
investment, the same should be treated as an asset. With respect to the
amount representing the value of the building, there is no duplication in the
listing as the inventory of real property does not include the building in
question.”
Respondent Commissioner of Internal Revenue included in the inventory,
under the heading of other asset, the amount of P8,663.22, treated as
investment in the hollow block business. Petitioner objects to the inclusion
of P1,683.42 which was spent on the building and in the business and of
P674.35 which was spent for labor, fuel, raw materials, office supplies etc.,
contending that the former amount is a duplication of inventory (included
among the list of properties) and the latter is a business expense which
should be eliminated from the list of assets.
The inclusion of expenses (labor and raw materials) as part of the hollow
block business is sanctioned in the inventory method of tax verification, It is
a sound accounting practice to include raw materials that will be used for
future manufacture. Inclusion of direct labor is also proper, as all these items
are to be embodied in a summary of assets (investment by the taxpayer
Page 60 of 226
credited to his capital account as reflected in Exhibit 72-A, which is a
working sheet with entries
539
VOL. 58, AUGUST 23, 1974 539
taken from the journal of the petitioner concerning his hollow blocks
business). There is no evidence to show that there was duplication in the
inclusion of the building used for hollow blocks business as part of
petitioner’s investment as this building was not included in the listing of real
properties of petitioner (Exh. 45-C p. 187 B.I.R. rec.).
As to the question of the real value of the surplus goods purchased by Mr.
Matias H. Aznar from the U.S. Army, the best evidence, as observed
correctly by the lower court, is the statement of Mr. Matias H. Aznar, himself,
as appearing in Exh. 35 (copy of a letter dated September 5, 1949 to the
Philippine National Bank), to the effect “as part of my assets I have different
merchandise from Warehouse 35, Tacloban, Leyte at a total cost of
P43,000.00 and valued at no less than P20,000 at present market value.”
Petitioner’s claim that the goods should be valued at only P20,000 in
accordance with an alleged invoice is not supported by evidence since the
invoice was not presented as exhibit. The lower court’s act in giving more
credence to the statement of Mr. Aznar cannot be questioned in the light of
clear indications that it was never controverted and it was given at a time
long before the tax controversy arose.
The last issue on propriety of inclusion in petitioner’s assets as made by
respondent Commissioner of Internal Revenue concerns several buildings
which were included in the list of petitioner’s assets as of December 31,
1950. Petitioner contends that those buildings were conveyed and ceded to
the Southwestern Colleges on December 15, 1950, in consideration of
P100,723.99 to be paid in cash. The value of the- different buildings are
listed as: hospital building, P130,000; gymnasium, P43,000; dentistry
building, P36,191.34; bodega 1, P781.18; bodega 2, P7,250; college of law,
P10,950; laboratory building, P8,164; home economics, P5,621; morgue,
P2,400; science building, P23,600; faculty house, P5,760. It is suggested
that the value of the buildings be eliminated from the real estate inventory
and the sum of P100,723.99 be included as asset as of December 31, 1950.
The lower court could not find any evidence of said alleged transfer of
ownership from the taxpayer to the Southwestern Colleges as of December
15, 1950, an allegation which if true could easily be proven. What is evident
is that those buildings were used by the Southwestern Colleges. It is true
that Exhibit
540
Page 61 of 226
G-1 shows that Mr. and Mrs. Matias H. Aznar offered those properties in
exchange for shares of stocks of the Southwestern Colleges, and Exhibit
“G" which is the minutes of the meeting of the Board of Trustees of the
Southwestern Colleges held on August 6, 1951, shows that Mr. Aznar was
amenable to the value fixed by the board of trustees and that he requested
to be paid in cash instead of shares of stock. But those are not sufficient
evidence to prove that transfer of ownership actually happened on
December 15, 1950. Hence, the lower court did not commit any error in
sustaining the respondent Commissioner of Internal Revenue’s act of
including those buildings as part of the assets of petitioner as of December
31, 1950.
Petitioner also contends that properties allegedly ceded to the Southwestern
Colleges in 1951 for P150,000 worth of shares of stocks, consisting of: land,
P22,684; house, P13,700; group of houses, P8,000; building, P12,000;
nurses home, P4,100; nurses home, P2,080, should be excluded from the
inventory of assets as of December 31, 1951. The evidence (Exh. H),
however, clearly shows that said properties were formally conveyed to the
Southwestern Colleges only on September 25, 1952. Undoubtedly,
petitioner was the owner of those properties prior to September 25, 1952
and said properties should form part of his assets as of December 31, 1951.
The uncontested portions of the lower court’s decision consisting of its
conclusions that library books valued at P7,041.03, appearing in a journal of
the Southwestern Colleges marked as’ Exhibit 25-A, being an investment,
should be treated as an asset beginning December 31, 1950; that the
expenses for construction to the amount of P113,353.70, which were spent
for the improvement of the buildings appearing in Exhibit 24 are deemed
absorbed in the increased value of the buildings as appraised by
respondent Commissioner of Internal Revenue at cost after improvements
were made, and should be taken out as additional assets; that the amount
receivable of P5,776 from a certain Benito Chan should be treated as
petitioner’s asset but the amount of P5,776 representing the value of a
house and lot given as collateral to secure said loan should not be
considered as an asset of petitioner since to do so would result in a glaring
duplication of items, are all affirmed. There seems to be no controversy as
to the rest of the items listed in the inventory of assets.
541
VOL. 58, AUGUST 23, 1974 541
III
The second issue which appears to be of vital importance in this case
centers on the lower court’s imposition of the fraud penalty (surcharge of
50% authorized in Section 72 of the Tax Code). The petitioner insists that
there might have been false returns by mistake filed by Mr. Matias H. Aznar
Page 62 of 226
as those returns were prepared by his accountant employees, but there
were no proven fraudulent returns with intent to evade taxes that would
justify the imposition of the 50% surcharge authorized by law as fraud
penalty.
The lower court based its conclusion that the 50% fraud penalty must be
imposed on the f ollowing reasoning:
“It appears that Matias H. Aznar declared net income of P9,910.94, P10,200,
P9,148.34, P8,990.66, P8,364.50 and P6,800 for the years 1946, 1947, 1948, 1949,
1950 and 1951, respectively. Using the net worth method of determining the net
income of a taxpayer, we find that he had net incomes of P32,470.45, P67,751.19,
P17,880.44, P52,709.11, P254,813.56 and P40,155.80 during the respective years
1946, 1947, 1948, 1949, 1950, and 1951. In consequence, he underdeclared his
income by 227% for 1946, 564% for 1947, 95% for 1948, 486% for 1949, 2,946% for
1950 and 490% for 1951. These substantial underdeclarations of income for six
consecutive years eloquently demonstrate the falsity or fraudulence of the income
tax returns with an intent to evade the payment of tax. Hence, the imposition of the
fraud penalty is proper (Perez vs. Court of Tax Appeals, G.R. No. L-10507, May 30,
1958)." (Underscoring ours)
As could be readily seen from the above rationalization of the lower court,
no distinction has been made between false returns (due to mistake,
carelessness or ignorance) and fraudulent returns (with intent to evade
taxes). The lower court based its conclusion on the petitioner’s alleged
fraudulent intent to evade taxes on the substantial difference between the
amounts of net income on the face of the returns as filed by him in the years
1946 to 1951 and the net income as determined by the inventory method
utilized by both respondents for the same years. The lower court based its
conclusion on a presumption that fraud can be deduced from the very
substantial disparity of incomes as reported and determined by the
inventory method and on the similarity of consecutive disparities for six
years. Such a basis for determining the
542
existence of fraud (intent to evade payment of tax) suffers from an inherent
flaw when applied to this case. It is very apparent here that the respondent
Commissioner of Internal Revenue, when the inventory method was
resorted to in the first assessment, concluded that the correct tax liability of
Mr. Aznar amounted to P723,032.66 (Exh. 1, B.I.R. rec. pp. 126–129). After
a reinvestigation the same respondent, in another assessment dated
February 16, 1955, concluded that the tax liability should be reduced to
P381,096.07. This is a crystal-clear, indication that even the respondent
Commissioner of Internal Revenue with the use of the inventory method can
commit a glaring mistake in the assessment of petitioner’s tax liability. When
the respondent Court of Tax Appeals reviewed this case on appeal, it
concluded that petitioner’s tax liability should be only P227,788.64. The
Page 63 of 226
lower court in three instances (elimination of two buildings in the list of
petitioner’s assets beginning December 31, 1949, because they were
destroyed by fire; elimination of expenses for construction in petitioner’s
assets as duplication of increased value in buildings, and elimination of
value of house and lot in petitioner’s assets because said property was only
given as collateral) supported petitioner’s stand on the wrong inclusions in
his lists of assets made by the respondent Commissioner of Internal
Revenue, resulting in the very substantial reduction of petitioner’s tax
liability by the lower court. The foregoing shows that it was not only Mr.
Matias H. Aznar who committed mistakes in his report of his income but also
the respondent Commissioner of Internal Revenue who committed mistakes
in his use of the inventory method to determine the petitioner’s tax liability.
The mistakes committed by the Commissioner of Internal Revenue which
also involve very substantial amounts were also repeated yearly, and yet we
cannot presume therefrom the existence of any taint of official fraud.
From the above exposition of facts, we cannot but emphatically reiterate the
well established doctrine that fraud cannot be presumed but must be
proven. As a corollary thereto, we can also state that fraudulent intent could
not be deduced from mistakes however frequent they may be, especially if
such mistakes emanate from erroneous entries or erroneous classification
of items in accounting methods utilized for determination of tax liabilities.
The predecessor of the petitioner undoubtedly filed his income tax returns
for the
543
VOL. 58, AUGUST 23, 1974 543
years 1946 to 1951 and those tax returns were prepared for him by his
accountant and employees. It also appears that petitioner in his lifetime and
during the investigation of his tax liabilities cooperated readily with the B.I.R.
and there is no indication in the record of any act of bad faith committed by
him.
The lower court’s conclusion regarding the existence of fraudulent intent to
evade payment of taxes was based merely on a presumption and not on
evidence establishing a willful filing of false and fraudulent returns so as to
warrant the imposition of the fraud penalty. The fraud contemplated by law
is actual and not constructive. It must be intentional fraud, consisting of
deception willfully and deliberately done or resorted to in order to induce
another to give up some legal right. Negligence, whether slight or gross, is
not equivalent to the fraud with intent to evade the tax contemplated by the
law. It must amount to intentional wrong-doing with the sole object of
avoiding the tax. It necessarily follows that a mere mistake cannot be
considered as fraudulent intent, and if both petitioner and respondent
Commissioner of Internal Revenue committed mistakes in making entries in
Page 64 of 226
the returns and in the assessment, respectively, under the inventory method
of determining tax liability, it would be unfair to treat the mistakes of the
petitioner as tainted with fraud and those of the respondent as made in good
faith.
We conclude that the 50% surcharge as fraud penalty authorized under
Section 72 of the Tax Code should not be imposed, but eliminated from the
income tax deficiency for each year from 1946 to 1951, inclusive. The tax
liability of the petitioner for each year should, therefore, be:
1946 P 3,687.10
1947 13,288.38
1948 960.77
1949 8,918.85
1950 117,320.00
1951 7,684.00
P151,859.10
The total sum of P151,859.10 should be decreased by P96.87 representing
the tax credit for 1945, thereby leaving a balance of P151,762.23.
544
WHEREFORE, the decision of the Court of Tax Appeals is modified in so far
as the imposition of the 50% fraud penalty is concerned, and affirmed in all
other respects. The petitioner is ordered to pay to the Commissioner of
Internal Revenue, or his duly authorized representative, the sum of
P151,762.23, representing deficiency income taxes for the years 1946 to
1951, inclusive, within 30 days from the date this decision becomes final. If
the said amount is not paid within said period, there shall be added to the
unpaid amount the surcharge of 5%, plus interest at the rate of 12% per
annum from the date of delinquency to the date of payment, in accordance
with Section 51 of the National Internal Revenue Code.
With costs against the petitioner.
Makalintal, C.J., Castro, Teehankee, Makasiar and Muñoz Palma, JJ.,
concur.
Decision modified and affirmed in all other respects.
Notes.—Time bar to deficiency assessments. The law imposes upon the
taxpayer the burden of supplying in the tax return the information upon
which all assessment would be based. His duty performed, the taxpayer is
not bound to do anything more than to wait for the Commissioner to assess
the tax. However, he is not required to wait forever, for section 331 of the
Tax Code gives the Commissioner five years within which to make his
assessment. Commissioner of Internal Revenue vs. Gonzales, L-19495,
Nov. 24,1966.
Page 65 of 226
Under section 333 of the Internal Revenue Code, providing that the running
of the prescriptive period to collect a deficiency tax shall be suspended for
the period during which the Commissioner of Internal Revenue is prohibited
from beginning a distraint and levy or instituting a proceeding in court, the
pendency of a taxpayer’s appeal in the Court of Tax Appeals and in the
Supreme Court has the effect of legally preventing the Commissioner of
Internal Revenue from instituting the tax so that the pendency of said action
suspends the running of the prescriptive period to collect the tax in question.
Republic vs. Ker & Co., Ltd., L-20619, Sept. 29,1966.
An income tax return cannot be considered a return for compensating tax
for purposes of computing the period of prescription under section 331 of
the Internal Revenue Code,
545
VOL. 58, AUGUST 23, 1974 545
Manila Electric Company vs. Medina
and the taxpayer must file a return for the particular tax required by law to
avail himself of the benefits of section 331 of the Tax Code. Otherwise, if he
does not file a return, an assessment may be made within the time stated in
section 332(a) of the same Code. Butuan Sawmill, Inc. vs. Court of Tax
Appeals, L-20601, Feb. 28,1966.
———o0o———
Page 66 of 226
Commission of Internal Revenue vs. Javier, Jr.
G.R. No. 78953. July 31, 1991. *
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MELCHOR J.

JAVIER, JR. and THE COURT OF TAX APPEALS, respondents.
Taxation; Court persuaded that there is no fraud in the filing of the return and agrees
fully with the Court of Tax Appeals’ interpretation of Javier’s notation on his income
tax return filed on March 15, 1978.—We are persuaded considerably by the private
respondent’s contention that there is no fraud in the filing of the return and agree
fully with the Court of Tax Appeals’ interpretation of Javier’s notation on his income
tax return filed on March 15, 1978 thus: “Taxpayer was the recipient of some money
from abroad which he presumed to be a gift but turned out to be an error and is now
subject of litigation;” that it was an “error or mistake of fact or law” not constituting
fraud, that such notation was practically an invitation for investigation and that Javier
had literally “laid his cards on the table.”
Same; Same; Fraud in relation to the filing of income tax return discussed in Aznar
vs. Court of Appeals.—In Aznar v. Court of Appeals, fraud in relation to the filing of
income tax return, was discussed in this manner: xxx The fraud contemplated by law
is actual and not constructive. It must be intentional fraud, consisting of deception
willfully and deliberately done or resorted to in order to induce another to give up
some legal right. Negligence, whether slight or gross, is not equivalent to the fraud
with intent to evade the tax contemplated by law. It must amount to intentional
wrong-doing with the sole object of avoiding the tax. It necessarily follows that a
mere mistake cannot be considered as fraudulent intent, and if both petitioner and
respondent Commissioner of Internal Revenue committed mistakes in making
entries in the returns and in the assessment, respectively, under the inventory
method of determining tax liability, it would be unfair to treat the mistakes of the
petitioner as tainted with fraud and those of the respondent as made in good faith.
Same; Same; Same; Courts never sustain findings of fraud upon circumstances
which create only suspicion and the mere understatement of a tax is not itself proof
of fraud for the purpose of tax evasion.—Fraud is never imputed and the courts
never sustain find-
_____________
* SECOND DIVISION.
825
VOL. 199, JULY 31, 1991 825

ings of fraud upon circumstances which, at most, create only suspicion and the mere
understatement of a tax is not itself proof of fraud for the purpose of tax evasion.
Same; Same; Same; Same; There was no actual and intentional fraud through willful
and deliberate misleading of the Bureau of Internal Revenue, case at bar; Error or
mistake of law is not fraud.—In the case at bar, there was no actual and intentional
fraud through willful and deliberate misleading of the government agency concerned,
the Bureau of Internal Revenue, headed by the herein petitioner. The government
was not induced to give up some legal right and place itself at a disadvantage so as
to prevent its lawful agents from proper assessment of tax liabilities because Javier
Page 67 of 226
did not conceal anything. Error or mistake of law is not fraud. The petitioner’s
zealousness to collect taxes from the unearned windfall to Javier is highly
commendable. Unfortunately, the imposition of the fraud penalty in this case is not
justified by the extant facts.
PETITION for review from the decision of the Court of Tax Appeals. Filler, J.
Elison G. Natividad for accused-appellant.
SARMIENTO, J.:
Central in this controversy is the issue as to whether or not a taxpayer who
merely states as a footnote in his income tax return that a sum of money
that he erroneously received and already spent is the subject of a pending
litigation and there did not declare it as income is liable to pay the 50%
penalty for filing a fraudulent return.
This question is the subject of the petition for review before the Court of the
portion of the Decision dated July 27, 1983 of the Court of Tax Appeals
1
(CTA) in C.T.A. Case No. 3393, entitled, “Melchor J. Javier, Jr. vs. Ruben B.
Ancheta, in his capacity as Commissioner of Internal Revenue,” which
orders the deletion of the 50% surcharge from Javier’s deficiency
______________
1 Annex “A”, Petition, Presiding Judge Amante Filler, Ponente, Associate Judge Alex Z. Reyes,
Concurring; and Judge Constante C. Roaquin, Concurring and Dissenting.
826
income tax assessment on his income for 1977.
The respondent CTA in a Resolution dated May 25, 1987, denied the
2
Commissioner’s Motion for Reconsideration and Motion for New Trial on

3 4
the deletion of the 50% surcharge assessment or imposition.

The pertinent facts as are accurately stated in the petition of private
respondent Javier in the CTA and incorporated in the assailed decision now
under review, read as follows:
xxx xxx xxx
1. 2. 
That on or about June 3, 1977, Victoria L. Javier, the wife of the petitioner
(private respondent herein), received from the Prudential Bank and Trust
Company in Pasay City the amount of US$999,973.70 remitted by her sister,
Mrs. Dolores Ventosa, through some banks in the United States, among which
is Mellon Bank, N.A.
2. 3. 
That on or about June 29, 1977, Mellon Bank, N.A. filed a complaint with the
Court of First Instance of Rizal (now Regional Trial Court), (docketed as Civil
Case No. 26899), against the petitioner (private respondent herein), his wife
and other defendants, claiming that its remittance of US$1,000,000.00 was a
clerical error and should have been US$1,000.00 only, and praying that the
excess amount of US$999,000.00 be returned on the ground that the defen-
dants are trustees of an implied trust for the benefit of Mellon Bank with the
Page 68 of 226
clear, immediate, and continuing duty to return the said amount from the
moment it was received.
3. 4. 
That on or about November 5, 1977, the City Fiscal of Pasay City filed an
Information with the then Circuit Criminal Court (docketed as CCC-VII-3369-
P.C.) charging the petitioner (private respondent herein) and his wife with the
crime of estafa, alleging that they misappropriated, misapplied, and converted
to their own personal use and benefit the amount of US$999,000.00 which
they received under an implied trust for the benefit of Mellon Bank and as a
result of the mistake in the remittance by the latter.
4. 5. 
That on March 15, 1978, the petitioner (private respondent herein) filed his
Income Tax Return for the taxable year 1977 showing a gross income of
P53,053.38 and a net income of P48,053.88 and stating in the footnote of the
return that “Taxpayer was recipient of some money received from abroad
which he presumed to be a gift but
______________
2 Annex “D”, Petition.
3 Annex “B”, Petition.
4 Annex “C”, Petition.
827
VOL. 199, JULY 31, 1991 827
5. turned out to be an error and is now subject of litigation.”
6. 6. 
That on or before December 15, 1980, the petitioner (private respondent
herein) received a letter from the acting Commissioner of Internal Revenue
dated November 14, 1980, together with income assessment notices for the
years 1976 and 1977, demanding that petitioner (private respondent herein)
pay on or before December 15, 1980 the amount of P1,615.96 and
P9,287,297.51 as deficiency assessments for the years 1976 and 1977
respectively. x x x
7. 7. 
That on December 15, 1980, the petitioner (private respondent herein) wrote
the Bureau of Internal Revenue that he was paying the deficiency income
assessment for the year 1976 but denying that he had any undeclared income
for the year 1977 and requested that the assessment for 1977 be made to
await final court decision on the case filed against him for filing an allegedly
fraudulent return. x x x
8. 8. 
That on November 11, 1981, the petitioner (private respondent herein)
received from Acting Commissioner of Internal Revenue Romulo Villa a letter
dated October 8, 1981 stating in reply to his December 15, 1980 letter-protest
that “the amount of Mellon Bank’s erroneous remittance which you were able
to dispose, is definitely taxable.”x x x5
The Commissioner also imposed a 50% fraud penalty against Javier.
Disagreeing, Javier filed an appeal before the respondent Court of Tax
6
Appeals on December 10, 1981.
Page 69 of 226
The respondent CTA, after the proper proceedings, rendered the challenged
decision. We quote the concluding portion:
We note that in the deficiency income tax assessment under consideration,
respondent (petitioner here) further requested petitioner (private respondent here) to
pay 50% surcharge as provided for in Section 72 of the Tax Code, in addition to the
deficiency income tax of P4,888,615.00 and interest due thereon. Since petitioner
(private respondent) filed his income tax return for taxable year 1977, the 50%
surcharge was imposed, in all probability, by respondent (petitioner) because he
considered the return filed false or fraudulent. This additional requirement, to our
mind, is much less called for because petitioner (private respondent), as stated
earlier, reflected in his 1977
_______________
5 Court of Tax Appeals Decision, Case No. 3393, promulgated on July 27, 1983, 2-3; Rollo, 35-36.
6 Annex “F”, Petition.
828
return as footnote that “Taxpayer was recipient of some money received from abroad
which he presumed to be gift but turned out to be an error and is now subject of
litigation.”
From this, it can hardly be said that there was actual and intentional fraud, consisting
of deception willfully and deliberately done or resorted to by petitioner (private
respondent) in order to induce the Government to give up some legal right, or the
latter, due to a false return, was placed at a disadvantage so as to prevent its lawful
agents from proper assessment of tax liabilities. (Aznar vs. Court of Tax Appeals,
L-20569, August 23, 1974, 56 (sic) SCRA 519), because petitioner literally “laid his
cards on the table” for respondent to examine. Error or mistake of fact or law is not
fraud. (Insular Lumber vs. Collector, L-7100, April 28, 1956.). Besides, Section 29 is
not too plain and simple to understand. Since the question involved in this case is of
first impression in this jurisdiction, under the circumstances, the 50% surcharge
imposed in the deficiency assessment should be deleted.7
The Commissioner of Internal Revenue, not satisfied with the respondent
CTA’s ruling, elevated the matter to us, by the present petition, raising the
main issue as to:
WHETHER OR NOT PRIVATE RESPONDENT IS LIABLE FOR THE 50% FRAUD
PENALTY?8
On the other hand, Javier candidly stated in his Memorandum,9 that he “did not
appeal the decision which held him liable for the basic deficiency income tax
(excluding the 50% surcharge for fraud).” However, he submitted in the same
memorandum “that the issue may be raised in the case not for the purpose of
correcting or setting aside the decision which held him liable for deficiency income
tax, but only to show that there is no basis for the imposition of the surcharge.” This
subsequent disavowal therefore renders moot and academic the posturings
articulated in his Comment10 on the non-taxability of the amount he erroneously
received and the bulk of which he had already
___________
7 Court of Tax Appeals Decision, supra; rollo, 47-49.
8 Petition, 7; rollo, 22.
Page 70 of 226
9 Respondents’ Memorandum, rollo, 156.
10 Rollo, 120.
829
VOL. 199, JULY 31, 1991 829
disbursed. In any event, an appeal at that time (of the filing of the
Comments) would have been already too late to be seasonable.
The petitioner, through the office of the Solicitor General, stresses that:
xxx xxx xxx
The record however is not ambivalent, as the record clearly shows that private
respondent is self-convinced, and so acted, that he is the beneficial owner, and of
which reason is liable to tax. Put another way, the studied insinuation that private
respondent may not be the beneficial owner of the money or income flowing to him
as enhanced by the studied claim that the amount is “subject of litigation” is belied
by the record and clearly exposed as a fraudulent ploy, as witness what transpired
upon receipt of the amount.
Here, it will be noted that the excess in the amount erroneously remitted by
MELLON BANK for the amount of private respondent’s wife was $999,000.00 after
opening a dollar account with Prudential Bank in the amount of $999,993.70, private
respondent and his wife, with haste and dispatch, within a span of eleven (11)
electric days, specifically from June 3 to June 14, 1977, effected a total massive
withdrawal from the said dollar account in the sum of $975,000.00 or P7,020,000.00
x x x.11
In reply, the private respondent argues:
xxx xxx xxx
The petitioner contends that the private respondent committed fraud by not declaring
the “mistaken remittance” in his income tax return and by merely making a footnote
thereon which read: “Taxpayer was the recipient of some money from abroad which
he presumed to be a gift but turned out to be an error and is now subject of
litigation.” It is respectfully submitted that the said return was not fraudulent. The
footnote was practically an invitation to the petitioner to make an investigation, and
to make the proper assessment.
The rule in fraud cases is that the proof “must be clear and convincing” (Griffiths v.
Comm., 50 F [2d] 782), that is, it must be stronger than the “mere preponderance of
evidence” which would be sufficient to sustain a judgment on the issue of
correctness of the deficiency itself apart from the fraud penalty. (Frank A. Neddas,
40
______________
11 Id., 25-26.
830
BTA 572). The following circumstances attendant to the case at bar show that in
filing the questioned return, the private respondent was guided, not by that “willful
and deliberate intent to prevent the Government from making a proper assessment”
which constitute fraud, but by an honest doubt as to whether or not the “mistaken
remittance” was subject to tax.
Page 71 of 226
First, this Honorable Court will take judicial notice of the fact that so-called “million
dollar case” was given very, very wide publicity by media; and only one who is not in
his right mind would have entertained the idea that the BIR would not make an
assessment if the amount in question was indeed subject to the income tax. Second,
as the respondent Court ruled, “the question involved in this case is of first
impression in this jurisdiction” (See p. 15 of Annex “A” of the Petition). Even in the
United States, the authorities are not unanimous in holding that similar receipts are
subject to the income tax. It should be noted that the decision in the Rutkin case is a
five-to-four decision; and in the very case before this Honorable Court, one out of
three Judges of the respondent Court was of the opinion that the amount in question
is not taxable. Thus, even without the footnote, the failure to declare the “mistaken
remittance” is not fraudulent.
Third, when the private respondent filed his income tax return on March 15, 1978 he
was being sued by the Mellon Bank for the return of the money, and was being
prosecuted by the Government for estafa committed allegedly by his failure to return
the money and by converting it to his personal benefit. The basic tax amounted to
P4,899,377.00 (See p. 6 of the Petition) and could not have been paid without using
part of the mistaken remittance. Thus, it was not unreasonable for the private
respondent to simply state in his income tax return that the amount received was still
under litigation. If he had paid the tax, would that not constitute estafa for using the
funds for his own personal benefit? and would the Government refund it to him if the
courts ordered him to refund the money to the Mellon Bank?12
xxx xxx xxx
Under the then Section 72 of the Tax Code (now Section 248 of the 1988
National Internal Revenue Code), a taxpayer who files a false return is liable
to pay the fraud penalty of 50% of the tax due from him or of the deficiency
tax in case payment has been made on the basis of the return filed before
the discovery of the falsity or fraud.
____________
12 Respondents’ Memorandum, 10-11, rollo, 164-165.
831
VOL. 199, JULY 31, 1991 831
We are persuaded considerably by the private respondent’s contention that
there is no fraud in the filing of the return and agree fully with the Court of
Tax Appeals’ interpretation of Javier’s notation on his income tax return filed
on March 15, 1978 thus: “Taxpayer was the recipient of some money from
abroad which he presumed to be a gift but turned out to be an error and is
now subject of litigation;” that it was an “error or mistake of fact or law” not
constituting fraud, that such notation was practically an invitation for
investigation and that Javier had literally “laid his cards on the table.” 13
In Aznar v. Court of Tax Appeals, fraud in relation to the filing of income tax
14
return, was discussed in this manner:

xxx The fraud contemplated by law is actual and not constructive. It must be
intentional fraud, consisting of deception willfully and deliberately done or resorted to
in order to induce another to give up some legal right. Negligence, whether slight or
gross, is not equivalent to the fraud with intent to evade the tax contemplated by law.
Page 72 of 226
It must amount to intentional wrong-doing with the sole object of avoiding the tax. It
necessarily follows that a mere mistake cannot be considered as fraudulent intent,
and if both petitioner and respondent Commissioner of Internal Revenue committed
mistakes in making entries in the returns and in the assessment, respectively, under
the inventory method of determining tax liability, it would be unfair to treat the
mistakes of the petitioner as tainted with fraud and those of the respondent as made
in good faith.14
Fraud is never imputed and the courts never sustain findings of fraud upon
circumstances which, at most, create only suspicion and the mere
understatement of a tax is not itself proof of fraud for the purpose of tax
evasion. 15
A “fraudulent return” is always an attempt to evade a tax, but a merely “false return”
may not be. Rick v. U.S., App. D.C., 161 F. 2d 897, 898.16
_______________
13 Rollo, 47-48.
14 L-20569, promulgated on August 23, 1974, 58 SCRA 519.
15 Yutivo Sons Hardware Co. vs. Court of Tax Appeals, L-13203, promulgated on January 28,
1961, 1 SCRA 160.
16 WORDS AND PHRASES; (1958 ed.), Vol. 17A, 210.
832
In the case at bar, there was no actual and intentional fraud through willful
and deliberate misleading of the government agency concerned, the Bureau
of Internal Revenue, headed by the herein petitioner. The government was
not induced to give up some legal right and place itself at a disadvantage so
as to prevent its lawful agents from proper assessment of tax liabilities
because Javier did not conceal anything. Error or mistake of law is not
fraud. The petitioner’s zealousness to collect taxes from the unearned
windfall to Javier is highly commendable. Unfortunately, the imposition of
the fraud penalty in this case is not justified by the extant facts. Javier may
be guilty of swindling charges, perhaps even for greed by spending most of
the money he received, but the records lack a clear showing of fraud
committed because he did not conceal the fact that he had received an
amount of money although it was a “subject of litigation.” As ruled by
respondent Court of Tax Appeals, the 50% surcharge imposed as fraud
penalty by the petitioner against the private respondent in the deficiency
assessment should be deleted.
WHEREFORE, the petition is DENIED and the decision appealed from
the Court of Tax Appeals is AFFIRMED. No costs.
SO ORDERED.
Melencio-Herrera (Chairman), Padilla and Regalado, JJ., concur.
Paras, J., No part. Participated in CA involving same accused in bank
incident.
Petition denied. Decision affirmed.
Page 73 of 226
Note.—All presumptions are in favor of the correctness of the
assessment made by the Commissioner of Internal Revenue, the taxpayer
must prove the contrary. (Commissioner of Internal Revenue vs. Antonio
Terezon Inc., 173 SCRA 397.)
——o0o——
833
Page 74 of 226
VOL. 10, APRIL 30, 1964 737
Republic vs. Lim De Yu
No. L-17438. April 30, 1964.
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, vs. RITA LlM DE YU,
defendant-appellee.
Taxation; Prescription; Ten-year period to collect tax in cases of fraudulent return;
Fraud must be proven.—For the tenyear period of limitation of assessment and
collection of taxes under Section 332 of the Tax Code to apply it is not enough that
fraud is alleged in the complaint; it must be established.
738

Fraud not having been proven in the case at bar, the period of limitation was five
years from the filing of the return, according to Section 331 of the tax code.
Same; Same; Taxpayer's waiver of statute of limitations does not cover taxes
already prescribed.—The waiver of the statute of limitations executed by the
taxpayer cannot be deemed to include taxes already prescribed. Such agreement
under Section 332(b) of the Tax Code must be made before, not after, the expiration
of the original period. It does not authorize extension once prescription has attached.
Same; Same; Period for collection of taxes after assessment.—Assessment and
collection are two different processes. Collection may be effected within five years
after assessment or within the period for collection agreed upon in writing by the
Commissioner of Internal Revenue and the taxpayer before the expiration of such
five-year period.
APPEAL from a decision of the Court of First Instance of Cotabato.
Sarenas, J.
Solicitor General for plaintiff-appellant.
Ignacio M. Orendain for defendant-appellee.
MAKALINTAL, J.:
Appellee Rita Lim de Yu filed her yearly income tax returns from 1948
through 1953. The Bureau of Internal Revenue assessed the taxes due on
each return, and appellee paid them accordingly. On July 17, 1956 the
Bureau issued to appellee deficiency income tax assessments for the years
1945 to 1953 in the total amount of P22,450.50. She protested the
assessments and requested a reinvestigation. On August 30, 1956 she
signed a "waiver" of the statute of limitations under the Tax Code as a
condition to the reinvestigation requested. Thereafter, or on July 18, 1958,
the Bureau issued to her income tax assessment notices for the years 1948
to 1953 totalling P35,379.63. This last assessment, like the one issued in
1956, covered not only the basic deficiency income taxes, but also 50%
thereof as surcharge. Upon appellee's failure to pay, an action for collection
was filed against her in the Court of First Instance of Cotabato on May 11,
1959. After trial the suit was dismissed, and the Government appealed to
Page 75 of 226
the Court of Appeals, which forwarded the case to this Court, the issues
involved being purely legal.
Appellant claims that the lower court erred (1) in ruling
739
VOL. 10, APRIL 30, 1964 739
that the deficiency income taxes due from appellee for the years 1948, 1949
and 1956 were not assessed on time; and (2) in dismissing the case on the
ground that the right of appellant to collect the deficiency income tax
assessments had already prescribed.
Sections 331 and 332 of the Tax Code provide:
"SEC. 331. Period of limitation upon assessment and collection.—Except as
provided in the succeeding section, internalrevenue taxes shall be assessed within
the purposes of this section a return filed before the last day prescribed by law for
the filing thereof shall be considered as filed iled on such last day: Provided, That
this limitation shall not apply to cases already investigated prior to the approval of
this Code.
"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 tax or of a
failure to file a return, the tax may be assessed, or a proceeding in court for the
years after the discovery of the falsity fraud, or omission.
(b) Where before the expiration of the time prescribed in the preceding section for
the assessment of the tax, both the Commissioner of Internal Revenue and the
taxpayer have consented in writing to its assessment after such time, the tax may be
assessed at any time prior to the expiration of the period agreed upon. The period so
agreed upon may be extended by subsequent agreements in writing made before
the expiration of the period previously agreed upon.
(c) Where the assessment of any internal-revenue tax has been made within the
period of limitation above prescribed such tax may be collected by distraint or levy or
by a proceeding in court, but only if begun (1) within five years after the assessment
of the tax, or (2) prior to the expiration of any period for collection agreed upon in
writing by the Commissioner of Internal' Revenue and the taxpayer before the
expiration of such five-year period. The period so agreed upon may be extended by
subsequent agreements in writing made before the expiration of the period
previously agreed upon."
The first issue raised by appellant is whether or not the returns filed by
appellee for the years 1948 to 1953 are false and fraudulent. Appellant
maintains they are because the yearly net incomes reported in her returns
are much less than as computed by the Bureau, and consequently,
740
Page 76 of 226
under par. (a), Section .332 of the Tax Code, it has ten years from the date
of the discovery of the fraud or falsity, i.e., May 25, 1955, within which to
assess the taxes or to file a suit for collection without assessment. And
since, it is further contended, appellee can no longer question the
correctness of the assessment in view of her failure to ask the Court of Tax
Appeals to review the same, she should be ordered to pay the amounts
being collected.
But while fraud is alleged in the complaint, the same has not been
established. It is one thing to say that the correctness of the last
assessment made by appellant, on July 18, 1958, may no longer be
challenged on the technical ground just stated and quite another thing to
say" that appellee committed a deliberate fraud in declaring smaller
incomes for the years in which she filed her returns. Indeed the Bureau itself
appears none too sure as to the real amounts of her net incomes for those
years. On three different occasions it arrived at three highly different
computation. First, it accepted appellee's yearly statements of income from
1945 to 1953 and assessed her a total tax of P2,732,37, which she paid.
Then in 1956 the Bureau came up with a different set of figures for the same
period, considerably higher than those stated in the returns, and using such
figures as basis assessed her deficiency taxes in the total amount of
P22,450.50. Finally, in 1958 the Bureau made another computation of
appellee's net incomes for the years 1948 to 1953, and assessed her
deficiency taxes in the sum of P35,379.63. Note that the disparity between
the 1956 and the 1958 assessments is really much greater than what
appears at first glance, as the latter do not include the taxes corresponding
to the years 1945, 1946 and 1947. Attention may likewise be drawn to the
fact act that in paragraph 3 of the complaint appellant seeks to collect from
appellee the sum of P28.53, plus a surcharge of 50%, as unpaid tax for the
year 1948, notwithstanding the fact admitted in the stipulation, that appellee
filed her return for that year and duly paid the said amount.
Fraud not having been proven, the period of limitation for assessment or
collection was five years from the filing of the return, according to Section
331 of the tax code. The right to assess or collect the income taxes for the
years
741
VOL. 10, APRIL 30, 1964 741
1948 to 1950 had already prescribed, therefore, when the Bureau of Internal
Revenue issued the deficiency income tax assessments on July 17, 1956.
The tax years 1948 to 1950 cannot be deemed included in the "waiver of
the statute of limitations under the National Internal Revenue Code"
executed by appellee on August 30, 1956. The five-year period for
assessment, counted from the date the return is filed, may be extended
Page 77 of 226
upon agreement of the Commissioner and the taxpayer, but such
agreement must be made before, not after, the expiration of the original
period (Section 332 [b], Tax Code). The clear import of the provision is that it
does not authorize extension once prescription has attached.
The waiver validly covers only the tax years 1951 and 1952, with respect to
which the five-year ive-year period had not yet elapsed when the said
waiver was executed. With respect to the tax year 1953, as to which the
return was filed by appellee on March 1, 1954, the waiver was not
necessary for the effectivity of the assessment made on July 18, 1958,
since such assessment was well within the original five-year period provided
by law. After the assessment on July 18, 1958, appellant had five years
within which to file suit for collection pursuant to Section 332 (c) of the tax
code. Appellee's theory that collection could be made only up to the end of
the period of extension stated in the waiver, namely, December 31, 1958, is
without merit. Assessment and collection are two different processes.
"An assessment is not an action or proceeding for the collection of taxes. It is merely
a notice to the effect that the amount therein stated is due as tax and a demand for
the payment thereof. It is a step preliminary, but essential to warrant distraint, if still
feasible, and, also, to establish a cause for 'judicial action' as the phrase is used in
section 316 of the Tax Code x x x" (Alhambra Cigar and Cigarette Manufacturing
Company v. The Collector of Internal Revenue, L-12026, May 29, 1959).
Section 331 gives the Government five years from filing of the return (which
is not false or fraudulent) within which to assess the tax due. Paragraph (b)
of Section 332 allows the extension of this period by means of a written
agreement between the taxpayer and the Commissioner of Internal
Revenue. On the other hand, paragraph (c) of
742
Halili vs. Huganas
the same section is concerned with the collection of the tax after
assessment, regardless of whether the assessment was made during the
original five-year period or within an agreed period of extension. Collection
then may be effected within five years after assessment or within the "period
for collectíon agreed upon in writing by the Commissioner of Internal
Revenue and the taxpayer before the expiration of such five-year period."
Thus, although under the waiver appellee consented to the "assessment
and collection" if made not later than December 31, 1958, such expiration
date must be deemed to refer only to the extension of the assessment
period. Insofar as collection is concerned, the period does not apply, for
otherwise the effect of the waiver would be to shorten, not extend, the legal
period for that purpose. Appellant therefore had five years from 1958 within
which to file his action, which was actually filed in 1959.
WHEREFORE, the appealed decision is modified by ordering appellee to
pay appellant the sum of P26,182.00 as deficiency income taxes for the
Page 78 of 226
years 1951, 1952 and 1953, plus 5% surcharge and 1% monthly interest
thereon from July 31, 1958 until payment of the full obligation, with costs
Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L.,
Barrera, Paredes and Dizon., JJ., concur.
Bengzon, C.J., took no part.
Decision modified.
Note.—See also Commissioner of Internal Revenue v. Capitol Subdivision,
Inc., L-18993, April 30, 1964, post, and the notes thereunder.
_____________
Page 79 of 226
Republic vs. Razon
No. L-17462. May 29, 1967.
REPUBLIC OF THE PHILIPPINES, petitioner, vs. JOSE RAZON and JAI-
ALAI CORPORATION, respondents.
No. L-17472. May 29, 1967.
JAI-ALAI CORPORATION OF THE PHILIPPINES, petitioner, vs REPUBLIC
OF THE PHILIPPINES, COURT OF TAX APPEALS and JOSE RAZON,
respondents.
_______________
27 Except those she had admittedly exchanged with other property of Enrica.
235
VOL. 20, MAY 29, 1967 235
Republic vs. Razon
Court of Tax Appeals; Taxation; Income tax; Factual findings are not subject to
review.—The Supreme Court is bound by the finding of the Tax Court that, for
income tax purposes, a certain person was a nonresident alien, not engaged in trade
or business here, a finding supported by substantial evidence.
Same; Income remitted to nonresident alien is subject to withholding income tax.—
The "percentages" or income remitted from the Philippines to a nonresident alien
staying in California are subject to withholding income tax.
Same; Withholding agents; Liability for withholding income tax.—Where the Jai Alai
Corporation remitted P40,000 direct to Haig Assadourian, its former general
manager, who was in California, it is a withholding agent with respect to that sum,
With respect to the sum of P120,000 which the Jai Alai Corporation paid to
Assadourian, through Jose Razon, who was a Vice-President of the corporation and
at the same time an attorney-in-fact of Assadourian, the corporation and Razon are
deemed withholding agents thereof. They are solidarily liable for the withholding
income tax, plus 25% surcharge, due on said sum of P160,000. As Razon is dead,
his liability should be borne by his intestate estate.
Same; Corporations; Piercing the veil of corporate fiction.—Where Madrigal & Co.,
Inc. advanced the amounts of income remitted to a nonresident alien, and it appears
that said amounts were charged to the personal account of Vicente Madrigal, the
controlling stockholder of Madrigal & Co., Inc. and the Jai Alai Corporation, the latter
being the one obligated to the nonresident alien, piercing the veil of corporate fiction,
it can be said that said payments, albeit made in the name of Madrigal & Co., Inc.,
were really payments made by the Jai Alai Corporation and it should be the one
regarded as the withholding agent liable for the withholding income tax.
Taxation; Income tax; 1% interest on unpaid income tax.—Failure to pay the income
tax within the period fixed in the assessment notice renders the taxpayer liable to the
1% interest incident to delinquency.
Same; Prescriptive period for collecting tax in case no return is filed.—The period for
collecting a tax through a judicial proceeding, in case no return has been filed, is ten
years from the discovery of the omission. Where the withholding agent's failure to file
a withholding income tax return was discovered in 1949 and the suit for the
collection of the withholding income tax was filed in 1953, the action had not yet
prescribed.
Page 80 of 226
236
236 SUPREME COURT REPORTS NNOTATED
Republic vs. Razon
Assistant Solicitor General Jose P. Alejandro and Solicitor C.T. Limcaoco
for petitioner.
Bausa & Ampil for respondent Jai-Alai Corporation.
Leido & Angeles for respondent Jose Razon.
DIZON, J.:
Appeals taken by the Republic of the Philippines—hereinafter referred to as
the Republic—and the Jai Alai Corporation of the Philippines—hereinafter
referred to as the Jai Alai—from the decision rendered by the Court of Tax
Appeals on August 4, 1960 in Case No, 15566, ordering the Jai Alai to pay
to the Republic the sum of P12,-000.00 representing the 12% withholding
tax on the amount of P80,000.00 it paid to Haig Assadourian, plus
surcharge, and dismissing the complaint, insofar as it concerned defendant
Jose Razon, as well as the cross-claim of the JaiAlai against the latter.
In view of Razon's death on February 11, 1961, Marina Baretto, his widow
and administratrix of his Intestate Estate (Special Proceeding No. 46754 of
the Court of First Instance of Manila) was substituted in his place on July 17
of the same year.
As the two appeals are interrelated and involve common issues, we
consider them jointly in this decision.
The case and the facts involved—mostly, if not all—undisputed are stated in
the appealed decision as follows:
"This is an action instituted by the Republic of the Philippines to collect from
defendant Jose Razon the amount of P73,-522.62, as alleged income tax due from
Haig Assadourian for the year 1946, including surcharges and interests up to
December 31, 1951, and from defendant Jose Razon and Jai-Alai Corporation,
jointly and severally, the sum of P30,080.00 exclusive of penalties, surcharges and
interests, as income taxes due from Haig Assadourian, for the years 1947 and 1948:
"The original complaint was filed with the Court of First Instance of Manila on
January 8, 1952 solely against defendant Jose Razon. On January 16, 1953, the
plaintiff amended its complaint, including the Jai-Alai Corporation as party
defendant, and asserting two (2) causes of action. Under the first cause of action,
the plaintiff seeks to recover from defendant Jose Razon as attorney-in-fact of Haig
Assadourian, the amount of P73,522.62 as the latter's income tax liability for the
year 1946, computed
237
VOL. 20, MAY 29, 1967 237
Republic vs, Razon
as of December 31, 1951; and, under the second cause of action the plaintiff seeks
to recover jointly and severally from defendants Jose Razon and Jai-Alai
Corporation as withholding agents, the 12% withholding tax amounting to
Page 81 of 226
P30,080.00, exclusive of penalties, surcharges and interests, due on the income
received by Haig Assadourian for the years 1947 and 1948 pursuant to the
provisions of Section 53 (b) and (c) of the National Internal Revenue Code. In
addition, defendant Jose Razon is sought to be held liable for the payment of the
said sum of P30,080.00 for being the attorney-in-fact of Haig Assadourian.
"On February 6, 1953, def endant Jose Razon filed his answer to the amended
complaint. On July 23, 1953, defendant Jai-Alai Corporation filed its answer to the
amended complaint, with a cross-claim against its co-defendant Jose Razon, who in
turn filed, on August 1, 1953, his answer to the cross-claim. On April 6, 1955, the
Court of First Instance of Manila remanded this case to this Court for final
determination and disposition pursuant to Section 22 of Republic Act No. 1125.
"Anent the first cause of action, the following facts were established: Haig
Assadourian, a citizen of Egypt, was previously admitted to the Philippines for
permanent residence. (Exh. 2-Jose Razon, p. 42 CTA rec.) He was considered a
legal resident of the Philippines as of September 13, 1940 (Exh. 1-Jose Razon, pp.
40-41 CTA rec.), and resided in the Philippines from 1940 to 1945. (Exh A & 14-Jai-
Alai, p. 470 BIR rec.) He had his residence at the University of Santo Tomas,
España St., Manila, and was the general manager of the Jai-Alai Corporation. (Exh.
1-Jose Razon, p. 40 CTA rec.) ''With the intention of going to the United States for
rest and business, Haig Assadourian filed, on October 19, 1945, an application for a
re-entry permit with the Bureau of Immigration, stating in his application among
others, that the length of his proposed absence in the Philippines was indefinite. He
was granted the permit to reenter the Philippines as a non-immigrant, with expiry
date on October 19, 1946, which was extended for another year ending on October
19, 1947. (Exh. 2-Jose Razon, p. 42 CTA rec.) "On March 4, 1946, a certain JACK
GEORGE, residing at 529 Aviles, Manila, executed a 'Guaranty' (Exhs. 3-Jose
Razon & 4-Jai-Alai, p. 215 BIR rec.), assuming the tax responsibility of Haig
Assadourian and binding himself 'to pay such internal revenue taxes, surcharges
and interests as may be found to be due from him' (Haig Assadourian) prior to his
departure or during his absence from' the Philippines. "On March 5, 1946, Haig
Assadourian filed an application for a tax clearance certificate (Exhs. A & 14-Jai-AIai,
p. 470 BIR rec.) with the Bureau of Internal Revenue, stating among others, that he
was leaving the Philippines for the
238
Republic vs. Razon
United States on March 8 or 9, 1946, and that for the purpose of filing his tax
returns, paying and compromising taxes that may be assessed against him during
his absence, he has appointed defendant Jose Razon. On the same day, Haig
Assadourian was issued Tax Clearance Certificate No. V-2257 (Exhs. 9-Jai-Alai &
12-Jose Razon, p. 94, BIR rec.) on the strength of the guaranty signed by Jack
George. (Exh. 9-A Jose Razon, p. 257 BIR rec.) He departed in 1946 and since then
he never returned to the Philippines. His last known address is Los Angeles,
California, U.S.A. (Exh. K, p. 57 CTA rec.)
"During his stay in the Philippines, Haig Assadourian did not engage in trade or
business. However his wife, Mrs. Valentina Assadourian, was a partner in the
business firm known as Alaska Ice Cream Factory (Exh. Z, p. 183 BIR rec.). He had
no properties, real or personal. except the 100 shares of stock in the Jai-Alai
Page 82 of 226
Corporation and another 100 shares in the name of his wife in the same corporation.
(Exh. Y, p. 184 BIR rec.).
"On March 1, 1947, Jose Razon, in behalf of Haig Assadourian, filed an income tax
return for 1946 (Exh. B, p. 469 BIR rec.), showing a net income of P156,194.93 and
giving as source thereof his salary and other income from the Alaska Ice Cream
Factory. On the same day, Jose Razon, as the 'duly named attorney-in-fact' of Haig
Assadourian, wrote the Collector of Internal Revenue (Exh. C, p. 468 BIR rec.)
requesting approval of an installment plan for the payment of the income tax liability
for 1940, 1941 and 1946.
"On March 19, 1947 (Exh. D, pp. 466-467 BIR rec.), the Deputy Collector of Internal
Revenue approved the installment plan for the payment of the 1940 and 1941
deficiency income tax of Haig Assadourian, but denied the request for the payment
of the 1946 income tax by installment, and at the same time enclosed a tax
assessment notice (Exh. B, p. 369 BIR rec.) calling for the payment of P48,731.87.
As the assessment was not paid, the Collector of Internal Revenue, on September
13, 1948, addressed another letter to Jose Razon (Exh. F, pp. 464-465 BIR rec.)
again demanding the payment of the 1940, 1941 and 1946 income tax liability of
Haig Assadourian, which, as of October 15, 1948, was in the total amount of
P64,506.34.
"Meanwhile, on May 2, 1950, the Collector of Internal Revenue wrote a letter to Jack
George (Exh. 18-Jose Razon, p. 187 BIR rec.), the guarantor of the tax liabilities of
Haig Assadourian, demanding from him the payment of the 1940, 1941 and 1946 tax
liability of Haig Assadourian. Since Jack George refused to pay the tax liability of
Haig Assadourian, the Collector of Internal Revenue, on January 9, 1951, wrote the
Solicitor General (Exh. 8-Jose Razon, pp. 194-197 BIR
239
VOL. 20, MAY 29, 1967 239
Republic vs. Razon
rec.), requesting that a civil action be filed against Jack George, as guarantor of Haig
Assadourian to collect the income tax liabilities for 1940, 1941 and 1946 of the latter
in the total amount of P77,142.03 as of November 21, 1950.
"Subsequently, on July 9, 1951 (Exh. G, p. 463, BIR rec.), August 3, 1951 (Exh. H, p.
462 BIR rec.), September 25, 1951 (Exh. I, p. 459 BIR rec.) and December 11, 1951
(Exh. J, p. 458 BIR rec.), the Collector of Internal Revenue sent follow-up letters to
Jose Razon for the payment of the assessed tax liability of Haig Assadourian.
According to the latest letter, Exhibit J (p. 458 BIR rec.), the 1946 income tax liability
of Haig Assadourian amounted to P73,522.62 as of December 31, 1961.
"Relative to the second cause of action, the following facts were established. In
1949, while BIR Examiner Narciso Rosales was examining the books of the Jai-Alai
Corporation for income tax purposes, he came across an indenture (Exh. K, pp.
57-58, CTA rec.) executed between Haig Assadourian and the Jai-Alai Corporation.
It appears from this indenture that on August 6, 1947, the Jai-Alai Corporation, duly
represented by its Vice-President, Jose Razon, entered into a contract in the City of
Los Angeles, California, U.S.A. with Haig Assadourian, as manager of the Jai-Alai
Corporation, whereby the latter, in consideration of the amount of P200,000.00,
acknowledged full payment of the latter's claim for management percentage fees
earned for the year's 1946 to 1950 and any or all future claims against the Jai-Alai
Corporation. The payment of percentage fees to Haig Assadourian was in
Page 83 of 226
accordance with certain management contracts, dated July 30, 1939 and November
18, 1940, with the Jai-Alai Corporation, by virtue of which Haig Assadourian
operated the Jai-Alai Fronton, and which contracts were to continue up to the end of
the year 1950, but were terminated by the indenture. Finally, under the terms of the
indenture, the sum of P200,000.00 was to be paid by the Jai-Alai Corporation in
installments as follows: (1) P40,000.00 on or before August 20, 1947; and (2)
P20,000.00 on or before the 20th day of each month, beginning the month of
September of 1947 up to and including the month of April, 1948.
"On the basis of the payments to Haig Assadourian, Examiner Rosales filed for
Haig Assadourian an income tax return for 1947 (Exh. L; p. 456 BIR rec.; Exh. 2-Jai-
Alai p. 426 BIR rec.), showing the income of P120,000.00 and another income tax
return for 1948 (Exh. M, p. 855 BIR rec.; Exh. 3-JaiAlai, p. 428 BIR rec.), showing an
income of P20,000.00.
"On November 10, 1952, the Collector of Internal Revenue, wrote a letter to
defendant Jai-Alai Corporation, demanding the payment of taxes corresponding to
12% of the amount of P200,000.00 which it allegedly paid to Haig Assadourian and
240
Republic vs. Razon
which it should have withheld according to Section 53 (b) and (c) of the Tax Code
(Exh. N, p. 453-454, BIR rec), enclosing therewith assessment notices Nos.
AR-1060-52/47 and AR-1061-52/48 for the years 1947 and 1948, respectively, in the
total amount of P30,080.00 (Exhs. O & F, pp. 452 & 450 BIR rec.).
"On November 22, 1952, J. Laurea, in behalf of the JaiAlai Corporation, wrote a
letter (Exh. S-Jai-Alai, p. 328 BIR rec.) to the Collector of Internal Revenue,
requesting the latter to rescind the assessment on the ground that, owing to the
financial inability of the Jai-Alai Corporation 'to pay the purchase price to Mr. Haig
Assadourian, decided to subrogate its rights to one of the stockholders of the
Corporation, Senator Vicente Madrigal' and 'instead of the Jai-Alai Corporation
paying for the price contracted, Senator Madrigal paid the agreed price to the legal
representative of Mr. Assadourian, who was then in the United States.'
"On December 19, 1952, a similar letter of demand (Exh. Q, pp. 447-448 BIR rec.)
was sent to Jose Razon, enclosing the same assessment notices for the years 1947
and 1948, in the total amount of P30,080.00 (Exhs. R & S, pp. 444, 445, BIR rec.).
"Acting on the information contained in the letter of J. Laurea, the Collector of
Internal Revenue, on December 29, 1952, wrote a letter (Exh. 12-Jai-Alai, pp.
335-336 BIR rec.) to Vicente Madrigal, assessing and demanding from him the
payment of the withholding tax in the amount of P30,080.00 on the P200,000.00 he
paid to Haig Assadourian for the year 1947 and 1948 and which he should have
withheld pursuant to Section 53 (b) and (c) of the Tax Code. Meanwhile, on January
2, 1953, the Collector of Internal Revenue wrote to the Solicitor General, requesting
the inclusion of Vicente Madrigal as party defendant in this case, (Exh. 13-Jai-Alai,
p. 339 BIR rec.)
"On January 10, 1953, J. Laurea, this time acting for and in behalf of Vicente
Madrigal, wrote a letter (Exh. 6-JaiAlai, p. 442 BIR rec.) to the Collector of Internal
Revenue in connection with the letter of demand dated December 29, 1952, claiming
among others, that as 'Senator Madrigal has made the payment of the purchase
Page 84 of 226
price of the right to the legal representative of Mr. Assadourian in Manila', he is not
liable for the payment of withholding tax."
The substantial points raised by the Republic as appellant (G.R. No.
L-17462) are that the Court of Tax Appeals, erred: firstly, in not holding the
Jai Alai liable, under Section 53 (b) of the National Internal Revenue Code,
for the payment of withholding tax on the amount of P120,000.00 paid by
Madrigal & Co., Inc. or by Vicente Madrigal to Assadourian; secondly, in not
holding Jose Razon, similarly
241
VOL. 20, MAY 29, 1967 241
Republic vs. Razon
liable, under the same legal provision, for the tax due on sum of
P160,000.00 paid to the same party, and lastly, in not awarding 1 %
interests monthly on the amount the Court found due from the Jai Alai to the
Republic, in accordance with Section 51 (e) of the National Internal
Revenue Code.
On the other hand, the Jai Alai as appellant (G.R. No. L-17472) claims that
the Court of Tax Appeals erred firstly, in holding that the money paid to
Assadourian by JaiAlai was salary, emolument, remuneration or
determinable profit or income within the purview of Section 53 (b) of the
National Internal Revenue Code, instead of declaring that it was the
consideration of a contract of purchase and sale of an inchoate or
contingent interest pertaining to Assadourian, and erred, consequently in
finding the Jai Alai liable as withholding agent for the payment of the total
sum of P12,000.00 representing the alleged withholding tax on the amount
of P80,000.00 it paid to Assadourian; secondly, in holding the aforesaid
provision of the National Internal Revenue Code applicable to the Jai Alai
inspite of the f act that Assadourian—to whom the amount aforesaid was
paid—was not and could not be considered as a non-resident alien not
engaged in trade or business in the Philippines within the purview of the tax
code; thirdly, in finding that when the payments in question were made to,
and accepted by Jose Razon, the latter, as Vice-President of the Jai Alai,
was but an extension of the latter's personality, and finally, in not holding
that the right to recover said withholding tax from the Jai Alai had already
prescribed.
Although the Court of Tax Appeals dismissed, as against the now deceased
Jose Razon, the two causes of action alleged in the complaint filed by the
Republic, it appears from the errors assigned in the latter's brief in G.R. No.
L17462 that it questions only that portion of the appealed decision which
disposes of the second cause of action where it seeks to hold Razon and
the Jai-Alai jointly and severally liable as withholding agents for the
withholding tax due on the income received by Assadourian for the years
1947 and 1948. This appeal. therefore, does not cover that portion of the
aforesaid decision dismissing- the
Page 85 of 226
242
Republic vs. Razon
first cause of action which was for the recovery from Jose Razon alone of
the amount of P73,522.62 representing Assadourian's alleged income tax
liability f or the year 1946, computed as of December 31, 1951.
It must be stated further that the Republic sued Razon in relation to both
causes of action either as guarantor of Assadourian's tax liability, or as the
latter's attorney-infact with the obligation to file his income tax returns and
pay or compromise the tax due on his income, or—inferentially at least—in
his personal capacity as he became personally liable because of his failure
to withhold the tax due on the income of Assadourian.
Having thus limited and clarified the true issue before Us, We now proceed
to consider the claim of Jai Alai (and also of Razon as appellee) to the effect
that Assadourian was not and could not be considered as a non-resident
alien not engaged in trade or business in the Philippines within the purview
of Section 53 (b) of the National Internal Revenue Code which provides:
"(b) Nonresident aliens.—All persons, corporations and general co-partnerships
(companias colectivas), in whatever capacity acting, including lessees or mortgagors
of real property, trustees acting in any trust capacity, executors, administrators,
receivers, conservators, fiduciaries, employers, and all officers and employees of the
Government of the Philippines having the control, receipt, custody, disposal, or
payment of interest, dividends, rents, salaries, wages, premiums, annuities,
compensation, remunerations, emoluments, or other fixed or determinable annual or
periodical gains, profits, and income of any nonresident alien individual, not engaged
in trade or business within the Philippines therein, shall (except in the cases
provided for in subsection (a) of this section) deduct and withhold from such annual
or periodical gains, profits, and income a tax equal to twenty per centum thereof:
Provided, That no such deduction or withholding shall be required in the case of
dividends paid by a foreign corporation unless (1) such corporation is engaged in
trade or business within the Philippines and (2) more than eighty-five per centum of
the gross income of such corporation for the three-year period ending with the close
of its taxable year preceding the declaration of such dividends (or for such part of
such period as the corporation has been in existence) was derived from sources
within the Philippines as determined under the provisions of section thirty-seven:
Provided, Further, That the Commissioner of Internal Revenue may authorize such
tax to be deducted and
243
VOL. 20, MAY 29, 1967 243
Republic vs. Razon
withheld from the interest upon any securities the owner of which are not known to
the withholding- agent."
As is obvious, the above contention is decisive upon Razon and Jai Alai's
liability as withholding agents. Were it true that Assadourian was not and
could not be considered as a nonresident alien not engaged in trade or
business in the Philippines, there could be no case for the application of the
Page 86 of 226
legal provision concerning withholding agents, with the result that the
Republic would have no case against the Jai Alai and Razon.
The question, however, is one no longer reviewable because it is one of
fact. The Court of Tax Appeals having definitely found and declared as a fact
that Assadourian was a nonresident alien not engaged in trade or business
in the Philippines, We must necessarily follow the settled rule in this
jurisdiction that findings of fact of the Court of Tax Appeals are not
reviewable by Us, as long as they are supported by substantial evidence—
which, in our opinion, is precisely the case in the one now before Us
(Gutierrez, etc. vs. Court of Tax Appeals, et al., 54 O.G. 2912; Section 2,
Rule 44, Rules of Court).
Jai Alai's next contention is that the total amount of ?200,000.00 paid to
Assadourian in the years 1947 and 1948 was not payment of "interest,
dividends, x x x compensation, remunerations, emoluments, or other fixed
or determinable annual or periodical gains, profits, and income" within the
purview of Section 53 (b) of the National Internal Revenue Code, but was,
instead, the consideration for the sale of an inchoate or contingent interest
belonging to Assadourian to which said legal provision does not apply.
When and how, on several occasions, the amount aforesaid was paid to
Assadourian is shown by the record as f ollows:
In the year 1947, the amount of P40,000.00 was paid directly by the Jai Alai
on September 2 by telegraphic transfer (through the Bank of the Philippine
Islands) sent to Assadourian at 277 South Beverly Drive, Beverly Hills,
California, U.S.A. On November 7, November 20, December 17, and
December 26, all of the same year 1947, four different amounts of
P20,000.00 cash were paid, the first two by the Jai-Alai and the remaining
two by Madri-
244
Republic vs. Razon
gal & Company, Inc. to Jose Razon for and on behalf of Assadourian. On
February 11, March 11, April 10 and June 2, all of the year 1948, four
separate amounts of P20,000.00 each were paid by Madrigal and Company,
Inc., to Jose Razon. The latter remitted all said amounts to Assadourian at
the address already referred to.
According to the evidence, Assadourian, an Egyptian citizen, was admitted
to the Philippines on September 13, 1940. From October of that year to
January 1945, he was the general manager of the Jai Alai Corporation, a
duly organized entity under the laws of the Philippines engaged during all
that time, under the name of Jai Alai Stadium, in a form of legalized
gambling, in which corporation Assadourian and his wife owned 200 shares
of stock. On March 5, 1948, after be had appointed Jose Razon as his
attorney-in-fact or agent "for the purpose of filing my (his) tax returns and
Page 87 of 226
paying and compromising the taxes which may be assessed against me
(him) during my (his) absence" and after securing a tax clearance upon the
guaranty of one Jack George, Assadourian left the Philippines for the United
States. Since then he had been residing- in the City of Los Angeles,
California. His re-entry permit expired, in fact, on October 14, 1947. On
August 5, 1947 and in said city, the Jai Alai, represented by its Vice-
President Jose Razon, entered into a contract with Assadourian, whereby
the latter, in consideration of the sum of P200,000.00, acknowledged full
payment of all his claim for percertages earned by the Jai Alai Stadium for
the years 1940 to 1945. and to be earned during the years 1946 to 1950
(Exhibit K). The contract expressly terminated the management contracts
executed between the same parties on July 30, 1939 and November 18.
1940, pursuant to which Assadourian, as manager of the Jai Alai Stadium
located in the City of Manila, was to receive a certain percentage of the
receipts of the business. These "percentages earned, accrued, and
uncollected for the years 1940 to 1945, both inclusive," and "percentages to
be earned or accrued during the years 1946 to 1950, both inclusive" (Exhibit
K) were the ones which Assadourian considered fully paid with the aforesaid
sum of P200,000.00 which he subsequently received.
245
VOL. 20, MAY 29, 1967 245
Republic vs. Razon
The bare facts stated above are, in our opinion, sufficient to show the lack of
merit of Jai Alai's contention that the aforesaid sum was the purchase price
of certain inchoate or contingent interest belonging to Assadourian. To the
contrary, the undisputed facts of the case show beyond cavil that said
amount was in payment of percentages or income earned in Assadourian
during the years aforesaid out of the profits realized by the Jai Alai Stadium.
Being so, it was taxable, and the corresponding withholding tax should have
been withheld by "such persons, corporations, and general co-partnerships
who had the control, receipt, custody, disposal, or payment thereof to the
person entitled to it."
But both the Jai Alai and Razon claim not to fall under the provisions of
Section 53 (b) of the National Internal Revenue Code precisely because
they did not have the control, receipt, custody, or disposal of the alleged
taxable amount. Again we find this to be without merit.
With respect to the P40,000.00 sent or paid by the Jai Alai itself by
telegraphic transfer to Assadourian on September 2, 1947, its liability is
beyond question.
With respect to the two different amounts of P20,000.00, each paid to Jose
Razon on November 7 and November 20 of the year 1947, it is also clear
that it was the Jai Alai, through its then Vice-President Jose Razon, who had
custody and had disposed of and paid said amounts. In this connection it
Page 88 of 226
must be borne in mind that, in connection with these two payments and the
later payments made In the years 1947 and 1948, Razon had a dual
personality: he acted as the Vice-President and, therefore, the
representative of the Jai Alai, and at the same time as the attorneyin-fact of
Assadourian. In Exhibit C (BIR record p. 468) he clearly admitted that he
was such attorney-in-fact. When he received the amounts from the Jai Alai
to effect the payment to Assadourian, he at the same time accepted the
payment as attorney-in-fact of the latter with the obligation of remitting them
to him—as, in fact, he did. Consequently, not only the Jai Alai but Razon
also must be deemed to be withholding agents within the purview of Section
53 (b) of the National Internal Revenue Code, and it was their duty, before
actually paying the amounts to
246
Republic vs. Razon
Assadourian, to deduct the corresponding income tax due thereon.
In relation to the different amounts of P20,000.00 each paid to Jose Razon
under similar circumstances on December 17 and December 24, 1947, and
on February 11, March 11, April 10 and June 2, of the year 1948, it is
claimed that they were not payments made by the Jai Alai but by Madrigal &
Company, Inc., and that inasmuch as the former did not have the control
over said amounts and did not dispose of or pay them to Assadourian or his
representative, the legal provision already referred to does not apply to it.
This could be true, indeed, if the record did not sufficiently disclose that
Vicente Madrigal was the controlling stockholder of the Madrigal &
Company, Inc. and of the Jai Alai Corporation up to the time of the trial
below (transcript, p. 207). In fact, the payments of P20,000.00 each made in
the name of Madrigal & Company, Inc. were charged to the personal
account of Vicente Madrigal. Therefore, piercing the veil of corporate fiction,
it can be said that said payments, albeit made in the name of Madrigal &
Company, Inc., and later charged to the personal account of Vicente
Madrigal, were really payments made by the Jai Alai.
What has been said heretofore leads us inexorably to the conclusion that
the Jai Alai was a withholding agent, and as such should have withheld the
corresponding tax from the total amount of P200,000.00, pursuant to
Section 53, subparagraph (b) and (c) of the Revised Internal Revenue
Code.
Razon or his Intestate Estate, however, may be held liable in the same
capacity only as regards the total amount of ?160,000.00 which he had
received and disposed of simultaneously as Vice-President of the Jai Alai
and as attorney-in-fact of Assadourian, because he had no part in the
payment of the first amount of P40,000.00 by the Jai Alai through
Page 89 of 226
telegraphic transfer sent directly to Assadourian in the City of Los Angeles,
California.
With the above, We consider as sufficiently disposed of the first, third and
fourth assignments of error made by the Republic in its brief as appellant, as
well as the first,
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VOL. 20, MAY 29, 1967 247
Republic vs. Razon
second and third assignments of error made in the Jai Alai's brief in the
same capacity.
As a result, the decision appealed from is modified by sentencing the Jai
Alai to pay the Republic the corresponding withholding tax on the total of the
amounts paid to Assadourian, as follows:
12% withholding tax on the total amount P14,400.0
of P120,000.00 paid to Assadourian in 0
the year
1947 .................................................................
.............................
25% 9,600.00
surcharge .........................................................
........................................
Total amount P
due ................................................................... 18,000.00
..........
On the total amount of P80,000.00 paid to the P
same party in the year 1948, 12% 9,600.00
withholding-
tax ....................................................................
......................
25% 2,400.00
surcharge .........................................................
........................................
Total amount P12,000.0
due ................................................................... 0
..........
In addition to these amounts of P18,000.00 and P 12,000.00, the Jai-Alai is
ordered to pay interest at the rate of 1% per month (Section 51 [d] and [e] of
the Revised Internal Revenue Code) from November 20, 1952, in
accordance with the income tax assessment notices Exhibits O and P.
Similarly, judgment is hereby rendered sentencing the Intestate Estate of
Jose Razon, herein represented by the Administratrix, to pay the Republic
as follows:
Page 90 of 226
12% withholding tax on the total amount P
paid to Assadourian, through him, 9,600.00
amounting to P80,000.00, in the year
1947 .........................................................................................
.........................
25% 2,400.00
surcharge ......................................................................................
..................
Total amount P12,000.
due .................................................................................... 00
12% withholding tax on the amount of P
P80,000.00 paid to Assadourian, through 9,600.00
him, in the year
1948 ........................................................................................
25% 2,400.00
surcharge ......................................................................................
..................
Total amount P12,000.
due .................................................................................... 00
In addition, the same Intestate Estate is ordered to pay interest on both
amounts at the rate of 1% per month (Section 51 [d] and [c] of the Revised
Internal Revenue
248
Republic vs. Razon
Code) from January 15, 1953, in accordance with the income tax
assessment notices Exhibits R and S.
The liability of the Jai Alai and of the Intestate Estate of the deceased Jose
Razon for the withholding taxes, surcharges, and interests due on the
amount of P80,000.00 paid to Assadourian in the year 1947 and the total
amount of ?80,000.00 paid to the same party in the year 1948 shall be joint
and several.
The procedural question raised by the Republic in its second assignment of
error needs no further discussion in view of our resolution on the other four
assignments of error of the same party.
Now, to the last point raised in the brief of the Jai Alai as appellant to the
effect that the cause of action of the Republic to recover the withholding
taxes in question had already prescribed when the action was commenced
below. In refutation thereof, We deem it suff icient to quote the following
portion of the decision under review:
"In connection with the defense of defendant Jai-Alai Corporation that the right to
collect the tax has already prescribed, the record shows that it failed to file a
withholding tax return for the amount of P80,000.00 paid to Haig Assadourian in
1947. For its omission to file a withholding tax return, Section 332(c) of the Tax
Page 91 of 226
Code, which provides that '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
x x x omission', should be applied. The failure to file a return was discovered in
1949, during the investigation conducted by BIR examiner Narciso Rosales. The
judicial suit was initiated on January 16, 1953 when the Jai-Alai Corporation was
included as party defendant in the amended complaint. Only four (4) years elapsed
from the time of the discovery of the omission to file a return to the filing of a judicial
action against the Jai-Alai Corporation consequently, the right to judicially collect the
withholding tax has not prescribed."
Wherefore., modified as above indicated, the decision appealed from is
affirmed in all other respects. With costs.
Concepcion, C.J., Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar,
Sanchez and Castro, JJ., concur.
Decision modified.
249
Page 92 of 226
VOL. 18, NOVEMBER 24, 1966 757
Commissioner of Internal Revenue vs. Gonzales
No. L-19495. November 24, 1966.
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. LlLIA YUSAY
GONZALES and THE COURT OF TAX APPEALS, respondents.
Courts; Appeals; Thirty-day period for appealing to Tax Court begins from the date
decision of Commissioner of Internal Revenue was received.—In St. Stephen's
Association vs. Collector of Internal Revenue (L-11238, August 21, 1958), it was
held that the counting of the thirty days within which to institute an appeal in the
Court of Tax Appeals should commence "f rom the date of receipt of the decision of
the Commissioner on the disputed assessment, not from the date the assessment
was issued. When the taxpayer received the decision of the Commissioner on March
14, 1960, the thirty-day period should begin from that date. From said date to April
13, 1960, when the taxpayer filed his appeal in the Court of Tax Appeals, is exactly
thirty days. Hence, the appeal was timely.
Same; Tax Court is the proper forum wherein to ventilate defenses against tax
assessment.—An action involving a disputed assessment for internal revenue taxes
falls within the exclusive appellate jurisdiction of the Court of Tax Appeals (Sec. 7[1],
Rep. Act 1125; Blaquera vs. Rodriguez, 103 Phil. 267). It is in that forum, to the
exclusion of the Court of First Instance, where the taxpayer can ventilate his or her
defenses against the assessment.
Courts; Probate jurisdiction.—The probate court has a limited jurisdiction, And under
the Rules of Court, its authority relates only to matters of estates and probate of wills
of deceased persons. It has had no jurisdiction to resolve questions of disputed tax
assessments.
Taxation; Evidence of fraud.—Fraud is a question of fact. The circumstances
constituting it must be alleged and proved in the Court of Tax Appeals. And the
finding of said court as to its existence or nonexistence is final unless clearly shown
to be erroneous. (Gutierrez vs. Court of Tax Appeals, 101 Phil. 713). As the court 'a
quo found that no fraud was alleged
758

and proven therein, the Commissioner's assertion that the return was fraudulent
cannot be entertained.
Same; When tax return is considered sufficient.—A return need not be complete in
all particulars. It is sufficient if it complies substantially with the law. There is
substantial compliance (1) when the return is made in good faith and is not false or
fraudulent; (2) when it covers the entire period involved; and (3) when it contains
information as to the various items of income, deductions and credits with such
definiteness as to permit the computation and assessment of the tax. (Mertens, Jr.,
10 Law of Federal Income Taxation, 1958 ed., Sec. 57.13).
Same; Sufficiency of estate and inheritance tax return.— An estate and inheritance
tax return was substantially defective when it was incomplete; it declared only
ninety-three parcels of land, representing about 400 hectares, and left out ninety-two
parcels covering 503 hectares and said huge underdeclaration could not have been
the result 01 an oversight or mistake. Moreover, the return mentioned no heir. Thus,
Page 93 of 226
no inheritance tax could be assessed. As a matter of law, on the basis of the return,
there would be no occasion for the imposition of estate and inheritance taxes. When
there is no heir, the estate is escheated to the State. The State does not tax itself.
Same; Sufficient tax return; Prescription.—Where the return was made on the wrong
form, it was held that the filing thereof did not start the running of the period of
limitations, and where the return was very deficient, there was no return at all as
required in Section 93 of the Tax Code. If the taxpayer failed to observe the law,
Section 332 of the Tax Code, which grants the Commissioner of Internal Revenue
ten years period within which to bring an action "f or tax collection, applies. Section
94 of the Tax Code obligates him to make a return or amend one already filed based
on his own knowledge and information obtained through testimony or otherwise, and
subsequently to assess thereon the taxes due. The running of the period of
limitations under Section 332(a) of the Tax Code should be reckoned "f rom the date
the "f raud was discovered.
Same; Taxpayer's willingness to pay does not bar him from raising defenses against
the legality.—The Tax Code does not bar the right to contest the legality of the tax
after a taxpayer pays it. Under Section 306 thereof, he can pay the tax and claim a
refund therefor. A fortiori his willingness to pay the tax is no waiver of his right to
raise defenses against the legality of the tax.
Resolution on Motion for Reconsideration:
Taxation; Estate and inheritance taxes; Liability of estate for said taxes.—Estate and
inheritance taxes are satisfied from
759
VOL. 18, NOVEMBER 24, 1966 759

the estate of the decedent and are to be paid by the executor or administrator
thereof, Where there are two or more executors, all of them are severally liable for
the payment of the.estate tax. The inheritance tax, although charged against the
account of each beneficiary, should be paid by the executor or administrator.
Solicitor General for the petitioner.
Ramon A. Gonzales for respondent Lilia Yusay Gonzales.
BENGZON, J.P., J.:
Matias Yusay, a resident of Pototan, Iloilo, died intestate on May 13, 1948,
leaving two heirs, namely, Jose S. Yusay, a legitimate child, and Lilia Yusay
Gonzales, an acknowledged natural child. Intestate proceedings for the
settlement of his estate were instituted in the Court of First Instance of Iloilo
(Special Proceedings No. 459). Jose S. Yusay was therein appointed
administrator.'
On May 11, 1949 Jose S. Yusay filed with the Bureau of Internal Revenue
an estate and inheritance tax return declaring therein the following
properties:
Personal properties
Palay.......................... 6,444.00
Page 94 of 226
Carabaos................... 1,000.00 P 7,444.00
Real properties:
Capital, 74 )
parcels )
)
Conjugal 19 )
parcels )
assessed at ....... P179,760.00
Total gross estate ......... P187,204.00
The return mentioned no heir.
Upon investigation however the Bureau of Internal Revenue found the
following properties:
Personal properties:
Palay........................ P 6,444.00
Carabaos................ 1,500.00
760
Packard Automobile ... 2,000.00
2 Aparadors 500.00 P
10,444.00
Real properties:
Capital, 25 parcels assessed P
at ....... 87,715.32
1/2 of Conjugal, 130 parcels P121,425.0 P209,140.3
assessed at ..... 0 2
Total .................................................. P219,584.3
2
The fair market value of the real properties was computed by Increasing the
assessed value by forty percent.
Based on the above findings, the Bureau of Internal Revenue assessed on
October 29, 1953 estate and inheritance taxes in the sums of P6,849.78
and P16,970.63, respectively.
On January 25, 1955 the Bureau of Internal Revenue increased the
assessment to P8,225.89 as estate tax and P22,117.10 as inheritance tax
plus delinquency interest and demanded payment thereof on or before
February 28, 1955. Meanwhile, on February 16, 1955, the Court of First
Instance of Iloilo required Jose S. Yusay to show proof of payment of said
estate and inheritance taxes.
On March 3, 1955 Jose S. Yusay requested an extension of time within
which to pay the tax. He posted a surety bond to guarantee payment of the
taxes in question within one year. The Commissioner of Internal Revenue
Page 95 of 226
however denied the request. Then he issued a -warrant of distraint and levy
which he transmitted to the Municipal Treasurer of Pototan for execution.
This warrant was. not enforced because all the personal properties subject
to distraint were located in lloilo City.
On May 20, 1955 the Provincial Treasurer of Iloilo requested the BIR
Provincial Revenue Officer to furnish him copies of the assessment notices
to support a motion for payment of taxes which the Provincial Fiscal would
file in Special Proceedings No. 459 before the Court of First Instance of
Iloilo. The papers requested were sent by the Commissioner of Internal
Revenue to the Provincial Revenue Officer of Iloilo to be transmitted to the
Provincial Treasurer, : The records do not however show
761
VOL. 18, NOVEMBER 24, 1966 761
whether the Provincial Fiscal filed a claim with the Court of First Instance for
the taxes due.
On May 30, 1956 the commissioner appointed by the Court of First Instance
for the purpose, submitted a reamended project of partition which listed the
following properties:
Personal properties:
Buick Sedan ...... P 8,100.00
Packard car ........... 2,000.00
Aparadors ............ 500.00
Cash in Bank (PNB) .. 8,858.46
Palay .................. 6,444.00
Carabaos ........... 1,500.00 P
27,402.46
Real properties:
Land, 174 parcels ass essed P324,797.2
at ........... 1
Buildings .......................... 4,500.00 P329,297.2
1
Total.................................................................. P356,699.6
7
More than a year later, particularly on July 12, 1957, an agent of the Bureau
of Internal Revenue apprised the Commissioner of Internal Revenue of the
existence of said reamended project of partition. Whereupon, the Internal
Revenue Commissioner caused the estate of Matias Yusay to be
reinvestigated for estate and inheritance tax liability, Accordingly, on
February 13, 1958. he issued the following assessment:
Estate tax ............................... P
16,246.04
5% surcharge.......................... 411,29
Page 96 of 226
Delinquency interest ................ 11,868.90
Compromise
No notice of death ................ P15.0
0
Late payment ....... 40.00 55.00
Total ................... P
28,581.23
Inheritance Tax .................. P
38,178.12
5% surcharge .................. 1,105.86
Delinquency interest ..................... 28,808.75
Compromise for late payment............... 50.00
Total.................................................... P
69,142.73
762
Total estate and inheritance taxes...... P 97,723.96
Like in previous assessments, the fair market value of the real properties
was arrived at by adding 40% to the assessed value.
In view of the demise of Jose S. Yusay, said assessment was sent to his
widow, Mrs. Florencia Piccio Vda. de Yusay, who succeeded him in the
administration of the estate of Matias Yusay.
No payment having been made despite repeated demands, the
Commissioner of Internal Revenue filed a proof of claim for the estate and
inheritance taxes due and a motion for its allowance with the settlement
court invoking priority of lien pursuant to Section 315 of the Tax Code.
On June 1. 1959, Lilia Yusay, through her counsel, Ramon Gonzales, filed -
an answer to the proof of claim alleging non-receipt of -the assessment of
February 13, 1958, the existence of two administrators, namely, FIorencia
Piccio Vda. de Yusay who administered two-thirds of the estate, and Lilia
Yusay, who administered the ,remaining, one-third, and her willingness to,
pay the taxes corresponding to her share, and praying for deferment of the
resolution on the motion for the payment of taxes until after a new
ass\essment corresponding to her, share was issued.
" On November 17, 1959 Lilia Yusay disputed the legality of the assessment
dated February 13, 1958. She claimed that the right to make the same had
prescribed inasmuch as more than five years had elapsed since the filing of
the estate and inheritance tax return on May 11, 1949. She therefore
requested that the assessment be declared invalid and without force and
effect. This request was rejected by the Commissioner in his letter dated
January 20, 1960, received by Lilia Yusay on March 14, 1960, for the
reasons, namely, (1) that the right to assess. the taxes in question has not
Page 97 of 226
been lost by prescription since the return which did not name the heirs
cannot be considered a true and complete return sufficient to start the
running of the period of limitations of five years under Section 331 of the Tax
Code and pursuant to Section 332 of the same Code he has ten years
within which to make the
763
VOL. 18, NOVEMBER 24, 1966 763
assessment counted from the discovery on September 24, 1953 of the
identity of the heirs; and (2) that the estate's administrator waived the
defense of prescription when he filed a surety bond on March 3, 1955 to
guarantee payment of the taxes in question and when he requested
postponement of the payment of the taxes pending determination of who the
heirs are by the settlement court.
On April 13, 1960 Lilia Yusay filed a petition for review in the Court of Tax
Appeals assailing the legality of the assessment dated February 13, 1958.
After hearing the parties, said Court declared the right of the Commissioner
of Internal Revenue to assess the estate and inheritance taxes in question
to have prescribed and rendered the following judgment:
"WHEREFORE, the decision of respondent assessing against the estate of the late
Matias Yusay estate and inheritance taxes is hereby reversed. No costs."
The Commissioner of Internal Revenue appealed to this Court and raises
the following issues:
1. 1. 
Was the petition for review in the Court of Tax Appeals within the 30-
day period provided for in Section 11 of Republic Act 1125?
2. 2. 
Could the Court of Tax Appeals take cognizance of Lilia Yusay's appeal
despite the pendency of the "Proof of Claim” and. "Motion for
Allowance of Claim and for an Order of Payment of Taxes" filed by the
Commissioner of Internal Revenue in Special Proceedings No. 459
before the Court of First Instance of Iloilo?
3. 3. 
Has the right of the Commissioner of Internal ,Revenue to assess the
estate and inheritance taxes in question prescribed?
On November 17, 1959 Lilia Yusay disputed the legality of the assessment
of February 13, 1958. On March 14, 1960 she received the decision of the
Commissioner of Internal Revenue on the disputed assessment, On April
13, 1960 she filed her petition for review in the Court of Tax Appeals. Said
Court correctly held that the appeal was seasonably interposed pursuant to
Section 11 of Republic Act 1125. We already ruled in St. Stephen's Asso-
764
Page 98 of 226
ciation v. Collector of Internal Revenue, that the counting of the thirty days
1
within which to institute an appeal in the Court of Tax Appeals should

commence from the date of receipt of the decision of the Commissioner on
the disputed assessment, not from the date the assessment was issued.
Accordingly, the thirty-day period should begin running from March 14,
1960, the date Lilia Yusay received the appealable decision. From said date
to April 13, 1960, when she filed her appeal in the Court of Tax Appeals, is
exactly thirty days. Hence, the appeal was timely.
Next, the Commissioner attacks the jurisdiction of the Court of Tax Appeals
to take cognizance of Lilia Yusay's appeal on the ground of lis pendens. He
maintains that the pendency of his motion for allowance of claim and for
order of payment of taxes in the Court of First Instance of Iloilo would
preclude the Court of Tax Appeals from acquiring jurisdiction over Lilia
Yusay's appeal. This contention lacks merit.
Lilia Yusay's cause seeks to resist the legality of the assessment in
question. Should she maintain it in the settlement court or should she
elevate her cause to the Court of Tax Appeals? We say, she acted correctly
by appealing to the latter court. An action involving a disputed assessment
for internal revenue taxes falls within the exclusive jurisdiction of the Court
of Tax Appeals. It is in that forum, to the exclusion of the Court of First
2
Instance, where she could ventilate her defenses against the assessment.
3
Moreover, the settlement court, where the Commissioner would wish Lilia
Yusay to contest the assessment, is of limited jurisdiction. And under the
Rules, its authority relates only to matters having to do with the settlement
4
of
_______________
1 L-11238, August 21, 1958. See also Baguio Country Club Corporation v. Collector of Internal
Revenue, et al., L-11419, April 22, 1959.
2 Sec. 7(1), Rep. Act 1125; Blaquera v. Rodriguez, L-11295, March 29, 1958.
3 Castro v. Blaquera, L-8429, February 28, 1957, 53 O.G. 2135; Ledesma v. Court of Tax
Appeals, 102 Phil. 931.
4 Rules 74-92, now Rules 73-91, Rules of Court.
765
VOL. 18, NOVEMBER 24, 1966 765
estates and probate of wills of deceased persons. Said court has no
5
jurisdiction to adjudicate the contentions in question, which .—assuming

they do not come exclusively under the Tax Court's cognizance—must be
submitted to the Court of First Instance in the exercise of its general
jurisdiction. 6
We now come to the issue of prescription, Lilia Yusay claims that since
the.latest assessment was issued only on February 13, 1958 or eight years,
nine months and two days from the filing of the estate and inheritance tax
return, the Cammissioner's right to make it has expired. She would rest her
stand on Section 331 of the Tax Code which limits the right of the
Page 99 of 226
Commissioner to assess the tax within five years from the filing of the
return,
The Commissioner claims that fraud attended the filing of the return; that
this being so, Section 332 (a) of the Tax: Code would apply. It may be well
7
to note that the assessment letter itself (Exhibit 22) did not impute fraud in
the return with intent to evade payment of tax. Precisely, no surcharge for
fraud was. imposed. In his answer to the petition for review filed by Lilia
Yusay in the Court of Tax Appeals, the Commissioner alleged no fraud.
Instead, he broached the insufficiency of the return as barring the
commencement of the running of the statute of limitations. He raised the
point of fraud for the first time in the proceedings, only in his memorandum
filed with the Tax Court subsequent to resting his case. Said Court rejected
the plea of fraud for lack of allegation and proof, and ruled that the return,
although not accurate, was sufficient to start the period of prescription.
Fraud is a question of fact. The circumstances constituting it must be
8
alleged and proved in the court below. And the finding of said court as to its
9
existence and nonexistence is final unless clearly shown to be erroneous, 10
_______________
5 Adapon v. Maralit, 69 Phil. 383, 387.
6 Guzman v. Anog and Anog, 37 Phil. 62.
7 Brief for Petitioner, p. 26.
8 Collector of Internal Revenue v. Bautista, L-12250 and L-12259, May 27, 1959.
9 Gutierrez v. Court of Tax Appeals, L-9738 and L-9771, May 31, 1957.
10 Perez v. Court of Tax Appeals, L-9738, May 31, 1957.
766
As the court a quo found that no fraud was alleged and proved therein, We
see no reason to entertain the Commissioner's assertion that the return was
fraudulent.
The conclusion, however, that the return filed by Jose S. Yusay was
sufficient to commence the running of the prescriptive period under Section
331 of the Tax Code rests on no solid ground.
Paragraph (a) of Section 93 of the Tax Code lists the requirements of a valid
return. It states:
"(a) Requirements.—In all cases of inheritance or transfers subject to either the
estate tax or the inheritance tax, or both, or where, though exempt "f rom both taxes,
the gross value of the estate exceeds three thousand pesos, the executor,
administrator, or anyone of the heirs, as the case may be, shall file a return under
oath in duplicate, setting forth (1) the value of the gross estate of the decedent at the
time of his death, or, in case of a nonresident not a citizen of the Philippines*; (2) the
deductions allowed from gross estate in determining net estate as defined in section
eighty-nine; (3) such part of such information as may at the time be ascertainable
and such supplemental data as may be necessary to establish the correct taxes."
A return need not be complete in all particulars. It is sufficient if it complies
substantially with the law. There is substantial compliance (1) when the
Page 100 of 226
return is made in good faith and is not false or fraudulent; (2) when it covers
the entire period involved; and (3) when it contains information as to the
various items of income, deduction and credit with such definiteness as to
permit the computation and assessment of the tax. 11
There is no question that the state and inheritance tax return filed by Jose
S. Yusay was substantially defective. First, it was incomplete. It declared
only ninety-three parcels of land representing about 400 hectares and left
out ninety-two parcels covering 503 hectares, Said huge underdeclaration
could not have been, the result of an oversight or mistake. As found in
L-11378, supra note 7, Jose S. Yusay very well knew of the existence of the
omit-
_______________
11 Jacob Mertens, Jr., The Law of Federal Income Taxation, 1958 ed., Vol. 10, Section 57.13.
* Editors Note: This phrase should be "in case of a nonresident not a citizen of the Philippines
of part of his gross estate in the Philippines."
767
VOL. 18, NOVEMBER 24, 1966 767
ted properties. Perhaps his motive in underdeclaring the inventory of
properties attached to the return was to deprive Lilia Yusay from inheriting
her legal share in the hereditary estate, but certainly not because he
honestly believed that they did not form part of the gross estate.
Second, the return mentioned no heir. Thus, no inheritance tax could be
assessed. As a matter of law, on the basis of the return, there would be no
occasion for the imposition of estate and inheritance taxes. When there is
no heir .—the return showed none .—the intestate estate is escheated to
the State. The State taxes not itself.
12
In a case where the return was made on the wrong form, the Supreme
Court of the United States held that the filing thereof did not start the
running of the period of limitations. The reason is that the return submitted
13
did not contain the necessary information required in the correct form. In this
jurisdiction, however, the Supreme Court ref rained "f rom applying the said
ruling of the United States Supreme Court in Collector of Internal Revenue
v. Central Azucarera de Tarlac, L-1 1760-61, July 31, 1958, on the ground
that the return was complete in itself although inaccurate. To our mind, it
would not make much difference where a return is made on the correct form
prescribed by the Bureau of Internal Revenue if the data therein required
are not supplied by the taxpayer. Just the same, the necessary information
for the assessment of the tax would be missing.
The return filed in this case was so deficient that it prevented the
Commissioner from computing the taxes due on the estate. It was as though
no return was made. The Commissioner had to determine and assess the
taxes on data obtained, not from the return, but from other sources. We
Page 101 of 226

therefore hold the view that the return in question was no return at all as
required in Section 93
_______________
12 Articles 1011-1014, Civil Code. Rule 91, Rules of Court.
13 Florsheim Brothers Dry-Goods Company, Ltd. v. United States, 280 US 453, 74 L. ed. 542.
See also Commissioner v. Lane-Wells Co., 321 US 219, 88 L. ed. 684; Rockland :& Rockport
Lime Corporation v. Ham, 38 ey 2d 239 (D.C.S.D. Main, 1930); Dubuque Packing Co. v. US,
126 F. Supp. 796 (D.C.N.D. lowa, 1954).
768
of the Tax Code.
The law imposes upon the taxpayer the burden of supplying by the return
the information upon which an assessment would be based. His duty 14
complied with, the taxpayer is not bound to do anything more than to wait
for the Commissioner to assess the tax. However, he is not required to wait
forever. Section 331 of the Tax Code gives the Commissioner five years
within which to make his assessment. Except, of course, if the taxpayer
15
failed to observe the law, in which case Section 332 of the same Code
grants the Commissioner a longer period. Non-observance consists in filing
a false or fraudulent return with intent to evade the tax or in filing no return
at all.
Accordingly, for purposes of determining whether or not the Commissioner's
assessment of February 13, 1958 is barred by prescription, Section 332 (a)
which is an exception to Section 331 of the Tax Code finds application. We 16
quote Section 332 (a):

taxes.—(a) In the case of a false or fraudulent return with intent to evade tax or of a
failure to file a return, the tax may be assessed, or a proceeding in court for the
years after the discovery of the falsity, fraud or omission."
As stated, the Commissioner came to know of the identity of the heirs on
September 24, 1953 and the huge underdeclaration in the gross estate on
July 12, 1957. From the latter date, Section 94 of the Tax Code obligated
him to make a return or amend one already filed based on his/own
knowledge and information obtained through testimony or otherwise, and
subsequently to assess thereon the taxes due. The running of the period of
limitations under Section 332(a) of the Tax Code should therefore
_______________
14 Florsheim Brothers Dry-Goods Company, Ltd. v. United States, 280 U.S. 453, 74 L. ed. 542,
547.
15 Republic of the Philippines v. Lim De Yu, L-17438, April 30, 1964.
16 Taligaman Lumber Co. v. Collector of Internal Revenue, L-15717, March 31, 1962; Tan Tiong
Bio, et al. v. Commissioner of Internal Revenue, L-15778, April 23, 1962.
769
VOL. 18, NOVEMBER 24, 1966 769
Page 102 of 226
be reckoned from said date for, as aforesaid, it is from that time that the
Commissioner was expected by law to make his return and assess the tax
due thereon. From July 12, 1957 to February 13, 1958, the date of the
assessment now in dispute, less than ten years have elapsed. Hence,
prescription did not abate the Commissioner's right to issue said
assessment.
Anent the Commissioner's contention that Lilia Yusay is estopped from
raising the defense of prescription because she failed to raise the same in
her answer to the motion for allowance of claim and for the payment of
taxes filed in the settlement court (Court of First Instance of Iloilo), suffice it
to state that it would be unjust to the taxpayer if We were to sustain such a
view. The Court of First Instance acting as a settlement court is not the
proper tribunal to pass upon such defense, therefore it would be but futile to
raise it therein. Moreover, the Tax Code does not bar the right to contest the
legality of the tax after a taxpayer pays it. Under Section 306 thereof, he can
pay the tax and claim a refund therefor. A fortiori his willingness to pay the
tax is no waiver to raise def enses against the tax's legality.'
WHEREFORE, the judgment appealed from is set aside and another
entered affirming the assessment of the Commissioner of Internal Revenue
dated February 13, 1958. Lilia Yusay Gonzales, as administratrix of the
intestate estate of Matias Yusay, is hereby ordered to pay the sums of
P16,246.04 and P39,178.12 as estate and inheritance taxes, respectively,
plus interest and surcharge for delinquency in accordance with Section 101
of the National Internal Revenue Code, without prejudice to reimbursement
from her co-administratrix, Florencia Piccio Vda. de Yusay for the latter's
corresponding tax liability. No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal,
Sanchez and Castro, JJ., concur.
Zaldivar, J., took no part.
Judgment set aside.
770
RESOLUTION
ON MOTION FOR RECONSIDERATION
April 24, 1967
BENGZON, J.P., J.:
Respondent Lilia Yusay Gonzales seeks reconsideration of our decision
holding her liable for the payment of P97,723.96 as estate and inheritance
taxes plus delinquency penalties as administratrix of the intestate estate of
Matias Yusay. The grounds raised by her deserve this extended resolution.
Page 103 of 226

Firstly, movant maintains that the issue of whether or not the estate and
inheritance tax return filed by Jose Yusay on May 13, 1949 was sufficient to
start the running of the statute of limitations on assessment, was neither
raised in the Court of Tax Appeals nor assigned as error before this Court.
The records in the Court of Tax Appeals however show the contrary.
Paragraph 2 of the answer filed by the Commissioner of Internal Revenue
states:
"2. That he likewise admits, as alleged in paragraph 1 thereof having received the
letter of the petitioner dated November 27, 1959 (Annex "A" of the Petition for
Review), contesting the assessment of estate and inheritance taxes levied against
the Intestate Estate of the late Matias Yusay, Special Proceedings No. 459, Court of
First Instance of Iloilo, on the ground that the said assessment has already
prescribed, but specifically denies the allegations that the assessments have already
prescribed, the truth of the matter being that the returns filed on May 11, 1949
cannot be considered as a true, and complete return sufficient to start the running of
the period of five (5) years prescribed in Sec. 331 of the Tax Code;"
This point was discussed in the memorandum of the Commissioner of
Internal Revenue, thus:
"In the estate and inheritance tax return filed by Jose S. Yusay (Exhibits B & 1, pp.
14-20, B.I.R. records) the net value of the estate of the deceased was claimed to be
P203,354.00 and no inheritance tax was shown as the heirs were not indicated. In
the final computation of the estate by an examiner of the respondent, the net estate
was found to be worth P410,518.38 (p. 105, B.I.R. records) or about more than twice
the original
771
VOL. 18, NOVEMBER 24, 1966 771
amount declared in the return. In the subsequent investigation of this case, it was
also determined that the heirs of the deceased were Jose S. Yusay, a legitimate son,
and Lilia Yusay, an acknowledged natural child, (petitioner herein).
"Under the circumstances, we believe the return filed on May 11, 1949 was false or
fraudulent in the sense that the value of the properties were underdeclared and that
the said return was also incomplete as the heirs to the estate were not specified.
Inasmuch as the respondent was not furnished adequate data upon which to base
an assessment, the said return cannot be considered a true and complete return
sufficient to start the running of the period of limitations of five (5) years prescribed in
Section 331 of the Tax Code."
In the lower court the defense of the Commissioner of Internal Revenue
against Lilia Yusay Gonzales' plea of prescription, centered on the
insufficiency and fraudulence or falsity of the return filed by Jose Yusay. The
Court of Tax Appeals overruled the Commissioner of Internal Revenue. Said
the Tax Code:
"The provision of Section 332(a) of the Tax Code cannot be invoked in this case as it
was neither alleged in respondent's answer, nor proved during the hearing that the
return was false or fraudulent with intent to evade the payment of tax. Moreover, the
failure of respondent to charge fraud and impose the penalty thereof in the
assessments made in 1953, 1955 and 1956 is an eloquent demonstration that the
Page 104 of 226
filing of petitioner's transfer tax return was not attended by falsity or fraud with intent
to evade tax.
x x x x x x x x x
"But respondent urges upon us that the filing of the return did not start the running of
the five (5) year period for the reason that the return did not disclose the heirs of the
deceased Matias Yusay, and contained inadequate data regarding the value of the
estate. We believe that these mere omissions do not require additional returns for
the same. Altho incomplete for being def icient on these matters, the return cannot
be regarded as a case of failure to file a return where want of good faith and intent to
evade the tax on the part of petitioner are not charged. It served as a sufficient
notice to the Commissioner of Internal Revenue to make his assessment and start
the running of the period of limitation. In this connection, it must be borne in mind
that the Commissioner is not confined to the taxpayer's return in making assessment
of the tax, and for this purpose he may secure additional information "f rom other
sources. As was done in the case at bar, he sends investigators to examine the
taxpayer's records and other pertinent data. His assessment is based upon the facts
uncovered by the investigation
772
(Collector vs. Central Azucarera de Tarlac, G.R. Nos. L-11760 and L-11761, July 31,
1958).
"Furthermore, the failure to state the heirs in the return can be attributed to the then
unsettled conflict raging before the probate court as to who are the heirs of
the.estate. Such failure could not have been a deliberate attempt to mislead the
government in the assessment of the correct taxes."
In his appeal, the Commissioner of Internal Revenue assigned as third error
of the Court of Tax Appeals the finding that the assessment in question was
"made beyond the five-year statutory period provided in Section 332(a) of
the Tax Code," and that the right of the Commissioner of Internal Revenue
to assess the estate and inheritance taxes has already prescribed. To
sustain his side, the Commissioner ventilated in his brief, fraud in the filing
of the return, absence of certain data from the return which prevented him
from assessing thereon the tax due and the pendency in this Court of
L-11374 entitled "Intestate Estate of the late Matias Yusay, Jose C. Yusay,
Administrator vs. Lilia Yusay Gonzales" which allegedly had the effect of
suspending the running of the period of limitations on assessment.
Clearly, therefore, it would be incorrect to say that the question of whether
or not the return filed by Jose Yusay was. suf ficient to start the running of
the statute of limitations to assess the corresponding tax, was not raised by
the Commissioner in the Court of Tax Appeals and in this Court.
Second. Movant contends that contrary to Our ruling, the return filed by
Jose Yusay was sufficient to start the statute of limitations on assessment.
Inasmuch as this question was amply discussed in Our decision sought to
be reconsidered, and no new argument was advanced, We deem it
Page 105 of 226

unnecessary to pass upon the same. There is no reason for any change on
Our stand on this point.
Third. Movant insists that since she administers only one-third of the estate
of Matias Yusay, she should not be liable for the whole tax. And she
suggests that We hold the intestate estate of Matias Yusay liable for said
takes, one-third to be paid by Lilia Yusay Gonzales and two-thirds to be paid
by Florencia P. Vda. de Yusay.
773
VOL. 18, NOVEMBER 24, 1966 773
The foregoing suggestion to require payment of twothirds of the total taxes
by Florencia P. Vda. de Yusay is not acceptable, for she (Florencia P. Vda.
de Yusay) is not a party in this case.
It should be pointed out that Lilia Yusay Gonzales appealed the whole
assessment to the Court of Tax Appeals. Thereupon, the Commissioner of
Internal Revenue questioned her legal capacity to institute the appeal on the
ground that she administered only one-third of the estate of Matias Yusay. In
opposition, she espoused the -view, which was sustained by the Tax Court,
that in co-administration, the administratrices are regarded as one person
and the acts of one of them in relation to the regular administration of the
estate are deemed to be the acts of all; hence, each administratrix can
represent the whole estate. In advancing such proposition. Lilia Yusay
Gonzales represented the whole estate and hoped to benefit from the
favorable outcome of the case. For the same reason that she represented
her co-administratrix and the whole estate of Matias Yusay, she risked being
ordered to pay.the whole assessment, should the assessment be sustained.
Her change of stand adopted in the motion for reconsideration to the effect
that she should be made liable for only one-third of the total tax, would
negate her aforesaid proposition before the. Court of Tax Appeals. She is
now estopped from denying liability for the whole tax.
At any rate, estate and inheritance taxes are satisfied from the estate. and
are to be paid by the executor or administrator. Where there are two or
1
more executors, all of them are severally liable for the payment of the estate
tax.. The inheritance tax, although charged against the account of each
2
beneficiary, should be paid by the executor or administrator. Failure to pay

3
the estate and

_______________
1 Section 95 (a) (1), Tax Code.
2 Baldwin v. Commissioner of Internal Revenue, 94 F. 2d 355, 20 AFTR 940.
3 Jose Arañas, Annotations and Jurisprudence on the National Internal Revenue Code, As
Amended, Second Edition, 1963, Vol. I, p. 630.
774
People vs. Damaso
Page 106 of 226
inheritance taxes before distribution of the estate would subject the executor
or administrator to criminal liability under Section 107 (c) of the Tax Code.
It is immaterial therefore that Lilia Yusay Gonzales administers only one-
third of the estate and will receive as her share only said portion, for her
right to the estate comes after taxes. As an administratrix, she is liable for
4
the entire estate tax. As an heir, she is liable for the entire inheritance tax
although her liability would not exceed the amount of her share in the
estate. The entire inheritance tax which amounts to P39,178.12 excluding
5
penalties is obviously much less than her distributive share.

Motion for reconsideration denied.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Sanchez
and Castro, JJ., concur.
Zaldivar, J., did not take part.
Motion denied.
Notes.—As to the rule that fraud is a factual question, see Republic vs. Ker
& Co., Ltd. L-21609, Sept. 29, 1966, ante.
As to the computation of the thirty-day period, see Republic vs. Lim Tian
Teng :& Sons Co., Inc., L-21731, March 31, 1966, 16 Supreme Court
Reports Annotated 597.
_____________
Page 107 of 226

G.R. No. 177279. October 13, 2010.*
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. HON. RAUL M.
GONZALEZ, Secretary of Justice, L. M. CAMUS ENGINEERING
CORPORATION (represented by LUIS M. CAMUS and LINO D.
MENDOZA), respondents.
Taxation; Tax Evasion; “The crime is complete when the taxpayer has knowingly
and willfully filed a fraudulent return with intent to evade and defeat the tax.”—For
the crime of tax evasion in particular, compliance by the taxpayer with such
subpoena, if any had been issued, is irrelevant. As we held in Ungab v. Cusi, Jr., 97
SCRA 877 (1980), “[t]he crime is complete when the [taxpayer] has x x x knowingly
and willfully filed [a] fraudulent [return] with intent to evade and defeat x x x the tax.”
Thus, respondent Secretary erred in holding that petitioner committed forum
shopping when it filed the present criminal complaint during the pendency of its
appeal from the City Prosecutor’s dismissal of I.S. No. 00-956 involving the act of
disobedience to the summons in the course of the preliminary investigation on
LMCEC’s correct tax liabilities for taxable years 1997, 1998 and 1999.
Same; Same; The lack of consent of the taxpayer under investigation does not
imply that the Bureau of Internal Revenue (BIR) obtained the information from third
parties illegally or that the information received is false or malicious; Nor does the
lack of consent preclude the Bureau of Internal Revenue (BIR) from assessing
deficiency taxes on the taxpayer based on the documents.—Private respondents’
assertions regarding the qualifications of the “informer” of the Bureau deserve scant
consideration. We have held that the lack of consent of the taxpayer under
investigation does not imply that the BIR obtained the information from third parties
illegally or that the information received is false or malicious. Nor does the lack of
consent preclude the BIR from assessing deficiency taxes on the taxpayer based on
the documents. In the same vein, herein private respondents cannot be allowed to
escape criminal prosecution under Sections 254 and 255 of the NIRC by mere
imputation of a “fictitious” or disqualified informant under Section 282 simply
because
_______________
* THIRD DIVISION.
140
Commissioner of Internal Revenue vs. Gonzalez
other than disclosure of the official registry number of the third party “informer,” the
Bureau insisted on maintaining the confidentiality of the identity and personal
circumstances of said “informer.”
Same; Same; Notice of Assessment; A notice of assessment is a declaration of
deficiency taxes issued to a taxpayer who fails to respond to a Pre-Assessment
Notice (PAN) within the prescribed period of time, or whose reply to the PAN was
found to be without merit.—A notice of assessment is: [A] declaration of deficiency
taxes issued to a [t]axpayer who fails to respond to a Pre-Assessment Notice (PAN)
within the prescribed period of time, or whose reply to the PAN was found to be
without merit. The Notice of Assessment shall inform the [t]axpayer of this fact, and
that the report of investigation submitted by the Revenue Officer conducting the
audit shall be given due course. The formal letter of demand calling for payment of
the taxpayer’s deficiency tax or taxes shall state the fact, the law, rules and
Page 108 of 226
regulations or jurisprudence on which the assessment is based, otherwise the formal
letter of demand and the notice of assessment shall be void.
Same; Same; Same; The formality of a control number in the assessment notice
is not a requirement for its validity but rather the contents thereof which should
inform the taxpayer of the declaration of deficiency tax against said taxpayer.—As it
is, the formality of a control number in the assessment notice is not a requirement for
its validity but rather the contents thereof which should inform the taxpayer of the
declaration of deficiency tax against said taxpayer. Both the formal letter of demand
and the notice of assessment shall be void if the former failed to state the fact, the
law, rules and regulations or jurisprudence on which the assessment is based, which
is a mandatory requirement under Section 228 of the NIRC.
Same; Same; Same; Since immunity from audit and investigation does not
preclude the collection of revenue generated from audit and enforcement activities, it
follows that the Bureau is likewise not barred from collecting any tax deficiency
discovered as a result of tax fraud investigations.—RR No. 2-99 issued on February
7, 1999 explained in its Policy Statement that considering the scarcity of financial
and human resources as well as the time constraints within which the Bureau has to
“clean the Bureau’s backlog of unaudited tax returns in order to keep updated and
be focused with the most
141
VOL. 633, OCTOBER 13, 2010 141
current accounts” in preparation for the full implementation of a computerized tax
administration, the said revenue regulation was issued “providing for last priority in
audit and investigation of tax returns” to accomplish the said objective “without,
however, compromising the revenue collection that would have been generated from
audit and enforcement activities.” The program named as “Economic Recovery
Assistance Payment (ERAP) Program” granted immunity from audit and
investigation of income tax, VAT and percentage tax returns for 1998. It expressly
excluded withholding tax returns (whether for income, VAT, or percentage tax
purposes). Since such immunity from audit and investigation does not preclude the
collection of revenues generated from audit and enforcement activities, it follows that
the Bureau is likewise not barred from collecting any tax deficiency discovered as a
result of tax fraud investigations. Respondent Secretary’s opinion that RR No. 2-99
contains the feature of a tax amnesty is thus misplaced.
Same; Same; Tax Amnesty; Tax amnesty is a general pardon to taxpayers who
want to start a clean tax state; A tax amnesty, much like a tax exemption, is never
favored nor presumed in law and if granted by statute, the terms of the amnesty like
that of a tax exemption must be construed strictly against the taxpayer and liberally
in favor of the taxing authority.—Tax amnesty is a general pardon to taxpayers who
want to start a clean tax slate. It also gives the government a chance to collect
uncollected tax from tax evaders without having to go through the tedious process of
a tax case. Even assuming arguendo that the issuance of RR No. 2-99 is in the
nature of tax amnesty, it bears noting that a tax amnesty, much like a tax exemption,
is never favored nor presumed in law and if granted by statute, the terms of the
amnesty like that of a tax exemption must be construed strictly against the taxpayer
and liberally in favor of the taxing authority.
Page 109 of 226

Same; Same; Same; Estoppel; The State can never be in estoppel, and this is
particularly true in matters involving taxation.—Given the explicit conditions for the
grant of immunity from audit under RR No. 2-99, RR No. 8-2001 and RR No.
10-2001, we hold that respondent Secretary gravely erred in declaring that petitioner
is now estopped from assessing any tax deficiency against LMCEC after issuance of
the aforementioned documents of immunity from audit/investigation and settlement
of tax liabilities. It is axiomatic
142
that the State can never be in estoppel, and this is particularly true in matters
involving taxation. The errors of certain administrative officers should never be
allowed to jeopardize the government’s financial position.
Same; Same; Same; Same; Tax assessment by tax examiners are presumed
correct and made in good faith, and all presumptions are in favor of the correctness
of a tax assessment unless proven otherwise.—Tax assessments by tax examiners
are presumed correct and made in good faith, and all presumptions are in favor of
the correctness of a tax assessment unless proven otherwise. We have held that a
taxpayer’s failure to file a petition for review with the Court of Tax Appeals within the
statutory period rendered the disputed assessment final, executory and
demandable, thereby precluding it from interposing the defenses of legality or
validity of the assessment and prescription of the Government’s right to assess.
Indeed, any objection against the assessment should have been pursued following
the avenue paved in Section 229 (now Section 228) of the NIRC on protests on
assessments of internal revenue taxes.
Same; Same; Same; Same; An assessment may be protested by filing a
request for reconsideration or reinvestigation within 30 days from receipt of the
assessment by the taxpayer.—Records bear out that the assessment notice and
Formal Letter of Demand dated August 7, 2002 were duly served on LMCEC on
October 1, 2002. Private respondents did not file a motion for reconsideration of the
said assessment notice and formal demand; neither did they appeal to the Court of
Tax Appeals. Section 228 of the NIRC provides the remedy to dispute a tax
assessment within a certain period of time. It states that an assessment may be
protested by filing a request for reconsideration or reinvestigation within 30 days
from receipt of the assessment by the taxpayer. No such administrative protest was
filed by private respondents seeking reconsideration of the August 7, 2002
assessment notice and formal letter of demand. Private respondents cannot
belatedly assail the said assessment, which they allowed to lapse into finality, by
raising issues as to its validity and correctness during the preliminary investigation
after the BIR has referred the matter for prosecution under Sections 254 and 255 of
the NIRC.
PETITION for review on certiorari of the decision and resolution of the Court
of Appeals.
143
VOL. 633, OCTOBER 13, 2010 143
Page 110 of 226

Office of the Solicitor General for petitioner.
Israel P.J. Calderon for respondent.
VILLARAMA, JR., J.:
This is a petition for review on certiorari under Rule 45 of the 1997 Rules
of Civil Procedure, as amended, assailing the Decision1 dated October 31,
2006 and Resolution2 dated March 6, 2007 of the Court of Appeals (CA) in
CA-G.R. SP No. 93387 which affirmed the Resolution3 dated December 13,
2005 of respondent Secretary of Justice in I.S. No. 2003-774 for violation of
Sections 254 and 255 of the National Internal Revenue Code of 1997
(NIRC).
The facts as culled from the records:
Pursuant to Letter of Authority (LA) No. 00009361 dated August 25, 2000
issued by then Commissioner of Internal Revenue (petitioner) Dakila B.
Fonacier, Revenue Officers Remedios C. Advincula, Jr., Simplicio V.
Cabantac, Jr., Ricardo L. Suba, Jr. and Aurelio Agustin T. Zamora
supervised by Section Chief Sixto C. Dy, Jr. of the Tax Fraud Division (TFD),
National Office, conducted a fraud investigation for all internal revenue
taxes to ascertain/determine the tax liabilities of respondent L. M. Camus
Engineering Corporation (LMCEC) for the taxable years 1997, 1998 and
1999.4 The audit and investigation against LMCEC was precipitated by the
information provided by an “informer” that LMCEC had substantial
underdeclared income for the said period. For failure to comply with the
subpoena duces tecum issued in
_______________
1 CA Rollo, pp. 130-137. Penned by Associate Justice Juan Q. Enriquez, Jr. and concurred in
by Associate Justices Ruben T. Reyes (now a retired member of this Court) and Vicente S.E.
Veloso.
2 Id., at pp. 155-156.
3 Id., at pp. 31-41.
4 Id., at p. 49.
144
connection with the tax fraud investigation, a criminal complaint was
instituted by the Bureau of Internal Revenue (BIR) against LMCEC on
January 19, 2001 for violation of Section 266 of the NIRC (I.S. No. 00-956 of
the Office of the City Prosecutor of Quezon City).5
Based on data obtained from an “informer” and various clients of LMCEC,6 it
was discovered that LMCEC filed fraudulent tax returns with substantial
underdeclarations of taxable income for the years 1997, 1998 and 1999.
Petitioner thus assessed the company of total deficiency taxes amounting to
P430,958,005.90 (income tax—P318,606,380.19 and value-added tax [VAT]
—P112,351,625.71) covering the said period. The Preliminary Assessment
Notice (PAN) was received by LMCEC on February 22, 2001.7
Page 111 of 226
LMCEC’s alleged underdeclared income was summarized by petitioner as
follows:
Year Income Income Per Undeclared Percentage
Per ITR Investigation Income of Under-
declaration
1997 96,638,540.00 283,412,140.84 186,733,600.84 193.30%
1998 86,793,913.00 236,863,236.81 150,069,323.81 172.90%
1999 88,287,792.00 251,507,903.13 163,220,111.13 184.90%8
In view of the above findings, assessment notices together with a formal
letter of demand dated August 7, 2002 were sent to LMCEC through
personal service on October 1, 2002.9 Since the company and its
representatives refused to receive the said notices and demand letter, the
revenue officers re-
_______________
5 Id., at p. 64.
6 Records, p. 102.
7 CA Rollo, pp. 102-104.
8 Records, p. 159.
9 CA Rollo, pp. 50-60.
145
VOL. 633, OCTOBER 13, 2010 145
sorted to constructive service10 in accordance with Section 3, Revenue
Regulations (RR) No. 12-99.11
On May 21, 2003, petitioner, through then Commissioner Guillermo L.
Parayno, Jr., referred to the Secretary of Justice for preliminary investigation
its complaint against LMCEC, Luis M. Camus and Lino D. Mendoza, the
latter two were sued in their capacities as President and Comptroller,
respectively. The case was docketed as I.S. No. 2003-774. In the Joint
Affidavit executed by the revenue officers who conducted the tax fraud
investigation, it was alleged that despite the receipt of the final assessment
notice and formal demand letter on October 1, 2002, LMCEC failed and
refused to pay the deficiency tax assessment in the total amount of
P630,164,631.61, inclusive of increments, which had become final and
executory as a result of the said taxpayer’s failure to file a protest thereon
within the thirty (30)-day reglementary period.12
Camus and Mendoza filed a Joint Counter-Affidavit contending that LMCEC
cannot be held liable whatsoever for the alleged tax deficiency which had
become due and demandable. Considering that the complaint and its
annexes all showed that the suit is a simple civil action for collection and not
a tax evasion case, the Department of Justice (DOJ) is not the proper forum
for BIR’s complaint. They also assail as invalid the assessment notices
which bear no serial numbers and should be shown to have been validly
Page 112 of 226

served by an Affidavit of Constructive Service executed and sworn to by the
revenue officers who served the same. As stated in LMCEC’s letter-
_______________
10 Records, pp. 139-140.
11 Revenue Regulations No. 12-99, Implementing the Provisions of the National Internal
Revenue Code of 1997 Governing the Rules on Assessment of National Internal Revenue
Taxes, Civil Penalties and Interest and the Extrajudicial Settlement of a Taxpayer’s Criminal
Violation of the Code through Payment of a Suggested Compromise Penalty, September 6,
1999.
12 CA Rollo, pp. 42-48.
146
protest dated December 12, 2002 addressed to Revenue District Officer
(RDO) Clavelina S. Nacar of RD No. 40, Cubao, Quezon City, the company
had already undergone a series of routine examinations for the years 1997,
1998 and 1999; under the NIRC, only one examination of the books of
accounts is allowed per taxable year.13
LMCEC further averred that it had availed of the Bureau’s Tax Amnesty
Programs (Economic Recovery Assistance Payment [ERAP] Program and
the Voluntary Assessment Program [VAP]) for 1998 and 1999; for 1997, its
tax liability was terminated and closed under Letter of Termination14 dated
June 1, 1999 issued by petitioner and signed by the Chief of the
Assessment Division.15 LMCEC claimed it made payments of income tax,
VAT and expanded withholding tax (EWT), as follows:
TAXABLE AMOUNT OF
YEAR TAXES PAID
1997 Termination Letter Under Letter of EWT -
Authority No. 1 P 6,000.00
74600 Dated November 4, 1998 VAT -
540,605.02
IT -

3,000.00
1998 ERAP Program pursuant WC -
to RR #2-99 38,404.55
VAT -
61,635.40
1999 VAP Program pursuant to RR IT -
#8-2001 878,495.28
VAT-1,324,317.0
016
LMCEC argued that petitioner is now estopped from further taking any
action against it and its corporate officers concerning the taxable years 1997
to 1999. With the grant of
_______________
13 Id., at pp. 61-62.
Page 113 of 226
14 Records, p. 97.
15 CA Rollo, p. 62.
16 Id., at pp. 62-63.
147
VOL. 633, OCTOBER 13, 2010 147
immunity from audit from the company’s availment of ERAP and VAP, which
have a feature of a tax amnesty, the element of fraud is negated the
moment the Bureau accepts the offer of compromise or payment of taxes by
the taxpayer. The act of the revenue officers in finding justification under
Section 6(B) of the NIRC (Best Evidence Obtainable) is misplaced and
unavailing because they were not able to open the books of the company
for the second time, after the routine examination, issuance of termination
letter and the availment of ERAP and VAP. LMCEC thus maintained that
unless there is a prior determination of fraud supported by documents not
yet incorporated in the docket of the case, petitioner cannot just issue LAs
without first terminating those previously issued. It emphasized the fact that
the BIR officers who filed and signed the Affidavit-Complaint in this case
were the same ones who appeared as complainants in an earlier case filed
against Camus for his alleged “failure to obey summons in violation of
Section 5 punishable under Section 266 of the NIRC of 1997” (I.S. No.
00-956 of the Office of the City Prosecutor of Quezon City). After preliminary
investigation, said case was dismissed for lack of probable cause in a
Resolution issued by the Investigating Prosecutor on May 2, 2001.17
LMCEC further asserted that it filed on April 20, 2001 a protest on the PAN
issued by petitioner for having no basis in fact and law. However, until now
the said protest remains unresolved. As to the alleged informant who
purportedly supplied the “confidential information,” LMCEC believes that
such person is fictitious and his true identity and personality could not be
produced. Hence, this case is another form of harassment against the
company as what had been found by the Office of the City Prosecutor of
Quezon City in I.S. No. 00-956. Said case and the present case both have
something to do with the audit/examination of LMCEC for taxable years
1997, 1998 and 1999 pursuant to LA No. 00009361.18
_______________
17 Id., at p. 64.
18 Id., at p. 65.
148
In the Joint Reply-Affidavit executed by the Bureau’s revenue officers,
petitioner disagreed with the contention of LMCEC that the complaint filed is
not criminal in nature, pointing out that LMCEC and its officers Camus and
Mendoza were being charged for the criminal offenses defined and
Page 114 of 226
penalized under Sections 254 (Attempt to Evade or Defeat Tax) and 255
(Willful Failure to Pay Tax) of the NIRC. This finds support in Section 205 of
the same Code which provides for administrative (distraint, levy, fine,
forfeiture, lien, etc.) and judicial (criminal or civil action) remedies in order to
enforce collection of taxes. Both remedies may be pursued either
independently or simultaneously. In this case, the BIR decided to
simultaneously pursue both remedies and thus aside from this criminal
action, the Bureau also initiated administrative proceedings against
LMCEC.19
On the lack of control number in the assessment notice, petitioner explained
that such is a mere office requirement in the Assessment Service for the
purpose of internal control and monitoring; hence, the unnumbered
assessment notices should not be interpreted as irregular or anomalous.
Petitioner stressed that LMCEC already lost its right to file a protest letter
after the lapse of the thirty (30)-day reglementary period. LMCEC’s protest-
letter dated December 12, 2002 to RDO Clavelina S. Nacar, RD No. 40,
Cubao, Quezon City was actually filed only on December 16, 2002, which
was disregarded by the petitioner for being filed out of time. Even assuming
for the sake of argument that the assessment notices were invalid, petitioner
contended that such could not affect the present criminal action,20 citing the
ruling in the landmark case of Ungab v. Cusi, Jr.21
As to the Letter of Termination signed by Ruth Vivian G. Gandia of the
Assessment Division, Revenue Region No. 7,
_______________
19 Records, pp. 158-159.
20 Id., at pp. 157-158.
21 Nos. L-41919-24, May 30, 1980, 97 SCRA 877.
149
VOL. 633, OCTOBER 13, 2010 149
Quezon City, petitioner pointed out that LMCEC failed to mention that the
undated Certification issued by RDO Pablo C. Cabreros, Jr. of RD No. 40,
Cubao, Quezon City stated that the report of the 1997 Internal Revenue
taxes of LMCEC had already been submitted for review and approval of
higher authorities. LMCEC also cannot claim as excuse from the reopening
of its books of accounts the previous investigations and examinations.
Under Section 235 (a), an exception was provided in the rule on once a year
audit examination in case of “fraud, irregularity or mistakes, as determined
by the Commissioner”. Petitioner explained that the distinction between a
Regular Audit Examination and Tax Fraud Audit Examination lies in the fact
that the former is conducted by the district offices of the Bureau’s Regional
Offices, the authority emanating from the Regional Director, while the latter
is conducted by the TFD of the National Office only when instances of fraud
had been determined by the petitioner.22
Page 115 of 226
Petitioner further asserted that LMCEC’s claim that it was granted immunity
from audit when it availed of the VAP and ERAP programs is misleading.
LMCEC failed to state that its availment of ERAP under RR No. 2-99 is not
a grant of absolute immunity from audit and investigation, aside from the
fact that said program was only for income tax and did not cover VAT and
withholding tax for the taxable year 1998. As for LMCEC’S availment of VAP
in 1999 under RR No. 8-2001 dated August 1, 2001 as amended by RR No.
10-2001 dated September 3, 2001, the company failed to state that it covers
only income tax and VAT, and did not include withholding tax. However,
LMCEC is not actually entitled to the benefits of VAP under Section 1 (1.1
and 1.2) of RR No. 10-2001. As to the principle of estoppel invoked by
LMCEC, estoppel clearly does not lie against the BIR as this involved the
exercise of an inherent power by the government to collect taxes.23
_______________
22 Records, pp. 156-157.
23 Id., at pp. 154-155.
150
Petitioner also pointed out that LMCEC’s assertion correlating this case with
I.S. No. 00-956 is misleading because said case involves another violation
and offense (Sections 5 and 266 of the NIRC). Said case was filed by
petitioner due to the failure of LMCEC to submit or present its books of
accounts and other accounting records for examination despite the issuance
of subpoena duces tecum against Camus in his capacity as President of
LMCEC. While indeed a Resolution was issued by Asst. City Prosecutor
Titus C. Borlas on May 2, 2001 dismissing the complaint, the same is still on
appeal and pending resolution by the DOJ. The determination of probable
cause in said case is confined to the issue of whether there was already a
violation of the NIRC by Camus in not complying with the subpoena duces
tecum issued by the BIR.24
Petitioner contended that precisely the reason for the issuance to the TFD
of LA No. 00009361 by the Commissioner is because the latter agreed with
the findings of the investigating revenue officers that fraud exists in this
case. In the conduct of their investigation, the revenue officers observed the
proper procedure under Revenue Memorandum Order (RMO) No. 49-2000
wherein it is required that before the issuance of a Letter of Authority against
a particular taxpayer, a preliminary investigation should first be conducted to
determine if a prima facie case for tax fraud exists. As to the allegedly
unresolved protest filed on April 20, 2001 by LMCEC over the PAN, this has
been disregarded by the Bureau for being pro forma and having been filed
beyond the 15-day reglementary period. A subsequent letter dated April 20,
2001 was filed with the TFD and signed by a certain Juan Ventigan.
However, this was disregarded and considered a mere scrap of paper since
Page 116 of 226
the said signatory had not shown any prior authorization to represent
LMCEC. Even assuming said protest letter was validly filed on behalf of the
company, the issuance of a Formal Demand Letter and Assessment Notice
through
_______________
24 Id., at pp. 153-154.
151
VOL. 633, OCTOBER 13, 2010 151
constructive service on October 1, 2002 is deemed an implied denial of the
said protest. Lastly, the details regarding the “informer” being confidential,
such information is entitled to some degree of protection, including the
identity of the informant against LMCEC.25
In their Joint Rejoinder-Affidavit,26 Camus and Mendoza reiterated their
argument that the identity of the alleged informant is crucial to determine if
he/she is qualified under Section 282 of the NIRC. Moreover, there was no
assessment that has already become final, the validity of its issuance and
service has been put in issue being anomalous, irregular and oppressive. It
is contended that for criminal prosecution to proceed before assessment,
there must be a prima facie showing of a willful attempt to evade taxes. As
to LMCEC’s availment of the VAP and ERAP programs, the certificate of
immunity from audit issued to it by the BIR is plain and simple, but petitioner
is now saying it has the right to renege with impunity from its undertaking.
Though petitioner deems LMCEC not qualified to avail of the benefits of
VAP, it must be noted that if it is true that at the time the petitioner filed I.S.
No. 00-956 sometime in January 2001 it had already in its custody that
“Confidential Information No. 29-2000 dated July 7, 2000”, these revenue
officers could have rightly filed the instant case and would not resort to filing
said criminal complaint for refusal to comply with a subpoena duces tecum.
On September 22, 2003, the Chief State Prosecutor issued a Resolution27
finding no sufficient evidence to establish probable cause against
respondents LMCEC, Camus and Mendoza. It was held that since the
payments were made by LMCEC under ERAP and VAP pursuant to the
provisions of RR Nos. 2-99 and 8-2001 which were offered to taxpayers by
the BIR itself, the latter is now in estoppel to insist on the
_______________
25 Id., at pp. 152-153.
26 Id., at pp. 114-119.
27 CA Rollo, pp. 67-74.
152
criminal prosecution of the respondent taxpayer. The voluntary payments
made thereunder are in the nature of a tax amnesty. The unnumbered
Page 117 of 226
assessment notices were found highly irregular and thus their validity is
suspect; if the amounts indicated therein were collected, it is uncertain how
these will be accounted for and if it would go to the coffers of the
government or elsewhere. On the required prior determination of fraud, the
Chief State Prosecutor declared that the Office of the City Prosecutor in I.S.
No. 00-956 has already squarely ruled that (1) there was no prior
determination of fraud, (2) there was indiscriminate issuance of LAs, and (3)
the complaint was more of harassment. In view of such findings, any
ensuing LA is thus defective and allowing the collection on the assailed
assessment notices would already be in the context of a “fishing expedition”
or “witch-hunting.” Consequently, there is nothing to speak of regarding the
finality of assessment notices in the aggregate amount of P630,164,631.61.
Petitioner filed a motion for reconsideration which was denied by the Chief
State Prosecutor.28
Petitioner appealed to respondent Secretary of Justice but the latter denied
its petition for review under Resolution dated December 13, 2005.29
The Secretary of Justice found that petitioner’s claim that there is yet no
finality as to LMCEC’s payment of its 1997 taxes since the audit report was
still pending review by higher authorities, is unsubstantiated and misplaced.
It was noted that the Termination Letter issued by the Commissioner on
June 1, 1999 is explicit that the matter is considered closed. As for taxable
year 1998, respondent Secretary stated that the record shows that LMCEC
paid VAT and withholding tax in the amount of P61,635.40 and P38,404.55,
respectively. This eventually gave rise to the issuance of a
_______________
28 Id., at pp. 76-85.
29 Id., at pp. 31-41, 86-101.
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VOL. 633, OCTOBER 13, 2010 153
certificate of immunity from audit for 1998 by the Office of the Commissioner
of Internal Revenue. For taxable year 1999, respondent Secretary found
that pursuant to earlier LA No. 38633 dated July 4, 2000, LMCEC’s 1999 tax
liabilities were still pending investigation for which reason LMCEC assailed
the subsequent issuance of LA No. 00009361 dated August 25, 2000 calling
for a similar investigation of its alleged 1999 tax deficiencies when no final
determination has yet been arrived on the earlier LA No. 38633.30
On the allegation of fraud, respondent Secretary ruled that petitioner failed
to establish the existence of the following circumstances indicating fraud in
the settlement of LMCEC’s tax liabilities: (1) there must be intentional and
substantial understatement of tax liability by the taxpayer; (2) there must be
intentional and substantial overstatement of deductions or exemptions; and
(3) recurrence of the foregoing circumstances. First, petitioner miserably
failed to explain why the assessment notices were unnumbered; second,
Page 118 of 226
the claim that the tax fraud investigation was precipitated by an alleged
“informant” has not been corroborated nor was it clearly established, hence
there is no other conclusion but that the Bureau engaged in a “fishing
expedition”; and furthermore, petitioner’s course of action is contrary to
Section 235 of the NIRC allowing only once in a given taxable year such
examination and inspection of the taxpayer’s books of accounts and other
accounting records. There was no convincing proof presented by petitioner
to show that the case of LMCEC falls under the exceptions provided in
Section 235. Respondent Secretary duly considered the issuance of
Certificate of Immunity from Audit and Letter of Termination dated June 1,
1999 issued to LMCEC.31
Anent the earlier case filed against the same taxpayer (I.S. No. 00-956), the
Secretary of Justice found petitioner to have
_______________
30 Id., at pp. 36-37.
31 Id., at pp. 37-39.
154
engaged in forum shopping in view of the fact that while there is still pending
an appeal from the Resolution of the City Prosecutor of Quezon City in said
case, petitioner hurriedly filed the instant case, which not only involved the
same parties but also similar substantial issues (the joint complaint-affidavit
also alleged the issuance of LA No. 00009361 dated August 25, 2000).
Clearly, the evidence of litis pendentia is present. Finally, respondent
Secretary noted that if indeed LMCEC committed fraud in the settlement of
its tax liabilities, then at the outset, it should have been discovered by the
agents of petitioner, and consequently petitioner should not have issued the
Letter of Termination and the Certificate of Immunity From Audit. Petitioner
thus should have been more circumspect in the issuance of said
documents.32
Its motion for reconsideration having been denied, petitioner challenged the
ruling of respondent Secretary via a certiorari petition in the CA.
On October 31, 2006, the CA rendered the assailed decision33 denying the
petition and concurred with the findings and conclusions of respondent
Secretary. Petitioner’s motion for reconsideration was likewise denied by the
appellate court.34 It appears that entry of judgment was issued by the CA
stating that its October 31, 2006 Decision attained finality on March 25,
2007.35 However, the said entry of judgment was set aside upon
manifestation by the petitioner that it has filed a petition for review before
this Court subsequent to its receipt of the Resolution dated March 6, 2007
denying petitioner’s motion for reconsideration on March 20, 2007.36
The petition is anchored on the following grounds:
_______________
Page 119 of 226
32 Id., at pp. 39-41.
33 Id., at pp. 130-137.
34 Id., at pp. 155-156.
35 Id., at p. 158.
36 Id., at p. 206.
155
VOL. 633, OCTOBER 13, 2010 155
I.
The Honorable Court of Appeals erroneously sustained the findings of the Secretary
of Justice who gravely abused his discretion by dismissing the complaint based on
grounds which are not even elements of the offenses charged.
II.
of Justice who gravely abused his discretion by dismissing petitioner’s evidence,
contrary to law.
III.
of Justice who gravely abused his discretion by inquiring into the validity of a Final
Assessment Notice which has become final, executory and demandable pursuant to
Section 228 of the Tax Code of 1997 for failure of private respondent to file a protest
against the same.37
The core issue to be resolved is whether LMCEC and its corporate officers
may be prosecuted for violation of Sections 254 (Attempt to Evade or Defeat
Tax) and 255 (Willful Failure to Supply Correct and Accurate Information and
Pay Tax).
Petitioner filed the criminal complaint against the private respondents for
violation of the following provisions of the NIRC, as amended:
“EC. 254. Attempt to Evade or Defeat Tax.—Any person who willfully attempts in any
manner to evade or defeat any tax imposed under this Code or the payment thereof
shall, in addition to other penalties provided by law, upon conviction thereof, be
punished by a fine of not less than Thirty thousand pesos (P30,000) but not more
than One hundred thousand pesos (P100,000) and suffer imprisonment of not less
than two (2) years but not more than four (4) years: Provided, That the conviction or
acquittal obtained under
_______________
37 Rollo, p. 202.
156
this Section shall not be a bar to the filing of a civil suit for the collection of taxes.
SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax,
Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation.—
Any person required under this Code or by rules and regulations promulgated
thereunder to pay any tax, make a return, keep any record, or supply any correct
and accurate information, who willfully fails to pay such tax, make such return, keep
such record, or supply such correct and accurate information, or withhold or remit
Page 120 of 226
taxes withheld, or refund excess taxes withheld on compensations at the time or
times required by law or rules and regulations shall, in addition to other penalties
provided by law, upon conviction thereof, be punished by a fine of not less than Ten
thousand pesos (P10,000) and suffer imprisonment of not less than one (1) year but
not more than ten (10) years.
x x x x”(Emphasis supplied.)
Respondent Secretary concurred with the Chief State Prosecutor’s
conclusion that there is insufficient evidence to establish probable cause to
charge private respondents under the above provisions, based on the
following findings: (1) the tax deficiencies of LMCEC for taxable years 1997,
1998 and 1999 have all been settled or terminated, as in fact LMCEC was
issued a Certificate of Immunity and Letter of Termination, and availed of the
ERAP and VAP programs; (2) there was no prior determination of the
existence of fraud; (3) the assessment notices are unnumbered, hence
irregular and suspect; (4) the books of accounts and other accounting
records may be subject to audit examination only once in a given taxable
year and there is no proof that the case falls under the exceptions provided
in Section 235 of the NIRC; and (5) petitioner committed forum shopping
when it filed the instant case even as the earlier criminal complaint (I.S. No.
00-956) dismissed by the City Prosecutor of Quezon City was still pending
appeal.
Petitioner argues that with the finality of the assessment due to failure of the
private respondents to challenge the
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VOL. 633, OCTOBER 13, 2010 157
same in accordance with Section 228 of the NIRC, respondent Secretary
has no jurisdiction and authority to inquire into its validity. Respondent
taxpayer is thereby allowed to do indirectly what it cannot do directly—to
raise a collateral attack on the assessment when even a direct challenge of
the same is legally barred. The rationale for dismissing the complaint on the
ground of lack of control number in the assessment notice likewise betrays
a lack of awareness of tax laws and jurisprudence, such circumstance not
being an element of the offense. Worse, the final, conclusive and
undisputable evidence detailing a crime under our taxation laws is swept
under the rug so easily on mere conspiracy theories imputed on persons
who are not even the subject of the complaint.
We grant the petition.
There is no dispute that prior to the filing of the complaint with the DOJ, the
report on the tax fraud investigation conducted on LMCEC disclosed that it
made substantial underdeclarations in its income tax returns for 1997, 1998
and 1999. Pursuant to RR No. 12-99,38 a PAN was sent to and
_______________
38 Revenue Regulations No. 12-99, Section 3.1.2.
SECTION 3. Due process requirement in the issuance of a deficiency tax assessment.—
Page 121 of 226
x x x x
3.1.2 Preliminary Assessment Notice (PAN).—If after review and evaluation by the
Assessment Division or by the Commissioner or his duly authorized representative, as the case
may be, it is determined that there exists sufficient basis to assess the taxpayer for any
deficiency tax or taxes, the said Office shall issue to the taxpayer, at least by registered mail, a
Preliminary Assessment Notice (PAN) for the proposed assessment, showing in detail, the facts
and the law, rules and regulations, or jurisprudence on which the proposed assessment is
based. If the taxpayer fails to respond within fifteen (15) days from date of receipt of the PAN,
he shall be considered in default, in which case, a formal letter of demand and assessment
notice shall be caused to be issued by the said Office,
158
received by LMCEC on February 22, 2001 wherein it was notified of the
proposed assessment of deficiency taxes amounting to P430,958,005.90
(income tax - P318,606,380.19 and VAT - P112,351,625.71) covering
taxable years 1997, 1998 and 1999.39 In response to said PAN, LMCEC sent
a letter-protest to the TFD, which denied the same on April 12, 2001 for lack
of legal and factual basis and also for having been filed beyond the 15-day
reglementary period.40
As mentioned in the PAN, the revenue officers were not given the
opportunity to examine LMCEC’s books of accounts and other accounting
records because its officers failed to comply with the subpoena duces tecum
earlier issued, to verify its alleged underdeclarations of income reported by
the Bureau’s informant under Section 282 of the NIRC. Hence, a criminal
complaint was filed by the Bureau against private respondents for violation
of Section 266 which provides:
“SEC. 266. Failure to Obey Summons.—Any person who, being duly summoned to
appear to testify, or to appear and produce books of accounts, records, memoranda,
or other papers, or to furnish information as required under the pertinent provisions
of this Code, neglects to appear or to produce such books of accounts, records,
memoranda, or other papers, or to furnish such information, shall, upon conviction,
be punished by a fine of not less than Five thousand pesos (P5,000) but not more
than Ten thousand pesos (P10,000) and suffer imprisonment of not less than one (1)
year but not more than two (2) years.”
It is clear that I.S. No. 00-956 involves a separate offense and hence litis
pendentia is not present considering that the outcome of I.S. No. 00-956 is
not determinative of the issue as to whether probable cause exists to charge
the private respondents with the crimes of attempt to evade or defeat tax
_______________
calling for payment of the taxpayer’s deficiency tax liability, inclusive of the applicable penalties.
39 CA Rollo, pp. 102-104.
40 Records, p. 120.
159
VOL. 633, OCTOBER 13, 2010 159
Page 122 of 226

and willful failure to supply correct and accurate information and pay tax
defined and penalized under Sections 254 and 255, respectively. For the
crime of tax evasion in particular, compliance by the taxpayer with such
subpoena, if any had been issued, is irrelevant. As we held in Ungab v.
Cusi, Jr.,41 “[t]he crime is complete when the [taxpayer] has x x x knowingly
and willfully filed [a] fraudulent [return] with intent to evade and defeat x x x
the tax.” Thus, respondent Secretary erred in holding that petitioner
committed forum shopping when it filed the present criminal complaint
during the pendency of its appeal from the City Prosecutor’s dismissal of
I.S. No. 00-956 involving the act of disobedience to the summons in the
course of the preliminary investigation on LMCEC’s correct tax liabilities for
taxable years 1997, 1998 and 1999.
In the Details of Discrepancies attached as Annex “B” of the PAN,42 private
respondents were already notified that inasmuch as the revenue officers
were not given the opportunity to examine LMCEC’s books of accounts,
accounting records and other documents, said revenue officers gathered
information from third parties. Such procedure is authorized under Section 5
of the NIRC, which provides:
“SEC. 5. Power of the Commissioner to Obtain Information, and to Summon,
Examine, and Take Testimony of Persons.—In ascertaining the correctness of any
return, or in making a return when none has been made, or in determining the
liability of any person for any internal revenue tax, or in collecting any such liability,
or in evaluating tax compliance, the Commissioner is authorized:
(A) To examine any book, paper, record or other data which may be relevant or
material to such inquiry;
(B) To obtain on a regular basis from any person other than the person whose
internal revenue tax liability is subject to audit or investigation, or from any office or
officer of the national and local governments, government agencies and instru-
_______________
41 Supra note 21 at p. 884, citing Guzik v. United States, 54 F2d. 618.
42 CA Rollo, p. 104.
160
mentalities, including the Bangko Sentral ng Pilipinas and government-owned or
-controlled corporations, any information such as, but not limited to, costs and
volume of production, receipts or sales and gross incomes of taxpayers, and the
names, addresses, and financial statements of corporations, mutual fund
companies, insurance companies, regional operating headquarters of multinational
companies, joint accounts, associations, joint ventures or consortia and registered
partnerships, and their members;
(C) To summon the person liable for tax or required to file a return, or any officer or
employee of such person, or any person having possession, custody, or care of the
books of accounts and other accounting records containing entries relating to the
business of the person liable for tax, or any other person, to appear before the
Commissioner or his duly authorized representative at a time and place specified in
Page 123 of 226

the summons and to produce such books, papers, records, or other data, and to give
testimony;
(D) To take such testimony of the person concerned, under oath, as may be relevant
or material to such inquiry; x x x
x x x x” (Emphasis supplied.)
Private respondents’ assertions regarding the qualifications of the “informer”
of the Bureau deserve scant consideration. We have held that the lack of
consent of the taxpayer under investigation does not imply that the BIR
obtained the information from third parties illegally or that the information
received is false or malicious. Nor does the lack of consent preclude the BIR
from assessing deficiency taxes on the taxpayer based on the documents.43
In the same vein, herein private respondents cannot be allowed to escape
criminal prosecution under Sections 254 and 255 of the NIRC by mere
imputation of a “fictitious” or disqualified informant under Section 282 simply
because other than disclosure of the official registry number of the third
party “informer,” the Bureau insisted on maintaining the confidentiality of the
identity and personal circumstances of said “informer.”
_______________
43 Fitness By Design, Inc. v. Commissioner of Internal Revenue, G.R. No. 177982, October 17,
2008, 569 SCRA 788, 797.
161
VOL. 633, OCTOBER 13, 2010 161
Subsequently, petitioner sent to LMCEC by constructive service allowed

under Section 3 of RR No. 12-99, assessment notice and formal demand
informing the said taxpayer of the law and the facts on which the
assessment is made, as required by Section 228 of the NIRC. Respondent
Secretary, however, fully concurred with private respondents’ contention that
the assessment notices were invalid for being unnumbered and the tax
liabilities therein stated have already been settled and/or terminated.
We do not agree.
A notice of assessment is:
“[A] declaration of deficiency taxes issued to a [t]axpayer who fails to respond to a
Pre-Assessment Notice (PAN) within the prescribed period of time, or whose reply to
the PAN was found to be without merit. The Notice of Assessment shall inform the
[t]axpayer of this fact, and that the report of investigation submitted by the Revenue
Officer conducting the audit shall be given due course.
The formal letter of demand calling for payment of the taxpayer’s deficiency tax or
taxes shall state the fact, the law, rules and regulations or jurisprudence on which
the assessment is based, otherwise the formal letter of demand and the notice of
assessment shall be void.”44
As it is, the formality of a control number in the assessment notice is not a
requirement for its validity but rather the contents thereof which should
inform the taxpayer of the declaration of deficiency tax against said
Page 124 of 226
taxpayer. Both the formal letter of demand and the notice of assessment
shall be void if the former failed to state the fact, the law, rules and
regulations or jurisprudence on which the assessment is based, which is a
mandatory requirement under Section 228 of the NIRC.
_______________
44 Commissioner of Internal Revenue v. Enron Subic Power Corporation, G.R. No. 166387,
January 19, 2009, 576 SCRA 212, 216, citing http://www.bir.gov.ph/taxpayerrights/
taxpayerrights.htm.
162
Section 228 of the NIRC provides that the taxpayer shall be informed in
writing of the law and the facts on which the assessment is made.
Otherwise, the assessment is voId. To implement the provisions of Section
228 of the NIRC, RR No. 12-99 was enacted. Section 3.1.4 of the revenue
regulation reads:
“3.1.4. Formal Letter of Demand and Assessment Notice.—The formal letter of
demand and assessment notice shall be issued by the Commissioner or his duly
authorized representative. The letter of demand calling for payment of the taxpayer’s
deficiency tax or taxes shall state the facts, the law, rules and regulations, or
jurisprudence on which the assessment is based, otherwise, the formal letter of
demand and assessment notice shall be void. The same shall be sent to the
taxpayer only by registered mail or by personal delivery. x x x.”45 (Emphasis
supplied.)
The Formal Letter of Demand dated August 7, 2002 contains not only a
detailed computation of LMCEC’s tax deficiencies but also details of the
specified discrepancies, explaining the legal and factual bases of the
assessment. It also reiterated that in the absence of accounting records and
other documents necessary for the proper determination of the company’s
internal revenue tax liabilities, the investigating revenue officers resorted to
the “Best Evidence Obtainable” as provided in Section 6(B) of the NIRC
(third party information) and in accordance with the procedure laid down in
RMC No. 23-2000 dated November 27, 2000. Annex “A” of the Formal
Letter of Demand thus stated:
“Thus, to verify the validity of the information previously provided by the informant,
the assigned revenue officers resorted to third party information. Pursuant to Section
5(B) of the NIRC of 1997, access letters requesting for information and the
submission of certain documents (i.e., Certificate of Income Tax Withheld at Source
_______________
45 Id.; See also Commissioner of Internal Revenue v. Reyes, G.R. Nos. 159694 & 163581, January 27,
2006, 480 SCRA 382.
163
VOL. 633, OCTOBER 13, 2010 163
Page 125 of 226

and/or Alphabetical List showing the income payments made to L.M. Camus
Engineering Corporation for the taxable years 1997 to 1999) were sent to the
various clients of the subject corporation, including but not limited to the following:
1. Ayala Land Inc.
2. Filinvest Alabang Inc.
3. D.M. Consunji, Inc.
4. SM Prime Holdings, Inc.
5. Alabang Commercial Corporation
6. Philam Properties Corporation
7. SM Investments, Inc.
8. Shoemart, Inc.
9. Philippine Securities Corporation
10. Makati Development Corporation
From the documents gathered and the data obtained therein, the substantial
underdeclaration as defined under Section 248(B) of the NIRC of 1997 by your
corporation of its income had been confirmed. x x x x”46(Emphasis supplied.)
In the same letter, Assistant Commissioner Percival T. Salazar informed
private respondents that the estimated tax liabilities arising from LMCEC’s
underdeclaration amounted to P186,773,600.84 in 1997, P150,069,323.81
in 1998 and P163,220,111.13 in 1999. These figures confirmed that the non-
declaration by LMCEC for the taxable years 1997, 1998 and 1999 of an
amount exceeding 30% income47 declared in its return is considered a
substantial underdeclaration of income, which constituted prima facie
evidence of false or fraudulent return under Section 248(B)48 of the NIRC, as
amended.49
_______________
46 CA Rollo, p. 60.
47 Id., at p. 59.
48 SEC. 248. Civil Penalties.—
48x x x x
48(B) In case of willful neglect to file the return within the period prescribed by this Code or by
rules and regulations, or in case a false or fraudulent return is willfully made, the penalty to be
imposed shall be fifty percent (50%) of the tax or of the deficiency tax, in case any payment
has been made on the basis of such return
164
On the alleged settlement of the assessed tax deficiencies by private
respondents, respondent Secretary found the latter’s claim as meritorious
on the basis of the Certificate of Immunity From Audit issued on December
6, 1999 pursuant to RR No. 2-99 and Letter of Termination dated June 1,
1999 issued by Revenue Region No. 7 Chief of Assessment Division Ruth
Vivian G. Gandia. Petitioner, however, clarified that the certificate of
immunity from audit covered only income tax for the year 1997 and does not
include VAT and withholding taxes, while the Letter of Termination involved
tax liabilities for taxable year 1997 (EWT, VAT and income taxes) but which
was submitted for review of higher authorities as per the Certification of RD
Page 126 of 226
No. 40 District Officer Pablo C. Cabreros, Jr.50 For 1999, private
respondents supposedly availed of the VAP pursuant to RR No. 8-2001.
RR No. 2-99 issued on February 7, 1999 explained in its Policy Statement
that considering the scarcity of financial and human resources as well as the
time constraints within which the Bureau has to “clean the Bureau’s backlog
of unaudited tax returns in order to keep updated and be focused with the
most current accounts” in preparation for the full implementation of a
computerized tax administration, the said revenue regulation was issued
“providing for last priority
_______________
before the discovery of the falsity or fraud; Provided, That a substantial underdeclaration of
taxable sales, receipts or income, or a substantial overstatement of deductions, as determined
by the Commissioner pursuant to the rules and regulations to be promulgated by the Secretary
of Finance, shall constitute prima facie evidence of a false or fraudulent return: Provided,
further, That failure to report sales, receipts or income in an amount exceeding thirty percent
(30%) of that declared per return, and a claim of deductions in an amount exceeding thirty
percent (30%) of actual deductions, shall render the taxpayer liable for substantial
underdeclaration of sales, receipts or income or for overstatement of deductions, as mentioned
herein.
49 See Santos v. People, G.R. No. 173176, August 26, 2008, 563 SCRA 341, 347.
50 Records, p. 138.
165
VOL. 633, OCTOBER 13, 2010 165
in audit and investigation of tax returns” to accomplish the said objective
“without, however, compromising the revenue collection that would have
been generated from audit and enforcement activities.” The program named
as “Economic Recovery Assistance Payment (ERAP) Program” granted
immunity from audit and investigation of income tax, VAT and percentage
tax returns for 1998. It expressly excluded withholding tax returns (whether
for income, VAT, or percentage tax purposes). Since such immunity from
audit and investigation does not preclude the collection of revenues
generated from audit and enforcement activities, it follows that the Bureau is
likewise not barred from collecting any tax deficiency discovered as a result
of tax fraud investigations. Respondent Secretary’s opinion that RR No.
2-99 contains the feature of a tax amnesty is thus misplaced.
Tax amnesty is a general pardon to taxpayers who want to start a clean tax
slate. It also gives the government a chance to collect uncollected tax from
tax evaders without having to go through the tedious process of a tax case.51
Even assuming arguendo that the issuance of RR No. 2-99 is in the nature
of tax amnesty, it bears noting that a tax amnesty, much like a tax
exemption, is never favored nor presumed in law and if granted by statute,
the terms of the amnesty like that of a tax exemption must be construed
strictly against the taxpayer and liberally in favor of the taxing authority.52
Page 127 of 226

For the same reason, the availment by LMCEC of VAP under RR No.
8-2001 as amended by RR No. 10-2001, through payment supposedly
made in October 29, 2001 before the said
_______________
51 Bañas, Jr. v. Court of Appeals, G.R. No. 102967, February 10, 2000, 325 SCRA 259, 273.
52 Id., at p. 274, citing People v. Castañeda, Jr., No. L-46881, September 15, 1988, 165 SCRA
327, 341 and Commissioner of Internal Revenue v. Guerrero, No. L-20942, September 22,
1967, 21 SCRA 180. See also Philippine Banking Corporation (Now: Global Business Bank,
Inc.) v. Commissioner of Internal Revenue, G.R. No. 170574, January 30, 2009, 577 SCRA
366, 392.
166
program ended on October 31, 2001, did not amount to settlement of its
assessed tax deficiencies for the period 1997 to 1999, nor immunity from
prosecution for filing fraudulent return and attempt to evade or defeat tax. As
correctly asserted by petitioner, from the express terms of the aforesaid
revenue regulations, LMCEC is not qualified to avail of the VAP granting
taxpayers the privilege of last priority in the audit and investigation of all
internal revenue taxes for the taxable year 2000 and all prior years under
certain conditions, considering that first, it was issued a PAN on February
19, 2001, and second, it was the subject of investigation as a result of
verified information filed by a Tax Informer under Section 282 of the NIRC
duly recorded in the BIR Official Registry as Confidential Information (CI)
No. 29-200053 even prior to the issuance of the PAN.
Section 1 of RR No. 8-2001 provides:
“SECTION 1. COVERAGE.—x x x
Any person, natural or juridical, including estates and trusts, liable to pay any of the
above-cited internal revenue taxes for the above specified period/s who, due to
inadvertence or otherwise, erroneously paid his internal revenue tax liabilities or
failed to file tax return/pay taxes may avail of the Voluntary Assessment Program
(VAP), except those falling under any of the following instances:
1.1 Those covered by a Preliminary Assessment Notice (PAN), Final Assessment
Notice (FAN), or Collection Letter issued on or before July 31, 2001; or
1.2 Persons under investigation as a result of verified information filed by a Tax
Informer under Section 282 of the Tax Code of 1997, duly processed and recorded
in the BIR Official Registry Book on or before July 31, 2001;
1.3 Tax fraud cases already filed and pending in courts for adjudication; and
x x x x” (Emphasis supplied.)
_______________
53 Rollo, p. 116.
167
VOL. 633, OCTOBER 13, 2010 167
Moreover, private respondents cannot invoke LMCEC’s availment of VAP to
foreclose any subsequent audit of its account books and other accounting
Page 128 of 226
records in view of the strong finding of underdeclaration in LMCEC’s
payment of correct income tax liability by more than 30% as supported by
the written report of the TFD detailing the facts and the law on which such
finding is based, pursuant to the tax fraud investigation authorized by
petitioner under LA No. 00009361. This conclusion finds support in Section
2 of RR No. 8-2001 as amended by RR No. 10-2001 provides:
“SEC. 2. TAXPAYER’S BENEFIT FROM AVAILMENT OF THE VAP.—A taxpayer
who has availed of the VAP shall not be audited except upon authorization and
approval of the Commissioner of Internal Revenue when there is strong evidence or
finding of understatement in the payment of taxpayer’s correct tax liability by more
than thirty percent (30%) as supported by a written report of the appropriate office
detailing the facts and the law on which such finding is based: Provided, however,
that any VAP payment should be allowed as tax credit against the deficiency tax
due, if any, in case the concerned taxpayer has been subjected to tax audit.
x x x x”
Given the explicit conditions for the grant of immunity from audit under RR
No. 2-99, RR No. 8-2001 and RR No. 10-2001, we hold that respondent
Secretary gravely erred in declaring that petitioner is now estopped from
assessing any tax deficiency against LMCEC after issuance of the
aforementioned documents of immunity from audit/investigation and
settlement of tax liabilities. It is axiomatic that the State can never be in
estoppel, and this is particularly true in matters involving taxation. The errors
of certain administrative officers should never be allowed to jeopardize the
government’s financial position.54
_______________
54 Commissioner of Internal Revenue v. Procter & Gamble PMC, No. L-66838, April 15, 1988,
160 SCRA 560, 565.
168
Respondent Secretary’s other ground for assailing the course of action
taken by petitioner in proceeding with the audit and investigation of LMCEC
—the alleged violation of the general rule in Section 235 of the NIRC
allowing the examination and inspection of taxpayer’s books of accounts
and other accounting records only once in a taxable year—is likewise
untenable. As correctly pointed out by petitioner, the discovery of substantial
underdeclarations of income by LMCEC for taxable years 1997, 1998 and
1999 upon verified information provided by an “informer” under Section 282
of the NIRC, as well as the necessity of obtaining information from third
parties to ascertain the correctness of the return filed or evaluation of tax
compliance in collecting taxes (as a result of the disobedience to the
summons issued by the Bureau against the private respondents), are
circumstances warranting exception from the general rule in Section 235.55
_______________
Page 129 of 226

55 SEC. 235. Preservation of Books of Accounts, and Other Accounting Records.—All the
books of accounts, including the subsidiary books and other accounting records of
corporations, partnerships, or persons shall be preserved by them for a period beginning from
the last entry in each book until the last day prescribed by Section 203 within which the
Commissioner is authorized to make an assessment. The said books and records shall be
subject to examination and inspection by internal revenue officers: Provided, That for income
tax purposes, such examination and inspection shall be made only once in a taxable year,
except in the following cases:
(a) Fraud, irregularity or mistakes as determined by the Commissioner;
x x x x
(c) Verification or compliance with withholding tax laws and regulations;
x x x x
(e) In the exercise of the Commissioner’s power under Section 5(B) to obtain information from
other persons, in which case, another or separate examination and inspection may be made.
x x x
169
VOL. 633, OCTOBER 13, 2010 169
As already stated, the substantial underdeclared income in the returns filed
by LMCEC for 1997, 1998 and 1999 in amounts equivalent to more than
30% (the computation in the final assessment notice showed
underdeclarations of almost 200%) constitutes prima facie evidence of
fraudulent return under Section 248(B) of the NIRC. Prior to the issuance of
the preliminary and final notices of assessment, the revenue officers
conducted a preliminary investigation on the information and documents
showing substantial understatement of LMCEC’s tax liabilities which were
provided by the Informer, following the procedure under RMO No. 15-95.56
Based on the prima facie finding of the existence of fraud, petitioner issued
LA No. 00009361 for the TFD to conduct a formal fraud investigation of
LMCEC.57 Consequently, respondent Secretary’s ruling that the filing of
criminal complaint for violation of Sections 254 and 255 of the NIRC cannot
prosper because of
_______________
56 RMO No. 15-95 dated June 9, 1995.
C. PROCEDURE
A Preliminary Investigation must first be conducted to establish the prima facie existence of
fraud. This shall include the verification of the allegations on the confidential information and/or
complaints filed, and the determination of the schemes and extent of fraud perpetrated by the
denounced taxpayers.
The Formal Fraud Investigation, which includes the examination of the taxpayers books of
accounts through the issuance of Letters of Authority, shall be conducted only after the prima
facie existence of fraud has been established.
1. TAX FRAUD DIVISION
1.1. Where indications of fraud have been established in a preliminary investigation, the TFD
thru the Assistant Commissioner, Intelligence and Investigation Service (IIS), shall request/
recommend the issuances of the corresponding Letter of Authority by the Commissioner which
will automatically supersede all previously issued Letters of Authority with respect thereto.
x x x x
57 RMO No. 49-2000, II (2).
Page 130 of 226
170
lack of prior determination of the existence of fraud, is bereft of factual basis
and contradicted by the evidence on record.
Tax assessments by tax examiners are presumed correct and made in good
faith, and all presumptions are in favor of the correctness of a tax
assessment unless proven otherwise.58 We have held that a taxpayer’s
failure to file a petition for review with the Court of Tax Appeals within the
statutory period rendered the disputed assessment final, executory and
demandable, thereby precluding it from interposing the defenses of legality
or validity of the assessment and prescription of the Government’s right to
assess.59 Indeed, any objection against the assessment should have been
pursued following the avenue paved in Section 229 (now Section 228) of the
NIRC on protests on assessments of internal revenue taxes.60
Records bear out that the assessment notice and Formal Letter of Demand
dated August 7, 2002 were duly served on LMCEC on October 1, 2002.
Private respondents did not file a motion for reconsideration of the said
assessment notice and formal demand; neither did they appeal to the Court
of Tax Appeals. Section 228 of the NIRC61 provides the remedy to dispute a
tax assessment within a certain period of time. It states that an assessment
may be protested by filing a request for reconsideration or reinvestigation
within 30 days
_______________
58 Rizal Commercial Banking Corporation v. Commissioner of Internal Revenue, G.R. No.
168498, April 24, 2007, 522 SCRA 144, 149-150, citing Commissioner of Internal Revenue v.
Hantex Trading Co., Inc., G.R. No. 136975, March 31, 2005, 454 SCRA 301, 329.
59 Id., at p. 150, citing Benjamin B. Aban, Law of Basic Taxation in the Philippines, Revised
Edition (1997), p. 247.
60 Marcos II v. Court of Appeals, G.R. No. 120880, June 5, 1997, 273 SCRA 47, 65.
61 Revenue Regulations No. 12-99, Section 3.1.5.
3.1.5 Disputed Assessment.—The taxpayer or his duly authorized representative may
protest administratively against the aforesaid formal letter of demand and assessment notice
within thirty (30) days from date of receipt thereof. x x x
171
VOL. 633, OCTOBER 13, 2010 171
from receipt of the assessment by the taxpayer. No such administrative
protest was filed by private respondents seeking reconsideration of the
August 7, 2002 assessment notice and formal letter of demand. Private
respondents cannot belatedly assail the said assessment, which they
allowed to lapse into finality, by raising issues as to its validity and
correctness during the preliminary investigation after the BIR has referred
the matter for prosecution under Sections 254 and 255 of the NIRC.
As we held in Marcos II v. Court of Appeals:62
Page 131 of 226
“It is not the Department of Justice which is the government agency tasked to
determine the amount of taxes due upon the subject estate, but the Bureau of
Internal Revenue, whose determinations and assessments are presumed correct
and made in good faith. The taxpayer has the duty of proving otherwise. In the
absence of proof of any irregularities in the performance of official duties, an
assessment will not be disturbed. Even an assessment based on estimates is prima
facie valid and lawful where it does not appear to have been arrived at arbitrarily or
capriciously. The burden of proof is upon the complaining party to show clearly that
the assessment is erroneous. Failure to present proof of error in the assessment will
justify the judicial affirmance of said assessment. x x x.
Moreover, these objections to the assessments should have been raised,
considering the ample remedies afforded the taxpayer by the Tax Code, with the
Bureau of Internal Revenue and the Court of Tax Appeals, as described earlier, and
cannot be raised now via Petition for Certiorari, under the pretext of grave abuse of
discretion. The course of action taken by the petitioner reflects his disregard or even
repugnance of the established institutions for governance in the scheme of a well-
ordered society. The subject tax assessments having become final, executory and
enforceable, the same can no longer be contested by means of a disguised protest.
In the main, Certiorari may not be used as a substitute for a lost appeal or remedy.
This judicial policy
_______________
62 Supra note 60, at pp. 66-67.
172
becomes more pronounced in view of the absence of sufficient attack against the
actuations of government.” (Emphasis supplied.)
The determination of probable cause is part of the discretion granted to the
investigating prosecutor and ultimately, the Secretary of Justice. However,
this Court and the CA possess the power to review findings of prosecutors
in preliminary investigations. Although policy considerations call for the
widest latitude of deference to the prosecutor’s findings, courts should never
shirk from exercising their power, when the circumstances warrant, to
determine whether the prosecutor’s findings are supported by the facts, or
by the law. In so doing, courts do not act as prosecutors but as organs of
the judiciary, exercising their mandate under the Constitution, relevant
statutes, and remedial rules to settle cases and controversies.63 Clearly, the
power of the Secretary of Justice to review does not preclude this Court and
the CA from intervening and exercising our own powers of review with
respect to the DOJ’s findings, such as in the exceptional case in which
grave abuse of discretion is committed, as when a clear sufficiency or
insufficiency of evidence to support a finding of probable cause is ignored.64
WHEREFORE, the petition is GRANTED. The Decision dated October 31,
2006 and Resolution dated March 6, 2007 of the Court of Appeals in CA-
G.R. SP No. 93387 are hereby REVERSED and SET ASIDE. The Secretary
Page 132 of 226

of Justice is hereby DIRECTED to order the Chief State Prosecutor to file
before the Regional Trial Court of Quezon City, National
_______________
63 Social Security System v. Department of Justice, G.R. No. 158131, August 8, 2007, 529
SCRA 426, 442, citing Ladlad v. Velasco, G.R. Nos. 172070-72, 172074-76 & 175013, June 1,
2007, 523 SCRA 318; Principio v. Barrientos, G.R. No. 167025, December 19, 2005, 478
SCRA 639; Acuña v. Deputy Ombudsman for Luzon, G.R. No. 144692, January 31, 2005, 450
SCRA 232.
64 See Tan v. Ballena, G.R. No. 168111, July 4, 2008, 557 SCRA 229, 252.
Page 133 of 226

[No. L-13387. March 28, 1960]
SY CHIUCO, petitioner, vs. COLLECTOR OF INTERNAL REVENUE,
respondent.
TAXATION; AMUSEMENT TAXES; OPERATION OF CABARETS;
STATUTORY CONSTRUCTION ; SCOPE OF TERM "GROSS RECEIPTS".—A
cabaret is a place of amusement where customers go because of their desire to
dance and where the "bailarinas" are the main attraction. Dancing is the main
business and customers patronize the place attracted by the "bailarinas". As a
matter of fact, "bailarinas" are the indispensable factor in the operation of the
business. Whatever is paid to them should, therefore, be considered as paid on
account of the business, and as such as part of the operator's gross receipts. The
foregoing interpretation may be gleaned from section 260 of the National Internal
Revenue Code which, in referring to the gross receipts the operation of the
cabaret may realize, includes mainly all receipts "irrespective of whether or not
any amount is charged or paid for admission." The law undoubtedly mainly
contemplates to include the fees that may be paid by the customer for the
privilege of dancing for it considers as incidental what may be paid by the
customers as admission fee. In other words, the law in effect considers the
amount charged against the customers for dancing with the 'bailarinas" as the
main gross receipts of the cabaret, the admission fee thereto being merely
incidental.
Amador E. Sagalongos for petitioner.
429
VOL. 107, MARCH 28, 1960 429
Sy Chiuco vs. Collector of Internal Revenue
Solicitor General Edilberto Barot, Solicitor Felicísimo R. Rosete and Special
Attorneys Antonio H. Garces and Manuel F. del Rosario for respondent.
BAUTISTA ANGELO, J.:
Petitioner was the owner and operator of the La Loma Cabaret located at La
Loma, Quezon City from 1926 to January, 1956. The customers who
patronized the cabaret were charged P0.30 per dance, P0.10 to be paid
before entering the dance hall and the remaining P0.20 to be paid to the
"bailarinas" after the dance. The customers were informed of the fees to be
paid per dance by means of posters found in conspicuous places of the
cabaret stating:
Gate ........................................................................................... P0.1
....... 0
Ladies ........................................................................................ 20
........
A Dance P0.3
Total ................................................................................... 0
During the period from January, 1947 to August, 1950, petitioner declared in
his return only the following gross receipts: receipts from gate admissions at
Page 134 of 226
P0.10 each, P59,160.40; receipts from restaurant sales, P5,339.90; receipts
from bar sales, P47,459.10, and paid thereon a 10 per cent amusement tax
in the amount of P11, 197.40. Having failed to declare for tax purposes the
P0.20 dance fee payable to the "bailarinas" which petitioner collected as
part of his business, respondent assessed against him a deficiency
amusement tax, including 50 per cent surcharge, in the amount of
P17,616.05. Respondent also assessed against petitioner the further sum of
P300.00 as penalty in settlement of his violation of Section 260 of the Tax
Code and the Bookkeeping Regulations.
From the above assessment, petitioner took the case on appeal to the Court
of Tax Appeals where, after due hearing, said court rendered decision
affirming the contention of respondent insofar as he holds petitioner liable to
pay the sum of P17,616.05 as deficiency amusement tax and surcharge for
the period from January, 1947 to August,
430
430 PHILIPPINE REPORTS ANNOTATED
1950. However, the Court of Tax Appeals rejected the imposition of the
penalty in the sum of P300.00 alleging lack of power or authority to order
the payment of such penalty. In due time, petitioner filed the present petition
for review.
The law under which the deficiency amusement tax was collected from
petitioner for his alleged gross receipts from January, 1947 to August, 1950
is Section 260 of the Tax Code, the pertinent portion of which reads:
"In the case of cockpits, cabarets, and night clubs, there shall be collected from the
proprietors, lessees, or operators a tax equivalent to ten per centum * * * of the
gross receipts, irrespective of whether or not any amount is charged or paid for
admission. * * *. For the purpose of amusement tax, the term 'gross receipts'
embraces all the receipts of the proprietor, lessee, or operator of the amusement
place."
It would appear that the owner or operator of a cabaret is required to pay an
amusement tax equivalent to 10 per cent of the gross receipts of his
business "irrespective of whether or not any amount is charged or paid for
admission. The law further adds that, for the purposes of amusement tax,
the term "gross receipts" embraces all the receipts of the proprietor or
operator of the business. The question that now arises is: What should be
considered as gross receipts of the La Loma Cabaret operated by
petitioner? Does this term include only what it collects from its customers as
admission fee to the cabaret, or it should also include the dance fee that is
charged by the cabaret as compensation for its "bailarinas" ?
Petitioner contends that it should only include what he collects as admission
fee, and not those representing the dance fee because they do not go to the
operator, but to the "bailarinas". In other words, petitioner contends that
Page 135 of 226

because those dance fees go to the "bailarinas", they could not be
considered as part of the gross receipts of the cabaret.
431
VOL. 107, MARCH 28, 1960 431
With this contention we disagree. A cabaret is a place of amusement where
customers go because of their desire to dance and where the "bailarinas"
are the main attraction. Dancing is the main business and customers
patronize the place attracted by the "bailarinas". As a matter of fact,
"bailarinas" are the indispensable factor in the operation of the business.
Whatever is paid to them should, therefore, be considered as paid on
account of the business, and as such it should be considered as part of
petitioner's gross receipts.
That the foregoing is the correct interpretation of the term "gross receipts"
can be gleaned from the very terminology of the law wherein in referring to
the gross receipts the operation of the cabaret may realize it includes mainly
all receipts "irrespective of whether or not any amount is charged or paid for
admission." The law undoubtedly mainly contemplates to include the fees
that may be paid by the customer for the privilege of dancing for it considers
as incidental what may be paid by the customer as admission fee. In other
words, the law in effect considers the amount charged against the
customers for dancing with the "bailarinas" as the main gross receipts of the
cabaret, the admission fee thereto being merely incidental. In this respect,
we are in full accord with the following pronouncement of the Court of Tax
Appeals:
"We hold that when an operator, proprietor or lessee of a cabaret takes it upon
himself to set a fixed dance fee and thereby tends to the collection of the same for
the benefit of his 'bailarinas' or hostesses, the income derived therefrom forms part
of his gross receipts and therefore subject to amusement tax. By such imposition,
the operator becomes the principal party to the implied contract of lease of services
with his customers in place of the 'bailarinas' or hostesses under his employ and
therefore subject to the resulting liabilities as such contracting party."
Petitioner, however, contends that the Court of Tax Appeals erred in
charging against him the surcharge of
432
432 PHILIPPINE REPORTS ANNOTATED
Samanilla vs. Cajucom, et al.
50 per cent on the amount he allegedly underdeclared for the reason that
there is no evidence on record to show that he defrauded the Government.
While there is no direct evidence to show actual fraud on the part of
petitioner, however, the circumstances found by the Court of Tax Appeals
indicate that he has deliberately omitted in his book a sizeable portion of his
taxable income which in substance amounts to fraud. In the circumstances,
Page 136 of 226

we are not prepared to disturb the finding of the Court of Tax Appeals on this
matter even if there is no direct evidence that fraud was committed.
As regards the contention that the collection of the tax in question has
already prescribed, it appears that this question was not raised as an issue
in the petition for review filed by petitioner in the Court of Tax Appeals. It
was not even touched by him in the memorandum he submitted. There is,
therefore, enough reason to believe that petitioner has waived this defense
and so it cannot now be entertained. To hold otherwise would be to deprive
respondent of his right to show the contrary, this matter being evidentiary in
nature.
Wherefore, the decision appealed from is affirmed, with costs against
petitioner.
Parás, C. J., Bengzon, Montemayor, Labrador, Concepción, Reyes, J. B. L.,
Barrera, and Gutiérrez David, JJ., concur.
Decision affirmed.
_____________
Page 137 of 226

Commissioner of Internal Revenue vs. Court of Appeals
G.R. No. 115712. February 25, 1999. *
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF

APPEALS, COURT OF TAX APPEALS and CARNATION PHILIPPINES,
INC. (now merged with Nestlé Phils., Inc.), respondents.
Administrative Law; Court of Tax Appeals; Finality of Findings of Fact; As a matter of
principle, this court will not set aside the conclusion reached by an agency such as
the Court of Tax Appeals unless there has been an abuse or improvident exercise of
authority.
__________________
* THIRD DIVISION.
615
VOL. 303, FEBRUARY 25, 1999 615

By the very nature of its function, dedicated exclusively to the study and
consideration of tax problems and has necessarily developed an expertise on the
subject.—Verily, we discern no basis for overruling the aforesaid conclusions arrived
at by the Court of Appeals. In fact, there is every reason to leave undisturbed the
said conclusions, having in mind the precept that all doubts as to the correctness of
such conclusions will be resolved in favor of the Court of Appeals. Besides being a
reiteration of the holding of the Court of Tax Appeals, such decision should be
accorded respect. Thus, the Court held in Philippine Refining Co. vs. Court of
Appeals, that the Court of Tax Appeals is a highly specialized body specifically
created for the purpose of reviewing tax cases. As a matter of principle, this Court
will not set aside the conclusion reached by an agency such as the Court of Tax
Appeals which is, by the very nature of its function, dedicated exclusively to the
study and consideration of tax problems and has necessarily developed an expertise
on the subject, unless there has been an abuse or improvident exercise of authority.
This point becomes more evident in the case under consideration where the findings
and conclusions of both the Court of Tax Appeals and the Court of Appeals appear
untainted by any abuse of authority, much less grave abuse of discretion. Indeed, we
find the decision of the latter affirming that of the former free from any palpable error.
PETITION for review on certiorari of a decision of the Court of Appeals.
Carlos V. Jaurigue for private respondent.
PURISIMA, J.:
Before the Court is an appeal from the decision of the Court of Appeals 1
dated May 31, 1994, which affirmed in toto

__________________
1 Twelfth Division; Lantin, Gutierez (ponente), Carpio, Morales, JJ., members.
616
Page 138 of 226
the decision of the Court of Tax Appeals dated January 26, 1993, the
2
dispositive portion of which reads:

“WHEREFORE, the Court, finds the assessments for allegedly deficient income and
sales taxes for petitioner’s fiscal year ending September 30, 1981 covered by
D e m a n d L e t t e r N o . FA S - 1 B - 8 1 - 8 7 a n d A s s e s s m e n t N o t i c e s N o s .
FAS-1-81-87-005824, FAS-4-81-87-005825 and FAS-4-81-87-005826 (all dated July
29, 1987) in the total amount of P19,535,183.44 to be NULL AND VOID for having
been issued beyond the five-year prescriptive period provided by law.”3
The undisputed facts of the case as recited in the Decision (Annex “A”) of
the Court of Appeals, are: 4
“On January 15, 1982, Carnation Phils., Inc. (Carnation), filed its Corporation Annual
Income Tax Return for taxable year ending September 30, 1981; and its
Manufacturers/Producers Percentage Tax Return for the quarter ending September
30, 1981.5
“On October 13, 1986, March 16, 1987 and May 18, 1987, Carnation, through its
Senior Vice President Jaime O. Lardizabal, signed three separate ‘waivers of the
Statute of Limitations Under the National Internal Revenue Code’ wherein it:
‘x x x waives the running of the prescriptive period provided for in Sections 318 and 319 and
other related provisions of the National Internal Revenue Code and consents to the
assessment and collection of the taxes which may be found due after reinvestigation and
reconsideration at any time before or after the lapse of the period of limitations fixed by said
Sections 318 and 319 and other relevant provisions of the National Internal Revenue Code,
but not after (13 April 1987 for the earlier-executed waiver, or June 14, 1987 for the later
_____________________
2 Penned by Manuel K. Gruba, Associate Judge; concurred in by Ernesto D. Acosta, Presiding Judge and
Ramon O. De Veyra, Associate Judge.
3 Rollo, p. 46.
4 Ibid., pp. 31-33.
5 The percentage tax return for the quarter ending in September 30, 1981 was filed on Nov. 20, 1981,
Rollo, p. 37.
617
VOL. 303, FEBRUARY 25, 1999 617
waiver, or July 30, 1987 for the subsequent waiver, as the case may be). However, the
taxpayer (petitioner herein) does not waive any prescription already accrued in its favor.’
“The waivers were not signed by the BIR Commissioner or any of his agents.
“On August 5, 1987, Carnation received BIR’s letter of demand dated July 29, 1987
asking the said corporation to pay P1,442,586.56 as deficiency income tax,
P14,152,683.85 as deficiency sales tax and P3,939,913.03 as deficiency sales tax
on undeclared sales, all for the year 1981. This demand letter was accompanied by
assessment Notices Nos. FAS-4-81-87-005824, FAS-4-81-87-005825 and
FAS-4-81-87-005826.
“In a basic protest dated August 17, 1987, Carnation disputed the assessments and
requested a reconsideration and reinvestigation thereof.
“On September 30, 1987, Carnation filed a supplemental protest.
“These protests were denied by the BIR Commissioner in a letter dated March 15,
1988.
“Whereupon, Carnation appealed to the CTA.
“On January 26, 1993, the CTA issued the questioned order, the dispositive portion
of which reads:
Page 139 of 226
‘WHEREFORE, the Court finds the assessments for allegedly deficient income and sales
taxes for petitioner’s fiscal year ending September 30, 1981 covered by Demand Letter No.
FAS-1B-81-87 and assessment Notices Nos. FAS-1-81-87-005824, FAS-4-81-87-005825,
and FAS-4-81-87-005826 (all dated July 29, 1987) in the total amount of P19,535,183.44 to
be NULL AND VOID for having been issued beyond the five-year prescriptive period provided
by law.”
The pivot of inquiry here is whether or not the three (3) waivers signed by
the private respondent are valid and binding as to toll the running of the
6
prescriptive period for assessment and not bar the Government from issuing
subject deficiency tax assessments.
_____________
6 Rollo, p. 33.
618
Section 318 (now Section 203) of the National Internal Revenue Code, the
law then applicable reads:
“SEC. 318. Period of Limitations upon assessment and collection.—Except as
provided in the succeeding section, internal revenue taxes shall be assessed within
the purpose 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
Code.”7 (italics ours)
The decision of the Court of Appeals affirming what the Court of Tax
Appeals decided, established that subject assessments of July 29, 1987
were issued outside the statutory prescriptive period. Carnation filed its
annual income tax and percentage tax returns for the fiscal year ending
September 30, 1981 on January 15, 1982 and November 20, 1981, re-
8 9
_____________________
7 The National Internal Revenue Code of 1977.
8 The National Internal Revenue Code of 1977.
SEC. 87. (b) Time for filing the income tax return.—The corporate quarterly declaration shall be
filed within sixty (60) days following the close of each of the first three quarters of the taxable
year. The final adjustment return shall be filed on or before the 15th day of April or on or before
the 15th day of the 4th month following the close of the fiscal year, as the case may be.
9 Revenue Regulation No. 6-81.
SEC. 2. Percentage Tax.—In general, unless otherwise specifically provided in the Tax Code,
every person conducting business on which a percentage tax is imposed under Chapter II, Title
V of the Tax Code must render a quarterly declaration on a cumulative basis of the amount of
his sales, receipts or earnings or gross value of output actually removed from the factory or mill
warehouse, compute and pay the tax due thereon.
619
VOL. 303, FEBRUARY 25, 1999 619
spectively. In accordance with the above-quoted provision of law, private
respondent’s 1981 income and sales taxes could have been validly
Page 140 of 226
assessed only until January 14, 1987 and November 19, 1986,
respectively. However, Carnation’s income and sales taxes were assessed
10
only on July 29, 1987, beyond the five-year prescriptive period. 11
Petitioner BIR Commissioner contends that the waivers signed by Carnation

were valid although not signed by the BIR Commissioner because (a) when
the BIR agents/examiners extended the period to audit and investigate
Carnation’s tax returns, the BIR gave it implied consent to such waivers; (b)
___________________
1. (a) 
Quarterly Percentage Tax Return.—For each of the first three quarters of the taxable
year, the tax so computed shall be decreased by the amount of tax previously paid and
by the sum of the tax credits allowed under this Title for the preceding and current
quarters. The tax due shall be paid not later than twenty (20) days following the close of
each of the first three quarters of the taxable year. (BIR Form No. . . .)
2. (b) 
Final Annual Percentage Tax Return.—On or before the twentieth day of the second
month following the close of the taxable year, a final percentage tax return shall be filed
under BIR Form No. . . . covering the entire taxable year. If the sum of the total quarterly
percentage tax payments made for the first three quarters and the total tax credit
allowable for the taxable year are not equal to the total tax due on the entire gross sales,
receipts or earnings or gross value of the output for that taxable year, the taxpayer shall
either:
1. (1) 
Pay the tax still due; or
2. (2) 
Credit to the extent allowable under this Title, the amount of excess tax credits shown in
the final adjustment return against the quarterly percentage tax liabilities for the
succeeding taxable quarters.
Sales on consignment shall be considered actually sold on the day of sale or sixty (60) days
after the date consigned, whichever is earlier. (Italics supplied)
10 Ibid., p. 42.
11 Rollo, pp. 33-34.
620
the signature of the Commissioner is a mere formality and the lack of it does
not vitiate the binding effect of the waivers; and (c) that a waiver is not a
contract but a unilateral act of renouncing one’s right to avail of the defense
of prescription and remains binding in accordance with the terms and
conditions set forth in the waiver. 12
Petitioner’s submission is inaccurate. The same tax code is clear on the

matter, to wit:
“SEC. 319. Exceptions as to period of limitation of assessment and collection of
taxes.—(a) x x x
“(b) Where before the expiration of the time prescribed in the preceding section for
the assessment of the tax, both the Commissioner of Internal Revenue and the
taxpayer have consented in writing to its assessment after such time, the tax may be
assessed at any time prior to the expiration of the period agreed upon. The period so
Page 141 of 226
agreed upon may be extended by subsequent agreement in writing made before the
expiration of the period previously agreed upon.”
The Court of Appeals itself also passed upon the validity of the waivers
executed by Carnation, observing thus:
“We cannot go along with the petitioner’s theory. Section 319 of the Tax Code earlier
quoted is clear and explicit that the waiver of the five-year prescriptive period must
be in writing and signed by both the BIR Commissioner and the taxpayer.
“Here, the three waivers signed by Carnation do not bear the written consent of the
BIR Commissioner as required by law.
“We agree with the CTA in holding “these ‘waivers’ to be invalid and without any
binding effect on petitioner (Carnation) for the reason that there was no consent by
the respondent (Commissioner of Internal Revenue).”
“The ruling of the Supreme Court in Collector of Internal Revenue vs. Solano13 is in
point, thus:
_________________
12 Rollo, p. 24. Now Section 222.
13 L-11475, July 31, 1958; cited in Collector of Internal Revenue vs. Pineda, 2 SCRA 401 and Cordero vs.
Gonda, 18 SCRA 331.
621
VOL. 303, FEBRUARY 25, 1999 621
“x x x The only agreement that could have suspended the running of the prescriptive
period for the collection of the tax in question is, as correctly pointed out by the Court
of Tax Appeals, a written agreement between Solano and the Collector, entered into
before the expiration of the five-year prescriptive period, extending the limitation
prescribed by law.”
“For sure, no such written agreement concerning the said three waivers exists
between the petitioner and private respondent Carnation.”14
Verily, we discern no basis for overruling the aforesaid conclusions arrived
at by the Court of Appeals. In fact, there is every reason to leave
undisturbed the said conclusions, having in mind the precept that all doubts
as to the correctness of such conclusions will be resolved in favor of the
Court of Appeals. Besides being a reiteration of the holding of the Court of
15
Tax Appeals, such decision should be accorded respect. Thus, the Court
held in Philippine Refining Co. vs. Court of Appeals, that the Court of Tax
16
Appeals is a highly specialized body specifically created for the purpose of

reviewing tax cases. As a matter of principle, this Court will not set aside the
conclusion reached by an agency such as the Court of Tax Appeals which
is, by the very nature of its function, dedicated exclusively to the study and
consideration of tax problems and has necessarily developed an expertise
on the subject, unless there has been an abuse or improvident exercise of
authority. This point becomes more evident in the case under consideration
17
where the findings and conclusions of both the Court of Tax Appeals and the
Court of Appeals appear untainted by any abuse of authority, much less
grave abuse of
___________________
14 Rollo, pp. 34-35. Italics supplied.
Page 142 of 226

15 Pilar Development Corporation vs. IAC, et al., 146 SCRA 221.
16 256 SCRA 667.
17 Commissioner of Internal Revenue vs. Wander Philippines, Inc., 160 SCRA 579.
622
discretion. Indeed, we find the decision of the latter affirming that of the
former free from any palpable error. 18
What is more, the waivers in question reveal that they are in no wise
unequivocal, and therefore necessitates for its binding effect the
concurrence of the Commissioner of Internal Revenue. In fact, in his reply
dated April 18, 1995, the Solicitor General, representing the Commissioner
of Internal Revenue, admitted that subject waivers executed by Carnation
were “for and in consideration of the approval by the Commissioner of
Internal Revenue of its request for reinvestigation and/or reconsideration of
its internal revenue case involving tax assessments for the fiscal year ended
September 30, 1981 which were all pending at the time.” On this basis
neither implied consent can be presumed nor can it be contended that the
waiver required under Sec. 319 of the Tax Code is one which is unilateral
nor can it be said that concurrence to such an agreement is a mere formality
because it is the very signatures of both the Commissioner of Internal
Revenue and the taxpayer which give birth to such a valid agreement.
WHEREFORE, the decision of the Court of Appeals is hereby
AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Romero (Chairman), Panganiban and Gonzaga-Reyes, JJ., concur.
Vitug J., Abroad on official business.
Judgment affirmed.
Notes.—The Court of Tax Appeals is a highly specialized body
specifically created for the purpose of reviewing tax cases and, through its
expertise, it is undeniably competent to determine the issue of whether or
not the debt is deductible
__________________
18 Commissioner of Internal Revenue vs. Court of Appeals, 271 SCRA 620.
623
VOL. 303, FEBRUARY 25, 1999 623
People vs. Tabarangao
through the evidence presented before it. (Philippine Refining Company vs.
Court of Appeals, 256 SCRA 667 [1996])
The findings of the Court of Tax Appeals will not ordinarily be reviewed
absent a showing of gross error or abuse on its part. (Ibid.)
——o0o——
Page 143 of 226

prove the alleged obligations and are therefore not entitled to specific
performance thereof.
WHEREFORE, the petition is DENIED. The assailed October 28, 2005
Decision of the Court of Appeals in CA-G.R. No. 174719, as well as its
August 31, 2006 Resolution, are AFFIRMED.
SO ORDERED.
Carpio (Chairperson), Brion, Abad and Perez, JJ., concur.
Petition denied, judgment and resolution affirmed.
Note.—In cargo handling services, an arrastre operator is bound by the

management contract it had executed with the Bureau of Customs; A
management contract, which is a sort of a stipulation pour autrui within the
meaning of Article 1311 of the Civil Code, is also binding on a consignee
and the insurer, as successor-in-interest of the consignee. (International
Container Terminal Services, Inc. vs. FGU Insurance Corporation, 556
SCRA 194 [2008])
——o0o——
G.R. No. 178087. May 5, 2010.*
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. KUDOS
METAL CORPORATION, respondent.
Civil Law; Doctrine of Estoppel; The doctrine of estoppel is predicated on, and
has its origin in equity which, broadly defined, is justice according to natural law and
right. As such, the doctrine of estoppel cannot give validity to an act that is prohibited
by law or one
_______________
* SECOND DIVISION.
233
VOL. 620, MAY 5, 2010 233
Commissioner of Internal Revenue vs. Kudos Metal Corporation
that is against public policy.—The doctrine of estoppel cannot be applied in this case
as an exception to the statute of limitations on the assessment of taxes considering
that there is a detailed procedure for the proper execution of the waiver, which the
BIR must strictly follow. As we have often said, the doctrine of estoppel is predicated
on, and has its origin in, equity which, broadly defined, is justice according to natural
law and right. As such, the doctrine of estoppel cannot give validity to an act that is
prohibited by law or one that is against public policy. It should be resorted to solely
as a means of preventing injustice and should not be permitted to defeat the
administration of the law, or to accomplish a wrong or secure an undue advantage,
or to extend beyond them requirements of the transactions in which they originate.
Simply put, the doctrine of estoppel must be sparingly applied.
of Tax Appeals.
The Law Firm of Lucena, Margate, Mogpo & Associates for respondent.
Page 144 of 226
DEL CASTILLO, J.:
The prescriptive period on when to assess taxes benefits both the
government and the taxpayer.1 Exceptions extending the period to assess
must, therefore, be strictly construed.
This Petition for Review on Certiorari seeks to set aside the Decision2
dated March 30, 2007 of the Court of Tax Appeals (CTA) affirming the
cancellation of the assessment notices for
_______________
1 Republic of the Phils. v. Ablaza, 108 Phil. 1105, 1108 (1960).
2 Rollo, pp. 31-45; penned by Associate Justice Lovell R. Bautista and concurred in by
Associate Justices Juanito C. Castañeda, Jr., Erlinda P. Uy, Caesar A. Casanova and Olga
Palanca-Enriquez. Presiding Justice Ernesto D. Acosta was on leave.
234
Commissioner of Internal Revenue vs. Kudos Metal
Corporation
having been issued beyond the prescriptive period and the Resolution3
dated May 18, 2007 denying the motion for reconsideration.
Factual Antecedents
On April 15, 1999, respondent Kudos Metal Corporation filed its Annual
Income Tax Return (ITR) for the taxable year 1998.
Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of
Internal Revenue (BIR) served upon respondent three Notices of
Presentation of Records. Respondent failed to comply with these notices,
hence, the BIR issued a Subpoena Duces Tecum dated September 21,
2006, receipt of which was acknowledged by respondent’s President, Mr.
Chan Ching Bio, in a letter dated October 20, 2000.
A review and audit of respondent’s records then ensued.
On December 10, 2001, Nelia Pasco (Pasco), respondent’s accountant,
executed a Waiver of the Defense of Prescription,4 which was notarized on
January 22, 2002, received by the BIR Enforcement Service on January 31,
2002 and by the BIR Tax Fraud Division on February 4, 2002, and accepted
by the Assistant Commissioner of the Enforcement Service, Percival T.
Salazar (Salazar).
This was followed by a second Waiver of Defense of Prescription5 executed
by Pasco on February 18, 2003, notarized on February 19, 2003, received
by the BIR Tax Fraud Division on February 28, 2003 and accepted by
Assistant Commissioner Salazar.
_______________
3 Id., at pp. 46-50; penned by Associate Justice Lovell R. Bautista and concurred in by
Presiding Justice Ernesto D. Acosta and Associate Justices Juanito C. Castañeda, Jr., Erlinda
P. Uy, Caesar A. Casanova and Olga Palanca-Enriquez.
4 Records, pp. 227-228.
5 Id., at pp. 229-230.
235
Page 145 of 226

VOL. 620, MAY 5, 2010 235
Corporation
On August 25, 2003, the BIR issued a Preliminary Assessment Notice for
the taxable year 1998 against the respondent. This was followed by a
Formal Letter of Demand with Assessment Notices for taxable year 1998,
dated September 26, 2003 which was received by respondent on November
12, 2003.
Respondent challenged the assessments by filing its “Protest on Various
Tax Assessments” on December 3, 2003 and its “Legal Arguments and
Documents in Support of Protests against Various Assessments” on
February 2, 2004.
On June 22, 2004, the BIR rendered a final Decision6 on the matter,
requesting the immediate payment of the following tax liabilities:
Kind of Tax Amount

Income Tax P 9,693,897.85
VAT 13,962,460.90
EWT 1,712,336.76
Withholding Tax-Compensation 247,353.24
Penalties _______8,000.00
Total P25,624,048.76

Ruling of the Court of Tax Appeals, Second Division
Believing that the government’s right to assess taxes had prescribed,
respondent filed on August 27, 2004 a Petition for Review7 with the CTA.
Petitioner in turn filed his Answer.8
On April 11, 2005, respondent filed an “Urgent Motion for Preferential
Resolution of the Issue on Prescription.”9
On October 4, 2005, the CTA Second Division issued a Resolution10
canceling the assessment notices issued against respondent for having
been issued beyond the prescriptive
_______________
6 Id., at pp. 18-21.
7 Id., at pp. 1-17.
8 Id., at pp. 161-165.
9 Id., at pp. 219-226.
10 Id., at pp. 259-266.
236
Corporation
Page 146 of 226

period. It found the first Waiver of the Statute of Limitations incomplete and
defective for failure to comply with the provisions of Revenue Memorandum
Order (RMO) No. 20-90. Thus:
“First, the Assistant Commissioner is not the revenue official authorized to sign the
waiver, as the tax case involves more than P1,000,000.00. In this regard, only the
Commissioner is authorized to enter into agreement with the petitioner in extending
the period of assessment;
Secondly, the waiver failed to indicate the date of acceptance. Such date of
acceptance is necessary to determine whether the acceptance was made within the
prescriptive period;
Third, the fact of receipt by the taxpayer of his file copy was not indicated on the
original copy. The requirement to furnish the taxpayer with a copy of the waiver is not
only to give notice of the existence of the document but also of the acceptance by
the BIR and the perfection of the agreement.
The subject waiver is therefore incomplete and defective. As such, the three-year
prescriptive period was not tolled or extended and continued to run. x x x”11
Petitioner moved for reconsideration but the CTA Second Division denied
the motion in a Resolution12 dated April 18, 2006.
Ruling of the Court of Tax Appeals, En Banc
On appeal, the CTA En Banc affirmed the cancellation of the assessment
notices. Although it ruled that the Assistant Commissioner was authorized to
sign the waiver pursuant to Revenue Delegation Authority Order (RDAO)
No. 05-01, it found that the first waiver was still invalid based on the second
and third grounds stated by the CTA Second Division. Pertinent portions of
the Decision read as follows:
_______________
11 Id., at p. 265.
12 Id., at pp. 294-296.
237
VOL. 620, MAY 5, 2010 237
Corporation
“While the Court En Banc agrees with the second and third grounds for invalidating the
first waiver, it finds that the Assistant Commissioner of the Enforcement Service is authorized
to sign the waiver pursuant to RDAO No. 05-01, which provides in part as follows:
A. For National Office cases 
Designated Revenue Official
1. Assistant Commissioner (ACIR), For tax fraud and policy Enforcement Service cases
2. ACIR, Large Taxpayers Service For large  
taxpayers cases  
other than those  
cases falling  
under Subsection  
B hereof
3. ACIR, Legal Service For cases pending  
verification and  
awaiting  
Page 147 of 226
resolution of  
certain legal  
issues prior to  
prescription and  
for issuance/com 
pliance of Subpoen
Duces Tecum
4. ACIR, Assessment Service (AS) For cases which  
are pending in or  
subject to review  
or approval by the 
ACIR, AS
Based on the foregoing, the Assistant Commissioner, Enforcement Service is authorized
to sign waivers in tax fraud cases. A perusal of the records reveals that the investigation of the
subject deficiency taxes in this case was conducted by the National Investigation Division of
the BIR, which was formerly named the Tax Fraud Division. Thus, the subject assessment is a
tax fraud case.
Nevertheless, the first waiver is still invalid based on the second and third grounds stated
by the Court in Division. Hence, it did not extend the prescriptive period to assess.
Moreover, assuming arguendo that the first waiver is valid, the second waiver is invalid for
violating Section 222(b) of the 1997 Tax Code which mandates that the period agreed upon in
a waiver of the statute can still be extended by subsequent written agreement, provided that it
is executed prior to the expiration of the first period
238
Corporation
agreed upon. As previously discussed, the exceptions to the law on
prescription must be strictly construed.
In the case at bar, the period agreed upon in the subject first waiver expired on December
31, 2002. The second waiver in the instant case which was supposed to extend the period to
assess to December 31, 2003 was executed on February 18, 2003 and was notarized on
February 19, 2003. Clearly, the second waiver was executed after the expiration of the first
period agreed upon. Consequently, the same could not have tolled the 3-year prescriptive
period to assess.”13
Petitioner sought reconsideration but the same was unavailing.
Issue
Hence, the present recourse where petitioner interposes that:
THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT THE
GOVERNMENT’S RIGHT TO ASSESS UNPAID TAXES OF RESPONDENT
PRESCRIBED.14
Petitioner’s Arguments
Petitioner argues that the government’s right to assess taxes is not barred
by prescription as the two waivers executed by respondent, through its
accountant, effectively tolled or extended the period within which the
assessment can be made. In disputing the conclusion of the CTA that the
waivers are invalid, petitioner claims that respondent is estopped from
adopting a position contrary to what it has previously taken. Petitioner
Page 148 of 226
insists that by acquiescing to the audit during the period specified in the
waivers, respondent led the government to believe that the “delay” in the
process would not be utilized against it. Thus, respondent may no longer
_______________
13 Rollo, pp. 42-43.
14 Id., at p. 17.
239
VOL. 620, MAY 5, 2010 239
Corporation
repudiate the validity of the waivers and raise the issue of prescription.
Respondent’s Arguments
Respondent maintains that prescription had set in due to the invalidity of the
waivers executed by Pasco, who executed the same without any written
authority from it, in clear violation of RDAO No. 5-01. As to the doctrine of
estoppel by acquiescence relied upon by petitioner, respondent counters
that the principle of equity comes into play only when the law is doubtful,
which is not present in the instant case.
Our Ruling
The petition is bereft of merit.
Section 20315 of the National Internal Revenue Code of 1997 (NIRC)
mandates the government to assess internal revenue taxes within three
years from the last day prescribed by law for the filing of the tax return or the
actual date of filing of such return, whichever comes later. Hence, an
assessment notice issued after the three-year prescriptive period is no
longer valid and effective. Exceptions however are provided under Section
22216 of the NIRC.
_______________
15 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.
16 SEC. 222. Exceptions as to period of limitation of assessment and collection of taxes.—
240
Corporation
The waivers executed by respondent’s

accountant did not extend the period
within which the assessment can be
Page 149 of 226

made
Petitioner does not deny that the assessment notices were issued beyond
the three-year prescriptive period, but claims that the period was extended
by the two waivers executed by respondent’s accountant.
_______________
(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 Section 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.
241
VOL. 620, MAY 5, 2010 241
Corporation
We do not agree.
Section 222 (b) of the NIRC provides that the period to assess and collect
taxes may only be extended upon a written agreement between the CIR and
the taxpayer executed before the expiration of the three-year period. RMO
20-9017 issued on
_______________
17 In the execution of said waiver, the following procedures should be followed:
1. The waiver must be in the form identified hereof. This form may be reproduced by the Office
concerned but there should be no deviation from such form. The phrase “but not after
________
19___” should be filled up. This indicates the expiry date of the period agreed upon to assess/
collect the tax after the regular three-year period of prescription. The period agreed upon shall
constitute the time within which to effect the assessment/collection of the tax in addition to the
ordinary prescriptive period.
2. The waiver shall be signed by the taxpayer himself or his duly authorized representative. In
the case of a corporation, the waiver must be signed by any of its responsible officials.
Page 150 of 226

Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or the
revenue official authorized by him, as hereinafter provided, shall sign the waiver indicating that
the Bureau has accepted and agreed to the waiver. The date of such acceptance by the
Bureau should be indicated. Both the date of execution by the taxpayer and date of acceptance
by the Bureau should be before the expiration of the period of prescription or before the lapse
of the period agreed upon in case a subsequent agreement is executed.
3. The following revenue officials are authorized to sign the waiver.
A. In the National Office
1. ACIRs for Collection, Special For tax cases

Operations National Asses- involving not more
sment, Excise and Legal on tax than P500,000.003.
cases pending before their re-
spective offices. In the absence of
the ACIR, the Head Executive
Assistant may sign the waiver.
242
Corporation
April 4, 1990 and RDAO 05-0118 issued on August 2, 2001 lay down the
procedure for the proper execution of the waiver,
_______________
3. Commissioner For tax cases
involving more
than P1M
x x x x
4. The waiver must be executed in three (3) copies, the original copy to be attached to the
docket of the case, the second copy for the taxpayer and the third copy for the Office accepting
the waiver. The fact of receipt by the taxpayer of his/her file copy shall be indicated in the
original copy.
5. The foregoing procedures shall be strictly followed. Any revenue official found not to have
complied with this Order resulting in prescription of the right to assess/collect shall be
administratively dealt with.
18 I. Revenue Officials Authorized to Sign the Waiver
The following revenue officials are authorized to sign and accept the Waiver of the Defense of
Prescription Under the Statute of Limitations (Annex A) prescribed in Sections 203, 222 and
other related provisions of the National Internal Revenue Code of 1997:
A. For National Office cases
Designated Revenue Official
1. Assistant Commissioner (ACIR), — For tax fraud and policy
Enforcement Service cases
xxxx
In order to prevent undue delay in the execution and acceptance of the waiver, the assistant
heads of the concerned offices are likewise authorized to sign the same under meritorious
circumstances in the absence of the abovementioned officials.
The authorized revenue official shall ensure that the waiver is duly accomplished and signed by
the taxpayer or his authorized representative before affixing his signature to signify acceptance
of the same. In case the authority is delegated by the taxpayer to a representative, the
Page 151 of 226
concerned revenue official shall see to it that such delegation is in writing and duly notarized.
The “WAIVER” should not be accepted by the concerned BIR office and official unless duly
notarized.
243
VOL. 620, MAY 5, 2010 243
Corporation
to wit:
1. The waiver must be in the proper form prescribed by RMO 20-90. The
phrase “but not after ______ 19 ___”, which indicates the expiry date of the
period agreed upon to assess/collect the tax after the regular three-year
period of prescription, should be filled up.
2. The waiver must be signed by the taxpayer himself or his duly authorized
representative. In the case of a corporation, the waiver must be signed by
any of its responsible officials. In case the authority is delegated by the
taxpayer to a representative, such delegation should be in writing and duly
notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him must sign the waiver
indicating that the BIR has accepted and agreed to the waiver. The date of
such acceptance by the BIR should be indicated. However, before signing
the waiver, the CIR or the revenue official authorized by him must make
sure that the waiver is in the prescribed form, duly notarized, and executed
by the taxpayer or his duly authorized representative.
5. Both the date of execution by the taxpayer and date of acceptance by the
Bureau should be before the expiration of the period of prescription or
before the lapse of the period agreed upon in case a subsequent agreement
is executed.
6. The waiver must be executed in three copies, the original copy to be
attached to the docket of the case, the second copy for the taxpayer and the
third copy for the Office accepting the waiver. The fact of receipt by the
_______________
II. Repealing Clause
All other issuances and/or portions thereof inconsistent herewith are hereby repealed and
amended accordingly.
244
Corporation
taxpayer of his/her file copy must be indicated in the original copy to show
that the taxpayer was notified of the acceptance of the BIR and the
perfection of the agreement.19
Page 152 of 226

A perusal of the waivers executed by respondent’s accountant reveals the
following infirmities:
1. The waivers were executed without the notarized written authority of
Pasco to sign the waiver in behalf of respondent.
2. The waivers failed to indicate the date of acceptance.
3. The fact of receipt by the respondent of its file copy was not indicated in
the original copies of the waivers.
Due to the defects in the waivers, the period to assess or collect taxes was
not extended. Consequently, the assessments were issued by the BIR
beyond the three-year period and are void.
Estoppel does not apply in this case
We find no merit in petitioner’s claim that respondent is now estopped from
claiming prescription since by executing the waivers, it was the one which
asked for additional time to submit the required documents.
In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,20
the doctrine of estoppel prevented the taxpayer from raising the defense of
prescription against the efforts of the government to collect the assessed
tax. However, it must be stressed that in the said case, estoppel was
applied as an exception to the statute of limitations on collection of taxes
and not on the assessment of taxes, as the BIR was able to make an
assessment within the prescribed period. More
_______________
19 Philippine Journalist, Inc. v. Commissioner of Internal Revenue, 488 Phil. 218, 235; 447
SCRA 214, 230-231 (2004).
20 104 Phil 819 (1958).
245
VOL. 620, MAY 5, 2010 245
Corporation
important, there was a finding that the taxpayer made several requests or
positive acts to convince the government to postpone the collection of taxes,
viz.:
“It appears that the first assessment made against respondent based on its second
final return filed on November 28, 1946 was made on February 11, 1947. Upon
receipt of this assessment respondent requested for at least one year within which to
pay the amount assessed although it reserved its right to question the correctness of
the assessment before actual payment. Petitioner granted an extension of only three
months. When it failed to pay the tax within the period extended, petitioner sent
respondent a letter on November 28, 1950 demanding payment of the tax as
assessed, and upon receipt of the letter respondent asked for a reinvestigation and
reconsideration of the assessment. When this request was denied, respondent again
requested for a reconsideration on April 25, 1952, which was denied on May 6,
1953, which denial was appealed to the Conference Staff. The appeal was heard by
the Conference Staff from September 2, 1953 to July 16, 1955, and as a result of
these various negotiations, the assessment was finally reduced on July 26, 1955.
Page 153 of 226

This is the ruling which is now being questioned after a protracted negotiation on the
ground that the collection of the tax has already prescribed.
It is obvious from the foregoing that petitioner refrained from collecting the tax by
distraint or levy or by proceeding in court within the 5-year period from the filing of
the second amended final return due to the several requests of respondent for
extension to which petitioner yielded to give it every opportunity to prove its claim
regarding the correctness of the assessment. Because of such requests, several
reinvestigations were made and a hearing was even held by the Conference Staff
organized in the collection office to consider claims of such nature which, as the
record shows, lasted for several months. After inducing petitioner to delay collection
as he in fact did, it is most unfair for respondent to now take advantage of such
desistance to elude his deficiency income tax liability to the prejudice of the
Government invoking the technical ground of prescription.
While we may agree with the Court of Tax Appeals that a mere request for
reexamination or reinvestigation may not have the effect of suspending the running
of the period of limitation for in such case there is need of a written agreement to
extend the period between
246
Commissioner of Internal Revenue vs. Kudos Metal Corporation
the Collector and the taxpayer, there are cases however where a taxpayer may be
prevented from setting up the defense of prescription even if he has not previously
waived it in writing as when by his repeated requests or positive acts the
meant by the Government. And when such situation comes to pass there are
authorities that hold, based on weighty reasons, that such an attitude or behavior
should not be countenanced if only to protect the interest of the Government.
avail himself of the nonperformance which he has himself occasioned, for the law
says to him in effect “this is your own act, and therefore you are not damnified.’ ” “(R.
H. Stearns Co. vs. U.S., 78 L. ed., 647). Or, as was aptly said, “The tax could have
been collected, but the government withheld action at the specific request of the
plaintiff. The plaintiff is now estopped and should not be permitted to raise the
defense of the Statute of Limitations.” [Newport Co. vs. U.S., (DC-WIS), 34 F. Supp.
588].”21
Conversely, in this case, the assessments were issued beyond the
prescribed period. Also, there is no showing that respondent made any
request to persuade the BIR to postpone the issuance of the assessments.
The doctrine of estoppel cannot be applied in this case as an exception to
the statute of limitations on the assessment of taxes considering that there
is a detailed procedure for the proper execution of the waiver, which the BIR
must strictly follow. As we have often said, the doctrine of estoppel is
Page 154 of 226

predicated on, and has its origin in, equity which, broadly defined, is justice
according to natural law and right.22 As
_______________
21 Id., at pp. 822-824.
22 La Naval Drug Corporation v. Court of Appeals, G.R. No. 103200, August 31, 1994, 236
SCRA 78, 87.
247
VOL. 620, MAY 5, 2010 247
Corporation
such, the doctrine of estoppel cannot give validity to an act that is prohibited
by law or one that is against public policy.23 It should be resorted to solely as
a means of preventing injustice and should not be permitted to defeat the
administration of the law, or to accomplish a wrong or secure an undue
advantage, or to extend beyond them requirements of the transactions in
which they originate.24 Simply put, the doctrine of estoppel must be sparingly
applied.
Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its
failure to comply with RMO 20-90 and RDAO 05-01, which the BIR itself
issued. As stated earlier, the BIR failed to verify whether a notarized written
authority was given by the respondent to its accountant, and to indicate the
date of acceptance and the receipt by the respondent of the waivers. Having
caused the defects in the waivers, the BIR must bear the consequence. It
cannot shift the blame to the taxpayer. To stress, a waiver of the statute of
limitations, being a derogation of the taxpayer’s right to security against
prolonged and unscrupulous investigations, must be carefully and strictly
construed.25
As to the alleged delay of the respondent to furnish the BIR of the required
documents, this cannot be taken against respondent. Neither can the BIR
use this as an excuse for issuing the assessments beyond the three-year
period because with or without the required documents, the CIR has the
power to make assessments based on the best evidence obtainable.26
_______________
23 Ouano v. Court of Appeals, 446 Phil. 690, 708; 398 SCRA 525, 538 (2003).
24 C & S Fishfarm Corporation v. Court of Appeals, 442 Phil. 279, 290; 394 SCRA 82, 90
(2002).
25 Philippine Journalist, Inc. v. Commissioner of Internal Revenue, supra note 19 at pp.
231-232; p. 227.
26 SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional
Requirements for Tax Administration and Enforcement—
248
Corporation
Page 155 of 226

WHEREFORE, the petition is DENIED. The assailed Decision dated March
30, 2007 and Resolution dated May 18, 2007 of the Court of Tax Appeals
are hereby AFFIRMED.
SO ORDERED.
Carpio (Chairperson), Brion, Abad and Perez, JJ., concur.
Petition denied, judgment and resolution affirmed.
Note.—The doctrine of estoppel is based on the grounds of public policy,

fair dealing, good faith and justice and its purpose is to forbid one to speak
against his own act, representations or commitments to the injury of one to
whom they were directed and who reasonably relied thereon. (Rockland
Construction Company, Inc. vs. Mid-Pasig Land Development Corporation,
543 SCRA 596 [2008])
——o0o——
_______________
xxxx
(b) Failure to Submit Required Returns, Statements, Reports and other Documents.—When 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 rules and regulation or when there is reason
to believe that any such report is false, incomplete or erroneous, the Commissioner shall
assess the proper tax on the best evidence obtainable.
In case a person fails to file a required return or other document at the time prescribed by law,
or willfully or otherwise files a false or fraudulent return or other document, the Commissioner
shall make or amend the return from his own knowledge and from such information as he can
obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all
legal purposes.
Page 156 of 226

G.R. No. 170257. September 7, 2011.*
RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
Estoppel; A party is precluded from denying his own acts, admissions or
representations to the prejudice of the other party in order to prevent fraud and
falsehood.—Under Article 1431 of the Civil Code, the doctrine of estoppel is
anchored on the rule that “an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved as against the person
relying thereon.” A party is precluded from denying his own acts, admissions or
representations to the prejudice of the other party in order to prevent fraud and
falsehood.
Taxation; Withholding Tax System; The withholding agent is liable only insofar
as he failed to perform his duty to withhold the tax and remit the same to the
government—the liability for the tax, however, remains with the taxpayer because
the gain was realized and received by him; The taxpayer shares the responsibility of
making certain that the tax is properly withheld by the withholding agent, so as to
avoid any penalty that may arise from the non-payment of the withholding tax due.—
Based on the foregoing, the liability of the withholding agent is independent from that
of the taxpayer. The former cannot be made liable for the tax due because it is the
latter who earned the income subject to withholding tax. The withholding agent is
liable only insofar as he failed to perform his duty to withhold the tax and remit the
same to the government. The liability for the tax, however, remains with the taxpayer
because the gain was realized and received by him. While the payor-borrower can
be held accountable for its negligence in performing its duty to withhold the amount
of tax due on the transaction, RCBC, as the taxpayer and the one which earned
income on the transaction, remains liable for the payment of tax as the taxpayer
shares the responsibility of making certain that the tax is properly withheld by the
withholding agent, so as to avoid any penalty that may arise from the non-payment
of the withholding tax due. RCBC cannot evade its liability
_______________
* THIRD DIVISION.
71
VOL. 657, SEPTEMBER 7, 2011 71
Rizal Commercial Banking Corporation vs. Commissioner of Internal
Revenue
for FCDU Onshore Tax by shifting the blame on the payor-borrower as the
withholding agent.
Same; Courts; Court of Tax Appeals (CTA); The Court of Tax Appeals (CTA), as
a specialized court dedicated exclusively to the study and resolution of tax problems,
has developed an expertise on the subject of taxation—its decision shall not be
lightly set aside on appeal, unless the Supreme Court finds that the questioned
decision is not supported by substantial evidence or there is a showing of abuse or
improvident exercise of authority on the part of the Tax Court.—As a final note, this
Court has consistently held that findings and conclusions of the CTA shall be
accorded the highest respect and shall be presumed valid, in the absence of any
clear and convincing proof to the contrary. The CTA, as a specialized court
dedicated exclusively to the study and resolution of tax problems, has developed an
expertise on the subject of taxation. As such, its decisions shall not be lightly set
aside on appeal, unless this Court finds that the questioned decision is not
Page 157 of 226
supported by substantial evidence or there is a showing of abuse or improvident
exercise of authority on the part of the Tax Court.
of Tax Appeals.
Lapuz-Ureta, Ramos, Arches, Cruz & Manlangit Law Offices for
petitioner.
Office of the Solicitor General for respondent.
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 seeking to set
aside the July 27, 2005 Decision1 and October
_______________
1 Penned by Associate Justice Olga Palanca-Enriquez and concurred in by Presiding Justice
Ernesto D. Acosta and Associate Justices Juanito C. Castañeda, Jr., Lovell R. Bautista, Erlinda
P. Uy and Caesar A. Casanova; Rollo, pp. 44-66.
72
Rizal Commercial Banking Corporation vs. Commissioner of
Internal Revenue
26, 2005 Resolution2 of the Court of Tax Appeals En Banc (CTA-En Banc) in
C.T.A. E.B. No. 83 entitled “Rizal Commercial Banking Corporation v.
Commissioner of Internal Revenue.”
The Facts
Petitioner Rizal Commercial Banking Corporation (RCBC) is a corporation
engaged in general banking operations. It seasonably filed its Corporation
Annual Income Tax Returns for Foreign Currency Deposit Unit for the
calendar years 1994 and 1995.3
On August 15, 1996, RCBC received Letter of Authority No. 133959 issued
by then Commissioner of Internal Revenue (CIR) Liwayway Vinzons-Chato,
authorizing a special audit team to examine the books of accounts and other
accounting records for all internal revenue taxes from January 1, 1994 to
December 31, 1995.4
On January 23, 1997, RCBC executed two Waivers of the Defense of
Prescription Under the Statute of Limitations of the National Internal
Revenue Code covering the internal revenue taxes due for the years 1994
and 1995, effectively extending the period of the Bureau of Internal
Revenue (BIR) to assess up to December 31, 2000.5
Subsequently, on January 27, 2000, RCBC received a Formal Letter of
Demand together with Assessment Notices from the BIR for the following
deficiency tax assessments:6
_______________
2 Id., at pp. 67-68.
3 Id., at pp. 69-70.
4 Id.
5 Id.
Page 158 of 226
6 Id., at pp. 70-71.
73
Internal Revenue
Particulars Basic Tax Interest Compromise Total

Penalties
Deficiency Inco-
me Tax
1995 (ST- P252,150,988.01 P191,496,585.96 P 25,000.00 P443,672,573.97
INC-95-0199-2000)
1994 (ST- 216,478,397.90 207,819,261.99 25,000.00 424,322,659.89
INC-94-0200-2000)
Deficiency Gross
Receipts Tax
1995 (ST- 13,697,083.68 12,428,696.21 2,819,745.52 28,945,525.41
GRT-95-0201-2000)
1994 (ST- 2,488,462.38 2,755,716.42 25,000.00 5,269,178.80
GRT-94-0202-2000)
Deficiency
Final Withhol-
ding Tax
1995 (ST- 64,365,610.12 58,757,866.78 25,000.00 123,148,477.15
EWT-95-0203-2000
)
1994 (ST- 53,058,075.25 59,047,096.34 25,000.00 112,130,171.59
EWT-94-0204-2000
)
Deficiency Final
Tax on FCDU
Onshore Income
1995 (ST- 81,508,718.20 61,901,963,.52 25,000.00 143,435,681.72
OT-95-0205-2000)
1994 (ST- 34,429,503.10 33,052,322.98 25,000.00 67,506,826.08
OT-94-0206-2000)
Deficiency
Expanded
Withholding Tax
1995 (ST- 5,051,415.22 4,583,640.33 113,000.00 9,748,055.55
EWT-95-0207-2000
)
1994 (ST- 4,482,740.35 4,067,626.31 78,200.00 8,628,566.66
EWT-94-0208-2000
)
Deficiency
Documentary
Stamp Tax
1995 (ST- 351,900,539.39 315,804,946.26 250,000.00 667,955,485.65
DST1-95-0209-200
0)
1995 (ST- 367,207,105.29 331,535,844.68 300,000.00 699,042,949.97
DST2-95-0210-200
0)
1994 (ST- 460,370,640.05 512,193,460.02 300,000.00 972,864,100.07
DST3-94-0211-200
0)
1994 (ST- 223,037,675.89 240,050,706.09 300,000.00 463,388,381.98
DST4-94-0212-200
0)
TOTALS P2,130,226,954.8 P2,035,495,733.8 P4,335,945.52 P4,170,058,634.4
3 9 9
74
Internal Revenue
Page 159 of 226

Disagreeing with the said deficiency tax assessment, RCBC filed a protest
on February 24, 2000 and later submitted the relevant documentary
evidence to support it. Much later on November 20, 2000, it filed a petition
for review before the CTA, pursuant to Section 228 of the 1997 Tax Code.7
On December 6, 2000, RCBC received another Formal Letter of Demand
with Assessment Notices dated October 20, 2000, following the
reinvestigation it requested, which drastically reduced the original amount of
deficiency taxes to the following:8
Particulars Basic Tax Interest Surcharge &/ Total
Compromise
Deficiency Income Tax
1995 (INC-95-000003) P374,348.45 P346,656.92 P721,005.37
1994 (INC-94-000002) 1,392,366.28 1,568,605.52 2,960,971.80
Deficiency Gross
Receipts Tax
1995 (GRT-95-000004) 2,000,926.96 3,322,589.63 P1,367,222.0 6,690,738.63
4
1994 (GRT-94-000003) 138,368.61 161,872.32 300,240.93
Deficiency Final
Withholding Tax
1995 (FT-95-000005) 362,203.47 351,287.75 713,491.22
1994 (FT-94-000004) 188,746.43 220,807.47 409,553.90
Deficiency Final Tax on

FCDU Onshore Income
1995 (OT-95-000006) 81,508,718.20 79,052,291.08 160,561,009.28
1994 (OT-94-000005) 34,429,503.10 40,277,802.26 74,707,305.36
Deficiency Expanded
Withholding Tax
1995 (EWT-95-000004) 520,869.72 505,171.80 25,000.00 1,051,041.03
1994 (EWT-94-000003) 297,949.95 348,560.63 25,000.00 671,510.58
Deficiency
Documentary Stamp
Tax
1995 (DST-95-000006) 599,890.72 149,972.68 749,863.40
_______________
7 Id., at pp. 71-72.
8 Id., at p. 72.
75
Internal Revenue
1 9 9 5 24,953,842.46 6,238,460.62 31,192,303.08

(DST2-95-0000
02)
1 9 9 4 905,064.74 226,266.18 1,131,330.92
(DST-94-00000
5)
1 9 9 4 17,040,104.84 4,260,026.21 21,300,131.05
(DST2-94-0000
01)
Page 160 of 226

TOTALS P164,712,903.4 P126,155,645.3 P12,291,947.7 P303,160,496.5
4 8 3 5
On the same day, RCBC paid the following deficiency taxes as assessed by
the BIR:9
Particulars 1994 1995 Total
Deficiency P2,965,549.4 P 722,236.11 P3,687,785.55
Income Tax 4
Deficiency 300,695.84 6,701,893.17 7,002,589.01
Gross Receipts
Tax
Deficiency Final 410,174.44 714,682.02 1,124,856.46
Withholding Tax
Deficiency 672,490.14 1,052,753.48 1,725,243.62
Expanded
Withholding Tax
Deficiency 1,131,330.92 749,863.40 1,881,194.32
Documentary
Stamp Tax
TOTALS P5,480,240.7 P9,941,428.1 P15,421,668.9
8 8 6
RCBC, however, refused to pay the following assessments for deficiency
onshore tax and documentary stamp tax which remained to be the subjects
of its petition for review:10

Deficiency
Final Tax
on FCDU
Onshore
Income
Basic P34,429,503.1 P81,508,718.20 P115,938,221.3
0 0
Interest 40,277,802.26 79,052,291.08 119,330,093.34
_______________
9 Id., at p. 73.
10 Id.
76
Internal Revenue
Sub Total P74,707,305.3 P160,561,009.2 P235,268,314.6

6 8 4
Deficiency
Documentary
Stamp Tax
Page 161 of 226

Basic P17,040,104.8 P 24,953,842.46 P 41,993,947.30
4
Surcharge 4,260,026.21 6,238,460.62 10,498,486.83
Sub Total P21,300,131.0 P 31,192,303.08 P 52,492,434.13
5
TOTALS P96,007,436.4 P191,753,312.3 P287,760,748.7
1 6 7
RCBC argued that the waivers of the Statute of Limitations which it
executed on January 23, 1997 were not valid because the same were not
signed or conformed to by the respondent CIR as required under Section
222(b) of the Tax Code.11 As regards the deficiency FCDU onshore tax,
RCBC contended that because the onshore tax was collected in the form of
a final withholding tax, it was the borrower, constituted by law as the
withholding agent, that was primarily liable for the remittance of the said
tax.12
On December 15, 2004, the First Division of the Court of Tax Appeals (CTA-
First Division) promulgated its Decision13 which partially granted the petition
for review. It considered as closed and terminated the assessments for
deficiency income tax, deficiency gross receipts tax, deficiency final
withholding tax, deficiency expanded withholding tax, and deficiency
documentary stamp tax (not an industry issue) for 1994 and 1995.14 It,
however, upheld the assessment for deficiency final tax on FCDU onshore
income and deficiency documentary stamp tax for 1994 and 1995 and
ordered RCBC to pay the following amounts plus 20% delinquency tax:15
_______________
11 Id., at p. 100.
12 Id., at p. 104.
13 Id., at pp. 69-87. Penned by Presiding Justice Ernesto D. Acosta and concurred in by
Associate Justices Lovell R. Bautista and Caesar A. Casanova.
14 Id., at p. 86.
15 Id.
77
Internal Revenue

D e fi c i e n c y
Final Tax on
F C D U
Onshore
Income
Basic P22,356,324.4 P16,067,952.8 P115,938,
3 6 221.30
Interest 26,153,837.08 15,583,713.19 119,330,093.34
Sub Total 48,510,161.51 31,651,666.05 119,330,093.34
Page 162 of 226
D e fi c i e n c y
Documentary
S t a m p Ta x
(Industry
Issue)
Basic P17,040,104.8 P24,953,842.4 P 41,993,947.30
4 6
Surcharge 4,260,026.21 6,238,460.62 10,498,486.83
Sub Total 21,300,131.05 31,192,303.08 52,492,434.13
TOTALS P69,810,292.5 P62,843,969.1 P171,822,527.4
6 3 7
Unsatisfied, RCBC filed its Motion for Reconsideration on January 21, 2005,
arguing that: (1) the CTA erred in its addition of the total amount of
deficiency taxes and the correct amount should only be P132,654,261.69
and not P171,822,527.47; (2) the CTA erred in holding that RCBC was
estopped from questioning the validity of the waivers; (3) it was the payor-
borrower as withholding tax agent, and not RCBC, who was liable to pay the
final tax on FCDU, and (4) RCBC’s special savings account was not subject
to documentary stamp tax.16
In its Resolution17 dated April 11, 2005, the CTA-First Division substantially
upheld its earlier ruling, except for its inadvertence in the addition of the total
amount of deficiency taxes. As such, it modified its earlier decision and
ordered RCBC to pay the amount of P132,654,261.69 plus 20%
delinquency tax.18
_______________
16 Id., at p. 89.
17 Id., at pp. 88-94.
18 Id., at p. 94.
78
Internal Revenue
RCBC elevated the case to the CTA-En Banc where it raised the following
issues:
I.
Whether or not the right of the respondent to assess deficiency onshore tax and
documentary stamp tax for taxable year 1994 and 1995 had already prescribed
when it issued the formal letter of demand and assessment notices for the said
taxable years.
II.
Whether or not petitioner is liable for deficiency onshore tax for taxable year 1994
and 1995.
III.
Whether or not petitioner’s special savings account is subject to documentary stamp
tax under then Section 180 of the 1993 Tax Code.19
Page 163 of 226

The CTA-En Banc, in its assailed Decision, denied the petition for lack of
merit. It ruled that by receiving, accepting and paying portions of the
reduced assessment, RCBC bound itself to the new assessment, implying
that it recognized the validity of the waivers.20 RCBC could not assail the
validity of the waivers after it had received and accepted certain benefits as
a result of the execution of the said waivers.21 As to the deficiency onshore
tax, it held that because the payor-borrower was merely designated by law
to withhold and remit the said tax, it would then follow that the tax should be
imposed on RCBC as the payee-bank.22 Finally, in relation to the
assessment of the deficiency documentary stamp tax on petitioner’s special
savings account, it held that petitioner’s special sav-
_______________
19 Id., at pp. 50-51.
20 Id., at p. 55.
21 Id.
22 Id., at p. 59.
79
Internal Revenue
ings account was a certificate of deposit and, as such, was subject to
documentary stamp tax.23
Hence, this petition.
While awaiting the decision of this Court, RCBC filed its Manifestation dated
July 22, 2009, informing the Court that this petition, relative to the DST
deficiency assessment, had been rendered moot and academic by its
payment of the tax deficiencies on Documentary Stamp Tax (DST) on
Special Savings Account (SSA) for taxable years 1994 and 1995 after the
BIR approved its applications for tax abatement.24
In its November 17, 2009 Comment to the Manifestation, the CIR pointed
out that the only remaining issues raised in the present petition were those
pertaining to RCBC’s deficiency tax on FCDU Onshore Income for taxable
years 1994 and 1995 in the aggregate amount of P80,161,827.56 plus 20%
delinquency interest per annum. The CIR prayed that RCBC be considered
to have withdrawn its appeal with respect to the CTA-En Banc ruling on its
DST on SSA deficiency for taxable years 1994 and 1995 and that the
questioned CTA decision regarding RCBC’s deficiency tax on FCDU
Onshore Income for the same period be affirmed.25
The Issues
Thus, only the following issues remain to be resolved by this Court:
Whether petitioner, by paying the other tax assessment covered by the waivers of
the statute of limitations, is rendered estopped from questioning the validity of the
said waivers with respect to the assessment of deficiency onshore tax.26
_______________
23 Id., at p. 65.
Page 164 of 226

24 Id., at pp. 218-220.
25 Id., at pp. 233-235.
26 Id., at p. 15.
80
Revenue
and
Whether petitioner, as payee-bank, can be held liable for deficiency onshore tax,
which is mandated by law to be collected at source in the form of a final withholding
tax.27
The Court’s Ruling
Petitioner is estopped from
questioning the validity of the waivers
RCBC assails the validity of the waivers of the statute of limitations on the
ground that the said waivers were merely attested to by Sixto Esquivias,
then Coordinator for the CIR, and that he failed to indicate acceptance or
agreement of the CIR, as required under Section 223 (b) of the 1977 Tax
Code.28 RCBC further argues that the principle of estoppel cannot be
applied against it because its payment of the other tax assessments does
not signify a clear intention on its part to give up its right to question the
validity of the waivers.29
The Court disagrees.
Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored on
the rule that “an admission or representation is rendered conclusive upon
the person making it, and cannot be denied or disproved as against the
person relying thereon.” A party is precluded from denying his own acts,
admissions or representations to the prejudice of the other party in order to
prevent fraud and falsehood.30
Estoppel is clearly applicable to the case at bench. RCBC, through its partial
payment of the revised assessments issued within the extended period as
provided for in the questioned waivers, impliedly admitted the validity of
those waivers. Had
_______________
27 Id.
28 Id., at p. 173.
29 Id., at p. 176.
30 Tolentino, Arturo M. Commentaries and Jurisprudence on the Civil Code of the Philippines,
Vol. 4, p. 660.
81
Internal Revenue
petitioner truly believed that the waivers were invalid and that the
assessments were issued beyond the prescriptive period, then it should not
have paid the reduced amount of taxes in the revised assessment. RCBC’s
Page 165 of 226
subsequent action effectively belies its insistence that the waivers are
invalid. The records show that on December 6, 2000, upon receipt of the
revised assessment, RCBC immediately made payment on the uncontested
taxes. Thus, RCBC is estopped from questioning the validity of the waivers.
To hold otherwise and allow a party to gainsay its own act or deny rights
which it had previously recognized would run counter to the principle of
equity which this institution holds dear.31
Liability for Deficiency
Onshore Withholding Tax
RCBC is convinced that it is the payor-borrower, as withholding agent, who
is directly liable for the payment of onshore tax, citing Section 2.57(A) of
Revenue Regulations No. 2-98 which states:
(A) Final Withholding Tax.—Under the final withholding tax system the amount of
income tax withheld by the withholding agent is constituted as a full and final
payment of the income tax due from the payee on the said income. The liability for
payment of the tax rests primarily on the payor as a withholding agent. Thus, in case
of his failure to withhold the tax or in case of under withholding, the deficiency tax
shall be collected from the payor/withholding agent. The payee is not required to file
an income tax return for the particular income. (Emphasis supplied)
The petitioner is mistaken.
Before any further discussion, it should be pointed out that RCBC erred in
citing the abovementioned Revenue Regulations No. 2-98 because the
same governs collection at source on income paid only on or after January
1, 1998. The defi-
_______________
31 Id.
82
Internal Revenue
ciency withholding tax subject of this petition was supposed to have been
withheld on income paid during the taxable years of 1994 and 1995. Hence,
Revenue Regulations No. 2-98 obviously does not apply in this case.
In Chamber of Real Estate and Builders’ Associations, Inc. v. The Executive
Secretary,32 the Court has explained that the purpose of the withholding tax
system is three-fold: (1) to provide the taxpayer with a convenient way of
paying his tax liability; (2) to ensure the collection of tax, and (3) to improve
the government’s cashflow. Under the withholding tax system, the payor is
the taxpayer upon whom the tax is imposed, while the withholding agent
simply acts as an agent or a collector of the government to ensure the
collection of taxes.33
It is, therefore, indisputable that the withholding agent is merely a tax
collector and not a taxpayer, as elucidated by this Court in the case of
Commissioner of Internal Revenue v. Court of Appeals,34 to wit:
Page 166 of 226

In the operation of the withholding tax system, the withholding agent is the payor, a
separate entity acting no more than an agent of the government for the collection of
the tax in order to ensure its payments; the payer is the taxpayer—he is the person
subject to tax imposed by law; and the payee is the taxing authority. In other words,
the withholding agent is merely a tax collector, not a taxpayer. Under the withholding
system, however, the agent-payor becomes a payee by fiction of law. His (agent)
liability is direct and independent from the taxpayer, because the income tax is still
imposed on and due from the latter. The agent is not liable for the tax as no wealth
flowed into him—he earned no income. The Tax Code only makes the agent
personally liable for the tax arising from the breach of its legal duty to withhold as
distinguished from its duty to pay tax since:
_______________
32 G.R. No. 160756, March 9, 2010, 614 SCRA 605, 632-633.
33 Bank of America NT & SA v. Court of Appeals, G.R. Nos. 103092 and 103106, July 21, 1994, 234
SCRA 302, 310.
34 361 Phil. 103; 301 SCRA 152 (1999).
83
Revenue
“the government’s cause of action against the withholding agent is not for the
collection of income tax, but for the enforcement of the withholding provision
of Section 53 of the Tax Code, compliance with which is imposed on the
withholding agent and not upon the taxpayer.”35 (Emphases supplied)
Based on the foregoing, the liability of the withholding agent is independent
from that of the taxpayer. The former cannot be made liable for the tax due
because it is the latter who earned the income subject to withholding tax.
The withholding agent is liable only insofar as he failed to perform his duty
to withhold the tax and remit the same to the government. The liability for
the tax, however, remains with the taxpayer because the gain was realized
and received by him.
While the payor-borrower can be held accountable for its negligence in
performing its duty to withhold the amount of tax due on the transaction,
RCBC, as the taxpayer and the one which earned income on the
transaction, remains liable for the payment of tax as the taxpayer shares the
responsibility of making certain that the tax is properly withheld by the
withholding agent, so as to avoid any penalty that may arise from the non-
payment of the withholding tax due.
RCBC cannot evade its liability for FCDU Onshore Tax by shifting the blame
on the payor-borrower as the withholding agent. As such, it is liable for
payment of deficiency onshore tax on interest income derived from foreign
currency loans, pursuant to Section 24(e)(3) of the National Internal
Revenue Code of 1993:
_______________
35 Commissioner of Internal Revenue v. Court of Appeals, 361 Phil. 103, 117-118; 301 SCRA
152, 170-171 (1999), citing Commissioner of Internal Revenue v. Malayan Insurance, 129 Phil.
Page 167 of 226

165, 170; 21 SCRA 944, 949 (1967), citing Jai Alai v. Republic, L-17462, May 29, 1967; 1967B
PHILD 460.
84
Internal Revenue
“Sec. 24. Rates of tax on domestic corporations.

xxxx
(e) Tax on certain incomes derived by domestic corporations
xxxx
(3) Tax on income derived under the Expanded Foreign Currency Deposit System.—
Income derived by a depository bank under the expanded foreign currency deposit
system from foreign currency transactions with nonresidents, offshore banking units
in the Philippines, local commercial banks including branches of foreign banks that
may be authorized by the Central Bank to transact business with foreign currency
depository system units and other depository banks under the expanded foreign
currency deposit system shall be exempt from all taxes, except taxable income from
such transactions as may be specified by the Secretary of Finance, upon
recommendation of the Monetary Board to be subject to the usual income tax
payable by banks: Provided, That interest income from foreign currency loans
granted by such depository banks under said expanded system to residents (other
than offshore banking units in the Philippines or other depository banks under the
expanded system) shall be subject to a 10% tax.” (Emphasis supplied)
As a final note, this Court has consistently held that findings and
conclusions of the CTA shall be accorded the highest respect and shall be
presumed valid, in the absence of any clear and convincing proof to the
contrary.36 The CTA, as a specialized court dedicated exclusively to the
study and resolution of tax problems, has developed an expertise on the
_______________
36 Panasonic Communications Imaging Corporation of the Philippines (formerly Matsushita
Business Machine Corporation of the Philippines) v. Commissioner of Internal Revenue, G.R.
No. 178090, February 8, 2010, 612 SCRA 28, 38, citing Commissioner of Internal Revenue v.
Cebu Toyo Corporation, 491 Phil. 625, 640; 451 SCRA 447, 463 (2005); Commissioner of
Internal Revenue v. Court of Appeals, Atlas Consolidated Mining and Development
Corporation, 312 Phil. 337; 242 SCRA 655 (1995), citing Luzon Stevedoring Corporation v.
Court of Tax Appeals, et al., 246 Phil. 666; 163 SCRA 647 (1988).
85
Internal Revenue
subject of taxation.37 As such, its decisions shall not be lightly set aside on
appeal, unless this Court finds that the questioned decision is not supported
by substantial evidence or there is a showing of abuse or improvident
exercise of authority on the part of the Tax Court.38
WHEREFORE, the petition is DENIED.
SO ORDERED.
Page 168 of 226
Velasco, Jr. (Chairperson), Peralta, Abad and Villarama, Jr.,** JJ.,
concur.
Petition denied.
Notes.—When the law itself does not explicitly provide that a refund
under RA 1435 may be based on higher rates which were nonexistent at the
time of its enactment, this Court cannot presume otherwise—a legislative
lacuna cannot be filled by judicial fiat. (Aras-Asan Timber Co., Inc. vs.
Commissioner of Internal Revenue, 363 SCRA 332 [2001])
An estoppel may arise from the making of a promise even though without
consideration, if it was intended that the promise should be relied upon and
in fact it was relied upon,
_______________
37 Commissioner of Internal Revenue v. Court of Appeals, 363 Phil. 239, 246; 303 SCRA 614,
621 (1999), citing Commissioner of Internal Revenue v. Wander Philippines, Inc., 243 Phil. 717;
160 SCRA 573 (1988).
38 Toshiba Information Equipment (Phils.), Inc. v. Commissioner of Internal Revenue, G.R. No.
157594, March 9, 2010, 614 SCRA 526, 561-562, citing Barcelon, Roxas Securities, Inc. (now
known as UBP Securities, Inc.) v. Commissioner of Internal Revenue, G.R. No. 150764, August
7, 2006, 498 SCRA 126,135-136 and Commissioner of Internal Revenue v. Cebu Toyo
Corporation, 491 Phil. 625, 640; 451 SCRA 447, 463 (2005).
** Designated as additional member in lieu of Associate Justice Maria Lourdes P. A. Sereno,
per Special Order No. 1076 dated September 6, 2011.
86
Internal Revenue
and if a refusal to enforce it would be virtually to sanction the perpetration of
fraud or would result in other injustice. (Terminal Facilities and Services
Corporation vs. Philippine Ports Authority, 378 SCRA 82 [2002])
——o0o——
Page 169 of 226

VOL. 506, OCTOBER 31, 2006 427
Communication, Inc.
G.R. No. 167146. October 31, 2006. *
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. PHILIPPINE

GLOBAL COMMUNICATION, INC., respondent.
Taxation; Prescription; The law increased the prescriptive period to assess or to
return was filed at all.—The law prescribed a period of three years from the date the
return was actually filed or from the last date prescribed by law for the filing of such
return, whichever came later, within which the BIR may assess a national internal
revenue tax. However, the law increased the prescriptive period to assess or to
return was filed at all. In such cases, the ten-year period began to run only from the
date of discovery by the BIR of the falsity, fraud or omission.
Same; Same; The law provided another three years after the assessment for the
collection of the tax due thereon through the administrative process of distraint and/
or levy or through judicial proceedings—the three year period for collection of the
assessed tax began to run on the date the assessment notice had been released,
mailed or sent by the BIR.—If the BIR issued this assessment within the threeyear
period or the ten-year period, whichever was applicable, the law provided another
three years after the assessment for the collection of the tax due thereon through the
administrative process of distraint and/or levy or through judicial proceedings. The
three-year period for collection of the assessed tax began to run on the date the
assessment notice had been released, mailed or sent by the BIR.
Same; Same; The provisions on prescription in the assessment and collection of
national internal revenue taxes became law upon the recommendation of the tax
commissioner of the Philippines.—The provisions on prescription in the assessment
and collection of na-
_______________
* FIRST DIVISION.
428

Communication, Inc.
tional internal revenue taxes became law upon the recommendation of the tax
commissioner of the Philippines. The report submitted by the tax commission clearly
states that these provisions on prescription should be enacted to benefit and protect
taxpayers.
Same; Statute of Limitations; The statute of limitations on the collection of taxes
should benefit both the Government and the taxpayers.—In a number of cases, this
Court has also clarified that the statute of limitations on the collection of taxes should
benefit both the Government and the taxpayers. In these cases, the Court further
illustrated the harmful effects that the delay in the assessment and collection of
Page 170 of 226
taxes inflicts upon taxpayers. In Collector of Internal Revenue v. Suyoc Consolidated
Mining Company, 104 Phil. 819 (1958), Justice Montemayor, in his dissenting
opinion, identified the potential loss to the taxpayer if the assessment and collection
of taxes are not promptly made.
Same; Same; The statute of limitations of actions for the collection of taxes is
justified by the need to protect law-abiding citizens from possible harassment.—In
Republic of the Philippines v. Ablaza, 108 Phil. 1105 (1960), this Court emphatically
explained that the statute of limitations of actions for the collection of taxes is
justified by the need to protect law-abiding citizens from possible harassment.
Same; Same; Though the statute of limitations for the collection of taxes benefits
the taxpayer against unreasonable investigation.—In the recent case Bank of the
Philippine Islands v. Commissioner of Internal Revenue, 473 SCRA 205 (2005), this
Court, in confirming these earlier rulings, pronounced that: Though the statute of
limitations on assessment and collection of national internal revenue taxes benefits
the taxpayer against unreasonable investigation. The indefinite extension of the
period for assessment is unreasonable because it deprives the said taxpayer of the
assurance that he will no longer be subjected to further investigation for taxes after
the expiration of a reasonable period of time.
Same; Same; Prescription; The law on prescription should be liberally construed in
order to protect taxpayers and that, as a corollary, the exceptions to the law on
prescription should be strictly con-
429
VOL. 506, OCTOBER 31, 2006 429

Communication, Inc.
strued.—In Commissioner of Internal Revenue v. B.F. Goodrich, 303 SCRA 546
(1999), this Court affirmed that the law on prescription should be liberally construed
in order to protect taxpayers and that, as a corollary, the exceptions to the law on
prescription should be strictly construed.
Same; Same; Same; Section 271 of the 1997 Tax Code provides instances when the
running of the statute of limitations on the assessment and collection of national
internal revenue taxes could be suspended even in the absence of waiver.—The Tax
Code of 1977, as amended, provides instances when the running of the statute of
limitations on the assessment and collection of national internal revenue taxes could
be suspended, even in the absence of a waiver, under Section 271 thereof which
reads: Section 224. Suspension of running of statute.—The running of the statute of
assessed or collected x x x.
Same; Same; Same; Revenue Regulations No. 12-85, the Procedure Governing
Administrative Protests of Assessment of the Bureau of Internal Revenue, defines
Page 171 of 226
two types of protest, the request for reconsideration and the request for
reinvestigation.—Revenue Regulations No. 12-85, the Procedure Governing
Administrative Protests of Assessment of the Bureau of Internal Revenue, issued on
27 November 1985, defines the two types of protest, the request for reconsideration
and the request for reinvestigation, and distinguishes one from the other in this
manner: x x x
Same; Same; Same; The main difference between the two types of protests lies in
the records or evidence to be examined by internal revenue officers, whether there
are existing records or newly discovered or additional evidence; A request for
reinvestigation, and not a request for reconsideration, interrupts the running of the
statute of limitations on the collection of the assessed tax.—The main difference
430

Communication, Inc.
between these two types of protests lies in the records or evidence to be examined
by internal revenue officers, whether these are existing records or newly discovered
or additional evidence. A re-evaluation of existing records which results from a
request for reconsideration does not toll the running of the prescription period for the
collection of an assessed tax. Section 271 distinctly limits the suspension of the
running of the statute of limitations to instances when reinvestigation is requested by
a taxpayer and is granted by the CIR. The Court provided a clear-cut rationale in the
case of Bank of the Philippine Islands v. Commissioner of Internal Revenue, 473
SCRA 205 (2005), explaining why a request for reinvestigation, and not a request for
reconsideration, interrupts the running of the statute of limitations on the collection of
the assessed tax.
Same; Same; Same; The Court weighed the considerable time spent by the BIR to
actually conduct the reinvestigations requested by the taxpayer in deciding that the
prescription period was suspended during this time.—In Collector of Internal
Revenue v. Suyoc Consolidated Mining Company, 104 Phil. 819 (1958), the Court
weighed the considerable time spent by the BIR to actually conduct the
reinvestigations requested by the taxpayer in deciding that the prescription period
was suspended during this time.
Same; Same; Same; Where a taxpayer demands a reinvestigation, the time
employed in reinvestigating should be deducted from the total period of limitation.—
The Court reiterated the ruling in Republic v. Lopez, 7 SCRA 566 (1963), in the case
of Commissioner of Internal Revenue v. Sison, 7 SCRA 884 (1963), “that where a
deducted from the total period of limitation.” Finally, in Republic v. Arcache, 10 SCRA
337 (1964), the Court enumerated the reasons why the taxpayer is barred from
invoking the defense of prescription, one of which was that, “In the first place, it
appears obvious that the delay in the collection of his 1946 tax liability was due to
his own repeated requests for reinvestigation and similarly repeated requests for
extension of time to pay.”
Same; Same; Same; It bears repetition that a request for reconsideration, unlike a
request for reinvestigation, cannot suspend the statute of limitations on the collection
of the assessed tax; If the taxpayer does file the protest on a patently erroneous
assessment, the
Page 172 of 226
431
VOL. 506, OCTOBER 31, 2006 431

Communication, Inc.
statute of limitations would automatically be suspended and the tax thereon may be
collected long after it was assessed.—The distinction between a request for
reconsideration and a request for reinvestigation is significant. It bears repetition that
a request for reconsideration, unlike a request for reinvestigation, cannot suspend
the statute of limitations on the collection of an assessed tax. If both types of protest
can effectively interrupt the running of the statute of limitations, an erroneous
assessment may never prescribe. If the taxpayer fails to file a protest, then the
erroneous assessment would become final and unappealable. On the other hand, if
the taxpayer does file the protest on a patently erroneous assessment, the statute of
limitations would automatically be suspended and the tax thereon may be collected
long after it was assessed. Meanwhile the interest on the deficiencies and the
surcharges continue to accumulate. And for an unrestricted number of years, the
taxpayers remain uncertain and are burdened with the costs of preserving their
books and records. This is the predicament that the law on the statute of limitations
seeks to prevent.
Same; Same; Same; The Court, in sustaining for the first time the suspension of the
running of the statute of limitations in cases where the taxpayer requested for a
reinvestigation, gave this justification that the taxpayer’s repeated requests or
positive acts the Government has been, for good reasons, persuaded to postpone
collection to make him feel that the demand was not unreasonable or that no
harassment or injustice is meant by the government.—The Court, in sustaining for
the first time the suspension of the running of the statute of limitations in cases
where the taxpayer requested for a reinvestigation, gave this justification: A taxpayer
may be prevented from setting up the defense of prescription even if he has not
previously waived it in writing as when by his repeated requests or positive acts the
meant by the Government.
Same; Same; Same; Given that both parties were at a deadlock, the next logical
step would have been for the BIR to issue a Decision denying respondent’s protest
and to initiate proceedings for the collection of the assessed tax and, thus allow the
respondent, should it so choose, to contest the assessment before the Court of Tax
Appeals.—
432
Communication, Inc.
This rationale is not applicable to the present case where the respondent did nothing
to prevent the BIR from collecting the tax. It did not present to the BIR any new
evidence for its re-evaluation. At the earliest opportunity, respondent insisted that the
assessment was invalid and made clear to the BIR its refusal to produce documents
that the BIR requested. On the other hand, the BIR also communicated to the
respondent its unwavering stance that its assessment is correct. Given that both
Page 173 of 226
parties were at a deadlock, the next logical step would have been for the BIR to
issue a Decision denying the respondent’s protest and to initiate proceedings for the
collection of the assessed tax and, thus, allow the respondent, should it so choose,
to contest the assessment before the CTA. Postponing the collection for eight long
years could not possibly make the taxpayer feel that the demand was not
unreasonable or that no harassment or injustice is meant by the Government. There
was no legal, or even a moral, obligation preventing the CIR from collecting the
assessed tax. In a similar case, Cordero v. Gonda, the Court did not suspend the
running of the prescription period where the acts of the taxpayer did not prevent the
Same; Same; Same; The three-year statute of limitations on the collection of an
assessed tax provided under Section 269 (c) of the Tax Code of 1997, a law enacted
to protect the interests of the taxpayer, must be given effect.—The three-year statute
of limitations on the collection of an assessed tax provided under Section 269(c) of
the Tax Code of 1977, a law enacted to protect the interests of the taxpayer, must be
given effect. In providing for exceptions to such rule in Section 271, the law strictly
limits the suspension of the running of the prescription period to, among other
instances, protests wherein the taxpayer requests for a reinvestigation. In this case,
where the taxpayer merely filed two protest letters requesting for a reconsideration,
and where the BIR could not have conducted a reinvestigation because no new or
additional evidence was submitted, the running of statute of limitations cannot be
interrupted. The tax which is the subject of the Decision issued by the CIR on 8
October 2002 affirming the Formal Assessment issued on 14 April 1994 can no
longer be the subject of any proceeding for its collection. Consequently, the right of
the government to collect the alleged deficiency tax is barred by prescription.
433
VOL. 506, OCTOBER 31, 2006 433
Communication, Inc.
PETITION for review on certiorari of a decision of the Court of Tax Appeals.
Tan, Acut & Lopez for respondent.
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari, under Rule 45 of the Rules of
Court, seeking to set aside the en banc Decision of the Court of Tax Appeals
(CTA) in CTA EB No. 37 dated 22 February 2005, ordering the petitioner to
1
withdraw and cancel Assessment Notice No. 000688-80-7333 issued

against respondent Philippine Global Communication, Inc. for its 1990
income tax deficiency. The CTA, in its assailed en banc Decision, affirmed
the Decision of the First Division of the CTA dated 9 June 2004 and its2
Resolution dated 22 September 2004 in C.T.A. Case No. 6568.

Respondent, a corporation engaged in telecommunications, filed its Annual
Income Tax Return for taxable year 1990 on 15 April 1991. On 13 April
1992, the Commissioner of Internal Revenue (CIR) issued Letter of
Authority No. 0002307, authorizing the appropriate Bureau of Internal
Page 174 of 226
Revenue (BIR) officials to examine the books of account and other
accounting records of respondent, in connection with the investigation of
respondent’s 1990 income tax liability. On 22 April 1992, the BIR sent a
letter to respondent requesting the latter to present for examination certain
records and documents, but respondent failed to present any document. On
21 April
_______________
1 Penned by Associate Justice Juanito C. Castañeda, Jr. with Presiding Justice Ernesto D.
Acosta, Associate Justice Erlinda P. Uy, Associate Justice Lovell R. Baustista, Associate
Justice Olga Palanca-Enriquez and Associate Justice Caesar A. Casanova, concurring. Rollo,
pp. 29-36.
2 Id., at pp. 37-45.
434
Communication, Inc.
1994, respondent received a Preliminary Assessment Notice dated 13 April
1994 for deficiency income tax in the amount of P118,271,672.00, inclusive
of surcharge, interest, and compromise penalty, arising from deductions that
were disallowed for failure to pay the withholding tax and interest expenses
that were likewise disallowed. On the following day, 22 April 1994,
respondent received a Formal Assessment Notice with Assessment Notice
No. 000688-80-7333, dated 14 April 1994, for deficiency income tax in the
total amount of P118,271,672.00. 3
On 6 May 1994, respondent, through its counsel Ponce Enrile Cayetano

Reyes and Manalastas Law Offices, filed a formal protest letter against
Assessment Notice No. 000688-807333. Respondent filed another protest
letter on 23 May 1994, through another counsel Siguion Reyna Montecillo &
Ongsiako Law Offices. In both letters, respondent requested for the
cancellation of the tax assessment, which they alleged was invalid for lack
of factual and legal basis. 4
On 16 October 2002, more than eight years after the assessment was
presumably issued, the Ponce Enrile Cayetano Reyes and Manalastas Law
Offices received from the CIR a Final Decision dated 8 October 2002
denying the respondent’s protest against Assessment Notice No.
000688-80-7333, and affirming the said assessment in toto. 5
On 15 November 2002, respondent filed a Petition for Review with the CTA.
After due notice and hearing, the CTA rendered a Decision in favor of
respondent on 9 June 2004. The CTA ruled on the primary issue of
6
prescription and found it unnecessary to decide the issues on the validity

and propriety of the assessment. It decided that the protest letters filed by
the respondent cannot constitute a request for reinvestiga-
_______________
3 Id., at pp. 37-38.
4 Id., at p. 38.
Page 175 of 226

5 Id., at p. 38.
6 Id., at pp. 37-45.
435
VOL. 506, OCTOBER 31, 2006 435
Communication, Inc.
tion, hence, they cannot toll the running of the prescriptive period to collect
the assessed deficiency income tax. Thus, since more than three years had
7
lapsed from the time Assessment Notice No. 000688-80-7333 was issued in
1994, the CIR’s right to collect the same has prescribed in conformity with
Section 269 of the National Internal Revenue Code of 1977 (Tax Code of 8
1977). The dispositive portion of this decision reads:

“WHEREFORE, premises considered, judgment is hereby rendered in favor of the
petitioner. Accordingly, respondent’s Final Decision dated October 8, 2002 is hereby
REVERSED and SET ASIDE and respondent is hereby ORDERED to WITHDRAW
and CANCEL Assessment Notice No. 000688-80-7333 issued against the petitioner
for its 1990 income tax deficiency because respondent’s right to collect the same
has prescribed.”9
The CIR moved for reconsideration of the aforesaid Decision but was
denied by the CTA in a Resolution dated 22 September 2004. Thereafter, 10
the CIR filed a Petition for Review with the CTA en banc, questioning the
aforesaid Decision and Resolution. In its en banc Decision, the CTA
affirmed
_______________
7 Id., at p. 44.
8 The CTA inadvertently referred to this provision as Section 223, which is the section where
this provision falls under the present tax code, the National Internal Revenue Code of 1997.
However, in the Tax Code of 1977, as amended, which was the law applicable to this case, this
provision was under Section 269, which reads:
Section 269. Exceptions as to the period of limitation of assessment and collection of taxes.—x x x
xxxx
c. Any internal revenue tax which has been assessed within the period of limitation above-prescribed may
be collected by distraint or levy or by a proceeding in court within three years following the assessment of
the tax.
9 Rollo, p. 45.
10 Id., at pp. 47-53.
436
Communication, Inc.
the Decision and Resolution in CTA Case No. 6568. The dispositive part
reads:
“WHEREFORE, premises considered, the Petition for Review is hereby DISMISSED
for lack of merit. Accordingly, the assailed Decision and Resolution in CTA Case No.
6568 are hereby AFFIRMED in toto.”11
Hence, this Petition for Review on Certiorari raising the following grounds:
Page 176 of 226

THE COURT OF TAX APPEALS, SITTING EN BANC, COMMITTED REVERSIBLE
ERROR IN AFFIRMING THE ASSAILED DECISION AND RESOLUTION IN CTA
CASE NO. 6568 DECLARING THAT THE RIGHT OF THE GOVERNMENT TO
COLLECT THE DEFICIENCY INCOME TAX FROM RESPONDENT FOR THE
YEAR 1990 HAS PRESCRIBED
A. THE PRESCRIPTIVE PERIOD WAS INTERRUPTED WHEN RESPONDENT FILED TWO
LETTERS OF PROTEST DISPUTING IN DETAIL THE DEFICIENCY ASSESSMENT IN
QUESTION AND REQUESTING THE CANCELLATION OF SAID ASSESSMENT. THE TWO
LETTERS OF PROTEST ARE, BY NATURE, REQUESTS FOR REINVESTIGATION OF THE
DISPUTED ASSESSMENT.
B. THE REQUESTS FOR REINVESTIGATION OF RESPONDENT WERE GRANTED BY
THE BUREAU OF INTERNAL REVENUE.12
This Court finds no merit in this Petition.
The main issue in this case is whether or not CIR’s right to collect
respondent’s alleged deficiency income tax is barred by prescription under
Section 269(c) of the Tax Code of 1977, which reads:
Section 269. Exceptions as to the period of limitation of assessment and collection of
taxes.—x x x
_______________
11 Id., at p. 35.
12 Id., at p. 15.
437
VOL. 506, OCTOBER 31, 2006 437
Communication, Inc.
xxxx
c. Any internal revenue tax which has been assessed within the period of limitation
within three years following the assessment of the tax.
The law prescribed a period of three years from the date the return was
actually filed or from the last date prescribed by law for the filing of such
return, whichever came later, within which the BIR may assess a national
internal revenue tax. However, the law increased the prescriptive period to
13
assess or to begin a court proceeding for the collection without an

assessment to ten years when a false or fraudulent return was filed with the
intent of evading the tax or when no return was filed at all. In such cases,
14
the ten-year period began to run only from the date of discovery by the BIR
of the falsity, fraud or omission.
If the BIR issued this assessment within the three-year period or the ten-
year period, whichever was applicable, the law provided another three years
after the assessment for the collection of the tax due thereon through the
administrative
_______________
13 Section 268. Period of limitation upon assessment and collection.—Except as provided in the
succeeding section, internal revenue taxes shall be assessed within three 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:
Page 177 of 226
Provided, That in a case where a return is filed beyond the period prescribed by law, the three-
year period shall be counted from the day the return was filed. For the purposes of this section,
a return filed before the last day prescribed by law for the filing thereof shall be considered as
filed on such last day.
14 Section 269. Exceptions as to period of limitations of assessment and collection of taxes.—
(a) In the case of a false or fraudulent return with intent to evade 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 begun
without assessment, at any time within ten years after the discovery of the falsity, fraud or
omission x x x.
438
Communication, Inc.
process of distraint and/or levy or through judicial proceedings. The three- 15
year period for collection of the assessed tax began to run on the date the
assessment notice had been released, mailed or sent by the BIR. 16
The assessment, in this case, was presumably issued on 14 April 1994

since the respondent did not dispute the CIR’s claim. Therefore, the BIR
had until 13 April 1997. However, as there was no Warrant of Distraint and/
or Levy served on the respondents nor any judicial proceedings initiated by
the BIR, the earliest attempt of the BIR to collect the tax due based on this
assessment was when it filed its Answer in CTA Case No. 6568 on 9
January 2003, which was several years beyond the three-year prescriptive
period. Thus, the CIR is now prescribed from collecting the assessed tax.
The provisions on prescription in the assessment and collection of national
internal revenue taxes became law upon the recommendation of the tax
commissioner of the Philippines. The report submitted by the tax
commission clearly states that these provisions on prescription should be
enacted to benefit and protect taxpayers:
“Under the former law, the right of the Government to collect the tax does not
prescribe. However, in fairness to the taxpayer, the Government should be estopped
from collecting the tax where it failed to make the necessary investigation and
assessment within 5 years after the filing of the return and where it failed to collect
the tax within 5 years from the date of assessment thereof. Just as the government
is interested in the stability of its collections, so also are the
_______________
15 Section 269. Exceptions as to the period of limitation of assessment and collection of taxes.
—x x x
xxxx
(c) Any internal revenue tax which has been assessed within the period of limitation above-prescribed
may be collected by distraint or levy or by a proceeding in court within three years following the
16Bank of the Philippine Islands v. Commissioner of Internal Revenue, G.R. No. 139736, 17
October 2005, 473 SCRA 205, 223.
439
VOL. 506, OCTOBER 31, 2006 439
Page 178 of 226

Communication, Inc.
taxpayers entitled to an assurance that they will not be subjected to further
investigation for tax purposes after the expiration of a reasonable period of time.
(Vol. II, Report of the Tax Commission of the Philippines, pp. 321-322).”17
In a number of cases, this Court has also clarified that the statute of
limitations on the collection of taxes should benefit both the Government
and the taxpayers. In these cases, the Court further illustrated the harmful
effects that the delay in the assessment and collection of taxes inflicts upon
taxpayers. In Collector of Internal Revenue v. Suyoc Consolidated Mining
Company, Justice Montemayor, in his dissenting opinion, identified the
18
potential loss to the taxpayer if the assessment and collection of taxes are
not promptly made.
“Prescription in the assessment and in the collection of taxes is provided by the
Legislature for the benefit of both the Government and the taxpayer; for the
Government for the purpose of expediting the collection of taxes, so that the agency
charged with the assessment and collection may not tarry too long or indefinitely to
the prejudice of the interests of the Government, which needs taxes to run it; and for
the taxpayer so that within a reasonable time after filing his return, he may know the
amount of the assessment he is required to pay, whether or not such assessment is
well founded and reasonable so that he may either pay the amount of the
assessment or contest its validity in court x x x. It would surely be prejudicial to the
interest of the taxpayer for the Government collecting agency to unduly delay the
assessment and the collection because by the time the collecting agency finally gets
around to making the assessment or making the collection, the taxpayer may then
have lost his papers and books to support his claim and contest that of the
Government, and what is more, the tax is in the meantime accumulating interest
which the taxpayer eventually has to pay.”
_______________
17 Republic of the Philippines v. Ablaza, 108 Phil. 1105, 11071108 (1960).
18 104 Phil. 819, 833-834 (1958).
440
Communication, Inc.
In Republic of the Philippines v. Ablaza, this Court emphatically explained
19
that the statute of limitations of actions for the collection of taxes is justified
by the need to protect law-abiding citizens from possible harassment:
“The law prescribing a limitation of actions for the collection of the income tax is
beneficial both to the Government and to its citizens; to the Government because tax
officers would be obliged to act promptly in the making of assessment, and to
citizens because after the lapse of the period of prescription citizens would have a
feeling of security against unscrupulous tax agents who will always find an excuse to
inspect the books of taxpayers, not to determine the latter’s real liability, but to take
advantage of every opportunity to molest, peaceful, law-abiding citizens. Without
such legal defense taxpayers would furthermore be under obligation to always keep
their books and keep them open for inspection subject to harassment by
Page 179 of 226
unscrupulous tax agents. The law on prescription being a remedial measure should
be interpreted in a way conducive to bringing about the beneficient purpose of
affording protection to the taxpayer within the contemplation of the Commission
which recommended the approval of the law.”
And again in the recent case Bank of the Philippine Islands v. Commissioner
of Internal Revenue, this Court, in confirming these earlier rulings,
20
pronounced that:
“Though the statute of limitations on assessment and collection of national internal
revenue taxes benefits both the Government and the taxpayer, it principally intends
to afford protection to the taxpayer against unreasonable investigation. The indefinite
extension of the period for assessment is unreasonable because it deprives the said
taxpayer of the assurance that he will no longer be subjected to further investigation
for taxes after the expiration of a reasonable period of time.”
Thus, in Commissioner of Internal Revenue v. B.F. Goodrich, this Court 21
affirmed that the law on prescription should

_______________
19 108 Phil. 1105, 1108 (1960).
20 G.R. No. 139736, 17 October 2005, 473 SCRA 205, 225.
21 363 Phil. 169, 178; 303 SCRA 546, 554 (1999).
441
VOL. 506, OCTOBER 31, 2006 441
Communication, Inc.
be liberally construed in order to protect taxpayers and that, as a corollary,
the exceptions to the law on prescription should be strictly construed.
The Tax Code of 1977, as amended, provides instances when the running
of the statute of limitations on the assessment and collection of national
internal revenue taxes could be suspended, even in the absence of a
waiver, under Section 271 thereof which reads:
assessed or collected x x x.” (Emphasis supplied.)
Among the exceptions provided by the aforecited section, and invoked by
the CIR as a ground for this petition, is the instance when the taxpayer
requests for a reinvestigation which is granted by the Commissioner.
However, this exception does not apply to this case since the respondent
never requested for a reinvestigation. More importantly, the CIR could not
have conducted a reinvestigation where, as admitted by the CIR in its
Petition, the respondent refused to submit any new evidence.
Page 180 of 226

Revenue Regulations No. 12-85, the Procedure Governing Administrative
Protests of Assessment of the Bureau of Internal Revenue, issued on 27
November 1985, defines the two types of protest, the request for
reconsideration and the request for reinvestigation, and distinguishes one
from the other in this manner:
442
Communication, Inc.
Section 6. Protest.—The taxpayer may protest administratively an assessment by
filing a written request for reconsideration or reinvestigation specifying the following
particulars:
xxxx
For the purpose of protest herein—
(a) Request for reconsideration—refers to a plea for a re-evaluation of an assessment on the
basis of existing records without need of additional evidence. It may involve both a question of
fact or of law or both.
(b) Request for reinvestigation—refers to a plea for reevaluation of an assessment on the
basis of newly-discovered evidence or additional evidence that a taxpayer intends to present
in the investigation. It may also involve a question of fact or law or both.
The main difference between these two types of protests lies in the records
or evidence to be examined by internal revenue officers, whether these are
existing records or newly discovered or additional evidence. A re-evaluation
of existing records which results from a request for reconsideration does not
toll the running of the prescription period for the collection of an assessed
tax. Section 271 distinctly limits the suspension of the running of the statute
of limitations to instances when reinvestigation is requested by a taxpayer
and is granted by the CIR. The Court provided a clear-cut rationale in the
case of Bank of the Philippine Islands v. Commissioner of Internal Revenue 22
explaining why a request for reinvestigation, and not a request for

reconsideration, interrupts the running of the statute of limitations on the
collection of the assessed tax:
“Undoubtedly, a reinvestigation, which entails the reception and evaluation of
additional evidence, will take more time than a reconsideration of a tax assessment,
which will be limited to the evidence already at hand; this justifies why the former
can suspend
_______________
22 G.R. No. 139736, 17 October 2005, 473 SCRA 205, 230-231.
443
VOL. 506, OCTOBER 31, 2006 443
Communication, Inc.
the running of the statute of limitations on collection of the assessed tax, while the
latter cannot.”
In the present case, the separate letters of protest dated 6 May 1994 and 23
May 1994 are requests for reconsideration. The CIR’s allegation that there
Page 181 of 226
was a request for reinvestigation is inconceivable since respondent
consistently and categorically refused to submit new evidence and
cooperate in any reinvestigation proceedings. This much was admitted in
the Decision dated 8 October 2002 issued by then CIR Guillermo Payarno,
Jr.
“In the said conference-hearing, Revenue Officer Alameda basically testified that
Philcom, despite repeated demands, failed to submit documentary evidences in
support of its claimed deductible expenses. Hence, except for the item of interest
expense which was disallowed for being not ordinary and necessary, the rest of the
claimed expenses were disallowed for non-withholding. In the same token, Revenue
Officer Escober testified that upon his assignment to conduct the re-investigation, he
immediately requested the taxpayer to present various accounting records for the
year 1990, in addition to other documents in relation to the disallowed items (p. 171).
This was followed by other requests for submission of documents (pp. 199 & 217)
but these were not heeded by the taxpayer. Essentially, he stated that Philcom did
not cooperate in his reinvestigation of the case.
In response to the testimonies of the Revenue Officers, Philcom thru Atty. Consunji,
emphasized that it was denied due process because of the issuance of the Pre-
Assessment Notice and the Assessment Notice on successive dates. x x x Counsel
for the taxpayer even questioned the propriety of the conference-hearing inasmuch
as the only question to resolved (sic) is the legality of the issuance of the
assessment. On the disallowed items, Philcom thru counsel manifested that it has
no intention to present documents and/or evidences allegedly because of the
pending legal question on the validity of the assessment.”23
_______________
23 Rollo, p. 104.
444
Communication, Inc.
Prior to the issuance of Revenue Regulations No. 12-85, which
distinguishes a request for reconsideration and a request for reinvestigation,
there have been cases wherein these two terms were used interchangeably.
But upon closer examination, these cases all involved a reinvestigation that
was requested by the taxpayer and granted by the BIR.
In Collector of Internal Revenue v. Suyoc Consolidated Mining Company, 24
the Court weighed the considerable time spent by the BIR to actually
conduct the reinvestigations requested by the taxpayer in deciding that the
prescription period was suspended during this time.
“Because of such requests, several reinvestigations were made and a hearing was
even held by the Conference Staff organized in the collection office to consider
claims of such nature which, as the record shows, lasted for several months. After
inducing petitioner to delay collection as he in fact did, it is most unfair for
respondent to now take advantage of such desistance to elude his deficiency
income tax liability to the prejudice of the Government invoking the technical ground
of prescription.”
Page 182 of 226

Although the Court used the term “requests for reconsideration” in reference
to the letters sent by the taxpayer in the case of Querol v. Collector of
Internal Revenue, it took into account the reinvestigation conducted soon
25
after these letters were received and the revised assessment that resulted
from the reinvestigations.
“It is true that the Collector revised the original assessment on February 9, 1955;
and appellant avers that this revision was invalid in that it was not made within the
five-year prescriptive period provided by law (Collector vs. Pineda, 112 Phil. 321).
But that fact is that the revised assessment was merely a result of petitioner Querol’s
requests for reconsideration of the original assessment, contained in his letters of
December 14, 1951 and May 25, 1953. The records of the Bureau of Internal
Revenue show that after receiving
_______________
24 104 Phil. 819, 822-823 (1958).
25 116 Phil. 615, 618-619; 6 SCRA 304, 308 (1962).
445
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Communication, Inc.
the letters, the Bureau conducted a reinvestigation of petitioner’s tax liabilities, and,
in fact, sent a tax examiner to San Fernando, La Union, for that purpose; that
because of the examiner’s report, the Bureau revised the original assessment, x x x.
In other words, the reconsideration was granted in part, and the original assessment
was altered. Consequently, the period between the petition for reconsideration and
the revised assessment should be subtracted from the total prescriptive
period” (Republic vs. Ablaza, 108 Phil 1105).
The Court, in Republic v. Lopez, even gave a detailed accounting of the
26
time the BIR spent for each reinvestigation in order to deduct it from the
five-year period set at that time in the statute of limitations:
“It is now a settled ruled in our jurisdiction that the five-year prescriptive period fixed
by Section 332(c) of the Internal Revenue Code within which the Government may
sue to collect an assessed tax is to be computed from the last revised assessment
resulting from a reinvestigation asked for by the taxpayer and (2) that where a
deducted from the total period of limitation.
xxxx
The first reinvestigation was granted, and a reduced assessment issued on 29 May
1954, from which date the Government had five years for bringing an action to
collect.
The second reinvestigation was asked on 16 January 1956, and lasted until it was
decided on 22 April 1960, or a period of 4 years, 3 months, and 6 days, during which
the limitation period was interrupted.”
The Court reiterated the ruling in Republic v. Lopez in the case of
Commissioner of Internal Revenue v. Sison, “that where a taxpayer
27
demands a reinvestigation, the time employed in reinvestigating should be

deducted from the total period of limitation.” Finally, in Republic v. Arcache, 28
the
Page 183 of 226
_______________
26 117 Phil. 575, 578; 7 SCRA 566, 568-569 (1963).
27 117 Phil. 892, 895; 7 SCRA 884, 886 (1963).
28 119 Phil. 604, 610; 10 SCRA 337, 342 (1964).
446
Communication, Inc.
Court enumerated the reasons why the taxpayer is barred from invoking the
defense of prescription, one of which was that, “In the first place, it appears
obvious that the delay in the collection of his 1946 tax liability was due to his
own repeated requests for reinvestigation and similarly repeated requests
for extension of time to pay.”
In this case, the BIR admitted that there was no new or additional evidence
presented. Considering that the BIR issued its Preliminary Assessment
Notice on 13 April 1994 and its Formal Assessment Notice on 14 April 1994,
just one day before the three-year prescription period for issuing the
assessment expired on 15 April 1994, it had ample time to make a factually
and legally well-founded assessment. Added to the fact that the Final
Decision that the CIR issued on 8 October 2002 merely affirmed its earlier
findings, whatever examination that the BIR may have conducted cannot
possibly outlast the entire three-year prescriptive period provided by law to
collect the assessed tax, not to mention the eight years it actually took the
BIR to decide the respondent’s protest. The factual and legal issues
involved in the assessment are relatively simple, that is, whether certain
income tax deductions should be disallowed, mostly for failure to pay
withholding taxes. Thus, there is no reason to suspend the running of the
statute of limitations in this case.
The distinction between a request for reconsideration and a request for
reinvestigation is significant. It bears repetition that a request for
reconsideration, unlike a request for reinvestigation, cannot suspend the
statute of limitations on the collection of an assessed tax. If both types of
protest can effectively interrupt the running of the statute of limitations, an
erroneous assessment may never prescribe. If the taxpayer fails to file a
protest, then the erroneous assessment would become final and
unappealable. On the other hand, if the
29
_______________
29 Revenue Regulations No. 12-85 provides that:
447
VOL. 506, OCTOBER 31, 2006 447
Communication, Inc.
taxpayer does file the protest on a patently erroneous assessment, the
statute of limitations would automatically be suspended and the tax thereon
Page 184 of 226
may be collected long after it was assessed. Meanwhile the interest on the
deficiencies and the surcharges continue to accumulate. And for an
unrestricted number of years, the taxpayers remain uncertain and are
burdened with the costs of preserving their books and records. This is the
predicament that the law on the statute of limitations seeks to prevent.
The Court, in sustaining for the first time the suspension of the running of
the statute of limitations in cases where the taxpayer requested for a
reinvestigation, gave this justification:
“A taxpayer may be prevented from setting up the defense of prescription even if he
has not previously waived it in writing as when by his repeated requests or positive
xxxx
avail himself of the nonperformance which he himself occasioned, for the law says to
him in effect “this is your own act, and
_______________
Section 7. When to File Protest.—A protest must be filed within thirty (30) days from receipt of
the assessment.
Section 9. Finality of Assessments.—If a taxpayer who receives an assessment from the
Bureau of Internal Revenue fails to file a protest within the period prescribed in Section 7 of
these regulations, the said assessment shall become final and unappealable and the taxpayer
is thereby precluded from disputing the assessment.
448
Communication, Inc.
therefore you are not damnified.’ ” (R.H. Stearns Co. v. U.S., 78 L. ed., 647).
(Emphasis supplied.)”30
This rationale is not applicable to the present case where the respondent
did nothing to prevent the BIR from collecting the tax. It did not present to
the BIR any new evidence for its re-evaluation. At the earliest opportunity,
respondent insisted that the assessment was invalid and made clear to the
BIR its refusal to produce documents that the BIR requested. On the other
hand, the BIR also communicated to the respondent its unwavering stance
that its assessment is correct. Given that both parties were at a deadlock,
the next logical step would have been for the BIR to issue a Decision
denying the respondent’s protest and to initiate proceedings for the
collection of the assessed tax and, thus, allow the respondent, should it so
choose, to contest the assessment before the CTA. Postponing the
collection for eight long years could not possibly make the taxpayer feel that
the demand was not unreasonable or that no harassment or injustice is
Page 185 of 226
meant by the Government. There was no legal, or even a moral, obligation
preventing the CIR from collecting the assessed tax. In a similar case,
Cordero v. Gonda, the Court did not suspend the running of the
31
prescription period where the acts of the taxpayer did not prevent the
“The government also urges that partial payment is “acknowledgement of the tax
obligation,” hence a “waiver on the defense of prescription.” But partial payment
would not prevent the government from suing the taxpayer. Because, by such act of
payment, the government is not thereby “persuaded to postpone collection to make
meant.” Which, as stated in Collector v. Suyoc Consolidated Mining Co., et al.,
L-11527, November 25, 1958, is the underlying reason behind the rule that
prescriptive period is arrested by the taxpayer’s request for reexamination or
reinvestiga
_______________
30 Collector of Internal Revenue v. Suyoc Consolidated Mining Company, 104 Phil. 819, 823
(1958).
31 124 Phil. 927, 932; 18 SCRA 331, 336-337 (1966).
449
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Communication, Inc.
tion—even if “he has not previously waived it [prescription] in writing.”
The Court reminds us, in the case of Commissioner of Internal Revenue v.
Algue, Inc., of the need to balance the conflicting interests of the
32
government and the taxpayers.

“Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance. On the other hand, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for government
itself. It is therefore necessary to reconcile the apparently conflicting interest of the
authorities and the taxpayers so that the real purpose of taxation, which is the
promotion of common good, may be achieved.”
Thus, the three-year statute of limitations on the collection of an assessed
tax provided under Section 269(c) of the Tax Code of 1977, a law enacted to
protect the interests of the taxpayer, must be given effect. In providing for
exceptions to such rule in Section 271, the law strictly limits the suspension
of the running of the prescription period to, among other instances, protests
wherein the taxpayer requests for a reinvestigation. In this case, where the
taxpayer merely filed two protest letters requesting for a reconsideration,
and where the BIR could not have conducted a reinvestigation because no
new or additional evidence was submitted, the running of statute of
limitations cannot be interrupted. The tax which is the subject of the
Decision issued by the CIR on 8 October 2002 affirming the Formal
Assessment issued on 14 April 1994 can no longer be the subject of any
proceeding for its collection. Consequently, the right of the government to
collect the alleged deficiency tax is barred by prescription.
Page 186 of 226
IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The
assailed en banc Decision of the CTA in CTA EB No. 37 dated 22 February
2005, cancelling Assessment Notice No. 000688-80-7333 issued against
Philippine Global
_______________
32 G.R. No. L-18896, 17 February 1988, 158 SCRA 9, 11.
450

Communication, Inc.
Communication, Inc. for its 1990 income tax deficiency for the reason that it
is barred by prescription, is hereby AFFIRMED. No costs.
SO ORDERED.
Panganiban (C.J., Chairperson), Ynares-Santiago, Austria-Martinez and
Callejo, Sr., JJ., concur.
Petition denied, assailed en banc decision affirmed.
Notes.—The period within which to assess tax in cases of fraudulent
returns, false returns and failure to return is ten years from discovery of the
fraud, falsification or omission. (Commissioner of Internal Revenue vs.
Estate of Benigno P. Toda, Jr., 438 SCRA 290 [2004])
A waiver of the statute of limitations under the NIRC, to a certain extent,
is a derogation of the taxpayers’ right to security against prolonged and
unscrupulous investigations and must therefore be carefully and strictly
construed. The law on prescription, being a remedial measure, should be
liberally construed in order to afford such protection. (Philippine Journalists,
Inc. vs. Commissioner of Internal Revenue, 447 SCRA 214 [2004])
——o0o——
451
Page 187 of 226

Petition partly granted, resolutions reversed and set aside.
Note.—The filing by a party of two apparently different actions, but with

the same objective, constitutes forum shopping. (City of Naga vs. Asuncion,
557 SCRA 528 [2008])
——o0o——
G.R. No. 169225. November 17, 2010.*
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. HAMBRECHT
& QUIST PHILIPPINES, INC., respondent.
Court of Tax Appeals; Jurisdiction; The appellate jurisdiction of the Court of Tax
Appeals (CTA) is not limited to cases which involve decisions of the Commissioner
of Internal Revenue (CIR) on matters relating to assessments or refunds.—The
assailed CTA En Banc Decision was correct in declaring that there was nothing in
the foregoing provision upon which petitioner’s theory with regard to the parameters
of the term “other matters” can be supported or even deduced. What is rather clearly
apparent, however, is that the term “other matters” is limited only by the qualifying
phrase that follows it. Thus, on the strength of such observation, we have previously
ruled that the appellate jurisdiction of the CTA is not limited to cases which involve
decisions of the CIR on matters relating to assessments or refunds. The second part
of the provision covers other cases that arise out of the National Internal Revenue
Code (NIRC) or related laws administered by the Bureau of Internal Revenue (BIR).
Same; Same; Under Section 3, 1986 National Internal Revenue Code (NIRC),
the issue of prescription of the Bureau of Internal Revenue’s (BIR’s) right to collect
taxes may be considered as covered by the term “other matters” over which the
Court of Tax Appeals (CTA) has appellate jurisdiction.—The issue of prescription of
the BIR’s right to collect taxes may be considered as covered by the term “other
matters” over which the CTA has appellate jurisdiction.
_______________
* FIRST DIVISION.
163
VOL. 635, NOVEMBER 17, 2010 163
Commissioner of Internal Revenue vs. Hambrecht & Quist
Philippines, Inc.
Same; Same; The phraseology of Section 7, number (1), denotes an intent to

view the Court of Tax Appeals’ (CTA’s) jurisdiction over disputed assessments and
over “other matters” arising under the National Internal Revenue Code (NIRC) or
other laws administered by the Bureau of Internal Revenue (BIR) as separate and
independent of each other.—The phraseology of Section 7, number (1), denotes an
intent to view the CTA’s jurisdiction over disputed assessments and over “other
matters” arising under the NIRC or other laws administered by the BIR as separate
and independent of each other. This runs counter to petitioner’s theory that the latter
is qualified by the status of the former, i.e., an “other matter” must not be a final and
unappealable tax assessment or, alternatively, must be a disputed assessment.
Same; Same; The mere existence of an adverse decision, ruling or inaction
along with the timely filing of an appeal operates to validate the exercise of
jurisdiction by the Court of Tax Appeals (CTA).—The first paragraph of Section 11 of
Republic Act No. 1125, as amended by Republic Act No. 9282, belies petitioner’s
Page 188 of 226
assertion as the provision is explicit that, for as long as a party is adversely affected
by any decision, ruling or inaction of petitioner, said party may file an appeal with the
CTA within 30 days from receipt of such decision or ruling. The wording of the
provision does not take into account the CIR’s restrictive interpretation as it clearly
provides that the mere existence of an adverse decision, ruling or inaction along with
the timely filing of an appeal operates to validate the exercise of jurisdiction by the
CTA.
Taxation; Assessment; Prescription; The validity of the assessment itself is a
separate and distinct issue from the issue of whether the right of the Commissioner
of Internal Revenue (CIR) to collect the validly assessed tax has prescribed.—The
fact that an assessment has become final for failure of the taxpayer to file a protest
within the time allowed only means that the validity or correctness of the assessment
may no longer be questioned on appeal. However, the validity of the assessment
itself is a separate and distinct issue from the issue of whether the right of the CIR to
collect the validly assessed tax has prescribed. This issue of prescription, being a
matter provided for by the NIRC, is well within the jurisdiction of the CTA to decide.
164
Philippines, Inc.
Same; Same; Same; Requisites before the Period to Enforce Collection may be
Suspended.—The plain and unambiguous wording of the said provision dictates that
two requisites must concur before the period to enforce collection may be
suspended: (a) that the taxpayer requests for reinvestigation, and (b) that petitioner
grants such request.
PETITION for review on certiorari of the resolutions of the Court of Tax
Appeals.
Angara, Abello, Concepcion, Regala & Cruz for respondent.
LEONARDO-DE CASTRO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court seeking to set aside the Decision1dated August 12, 2005 of the Court
of Tax Appeals (CTA) En Banc in C.T.A. E.B. No. 73 (C.T.A. Case No.
6362), entitled “Commissioner of Internal Revenue vs. Hambrecht & Quist
Philippines, Inc.,” which affirmed the Decision2 dated September 24, 2004 of
the CTA Original Division in C.T.A. Case No. 6362 canceling the
assessment issued against respondent for deficiency income and expanded
withholding tax for the year 1989 for failure of petitioner Commissioner of
Internal Revenue (CIR) to enforce collection within the period allowed by
law.
The CTA summarized the pertinent facts of this case, as follows:
_______________
1 Rollo, pp. 30-39; penned by Associate Justice Erlinda P. Uy with Presiding Justice Ernesto D.
Acosta, Associate Justices Juanito C. Castañeda, Jr., Lovell R. Bautista, Caesar A. Casanova
and Olga Palanca-Enriquez, concurring.
Page 189 of 226
2 Id., at pp. 40-62.
165
VOL. 635, NOVEMBER 17, 2010 165
Philippines, Inc.
“In a letter dated February 15, 1993, respondent informed the Bureau of Internal
Revenue (BIR), through its West-Makati District Office of its change of business
address from the 2nd Floor Corinthian Plaza, Paseo de Roxas, Makati City to the
22nd Floor PCIB Tower II, Makati Avenue corner H.V. De la Costa Streets, Makati
City. Said letter was duly received by the BIR-West Makati on February 18, 1993.
On November 4, 1993, respondent received a tracer letter or follow-up letter dated
October 11, 1993 issued by the Accounts Receivable/Billing Division of the BIR’s
National Office and signed by then Assistant Chief Mr. Manuel B. Mina, demanding
for payment of alleged deficiency income and expanded withholding taxes for the
taxable year 1989 amounting to P2,936,560.87.
On December 3, 1993, respondent, through its external auditors, filed with the same
Accounts Receivable/Billing Division of the BIR’s National Office, its protest letter
against the alleged deficiency tax assessments for 1989 as indicated in the said
tracer letter dated October 11, 1993.
The alleged deficiency income tax assessment apparently resulted from an
adjustment made to respondent’s taxable income for the year 1989, on account of
the disallowance of certain items of expense, namely, professional fees paid,
donations, repairs and maintenance, salaries and wages, and management fees.
The latter item of expense, the management fees, made up the bulk of the
disallowance, the examiner alleging, among others, that petitioner failed to withhold
the appropriate tax thereon. This is also the same basis for the imposition of the
deficiency withholding tax assessment on the management fees. Revenue
Regulations No. 6-85 (EWT Regulations) does not impose or prescribe EWT on
management fees paid to a non-resident.
On November 7, 2001, nearly eight (8) years later, respondent’s external auditors
received a letter from herein petitioner Commissioner of Internal Revenue dated
October 27, 2001. The letter advised the respondent that petitioner had rendered a
final decision denying its protest on the ground that the protest against the disputed
tax assessment was allegedly filed beyond the 30-day reglementary period
prescribed in then Section 229 of the National Internal Revenue Code.
On December 6, 2001, respondent filed a Petition for Review docketed as CTA Case
No. 6362 before the then Court of Tax Ap-
166
Philippines, Inc.
peals, pursuant to Section 7 of Republic Act No. 1125, otherwise known as an ‘Act
Creating the Court of Tax Appeals’ and Section 228 of the NIRC, to appeal the final
decision of the Commissioner of Internal Revenue denying its protest against the
deficiency income and withholding tax assessments issued for taxable year 1989.”3
In a Decision dated September 24, 2004, the CTA Original Division held that
the subject assessment notice sent by registered mail on January 8, 1993 to
Page 190 of 226
respondent’s former place of business was valid and binding since
respondent only gave formal notice of its change of address on February
18, 1993. Thus, the assessment had become final and unappealable for
failure of respondent to file a protest within the 30-day period provided by
law. However, the CTA (a) held that the CIR failed to collect the assessed
taxes within the prescriptive period; and (b) directed the cancellation and
withdrawal of Assessment Notice No. 001543-89-5668. Petitioner’s Motion
for Reconsideration and Supplemental Motion for Reconsideration of said
Decision filed on October 14, 2004 and November 22, 2004, respectively,
were denied for lack of merit.
Undaunted, the CIR filed a Petition for Review with the CTA En Banc but
this was denied in a Decision dated August 12, 2005, the dispositive portion
reads:
“WHEREFORE, the Petition for Review is DENIED DUE COURSE and the case is
accordingly DISMISSED for lack of merit.”4
Hence, the instant Petition wherein the following issues are raised:
I
WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION TO
RULE THAT THE GOVERNMENT’S RIGHT TO COLLECT THE TAX HAS
PRESCRIBED.
_______________
3 Id., at pp. 32-34.
4 Id., at p. 39.
167
VOL. 635, NOVEMBER 17, 2010 167
Philippines, Inc.
II
WHETHER OR NOT THE PERIOD TO COLLECT THE ASSESSMENT HAS
PRESCRIBED.5
The petition is without merit.
Anent the first issue, petitioner argues that the CTA had no jurisdiction over
the case since the CTA itself had ruled that the assessment had become
final and unappealable. Citing Protector’s Services, Inc. v. Court of Appeals,6
the CIR argued that, after the lapse of the 30-day period to protest,
respondent may no longer dispute the correctness of the assessment and
its appeal to the CTA should be dismissed. The CIR took issue with the
CTA’s pronouncement that it had jurisdiction to decide “other matters”
related to the tax assessment such as the issue on the right to collect the
same since the CIR maintains that when the law says that the CTA has
jurisdiction over “other matters,” it presupposes that the tax assessment has
not become final and unappealable.
We cannot countenance the CIR’s assertion with regard to this point. The
jurisdiction of the CTA is governed by Section 7 of Republic Act No. 1125, as
amended, and the term “other matters” referred to by the CIR in its
Page 191 of 226
argument can be found in number (1) of the aforementioned provision, to
wit:
“Section 7. Jurisdiction.—The Court of Tax Appeals shall exercise exclusive
appellate jurisdiction to review by appeal, as herein provided—
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under the National Internal
Revenue Code or other law as part of law administered by the Bureau of Internal
Revenue.” (Emphasis supplied.)
_______________
5 Id., at p. 12.
6 386 Phil. 611; 330 SCRA 404 (2000).
168
Philippines, Inc.
Plainly, the assailed CTA En Banc Decision was correct in declaring that
there was nothing in the foregoing provision upon which petitioner’s theory
with regard to the parameters of the term “other matters” can be supported
or even deduced. What is rather clearly apparent, however, is that the term
“other matters” is limited only by the qualifying phrase that follows it.
Thus, on the strength of such observation, we have previously ruled that the
appellate jurisdiction of the CTA is not limited to cases which involve
decisions of the CIR on matters relating to assessments or refunds. The
second part of the provision covers other cases that arise out of the National
Internal Revenue Code (NIRC) or related laws administered by the Bureau
of Internal Revenue (BIR).7
In the case at bar, the issue at hand is whether or not the BIR’s right to
collect taxes had already prescribed and that is a subject matter falling
under Section 223(c) of the 1986 NIRC, the law applicable at the time the
disputed assessment was made. To quote Section 223(c):
“Any internal revenue tax which has been assessed within the period of limitation
within three years following the assessment of the tax.” (Emphases supplied.)
In connection therewith, Section 3 of the 1986 NIRC states that the
collection of taxes is one of the duties of the BIR, to wit:
“Sec. 3. Powers and duties of Bureau.—The powers and duties of the Bureau of
Internal Revenue shall comprehend the assessment and collection of all national
internal revenue taxes, fees, and charges and the enforcement of all forfeitures,
penalties, and fines connected therewith including the execution of judgments in all
cases decided in its favor by the Court of Tax Appeals and the
_______________
7 Philippine Journalists, Inc. v. Commissioner of Internal Revenue, G.R. No. 162852, December 16, 2004,
447 SCRA 214, 224.
169
VOL. 635, NOVEMBER 17, 2010 169
Page 192 of 226

Philippines, Inc.
ordinary courts. Said Bureau shall also give effect to and administer the supervisory
and police power conferred to it by this Code or other laws.” (Emphasis supplied.)
Thus, from the foregoing, the issue of prescription of the BIR’s right to
collect taxes may be considered as covered by the term “other matters” over
which the CTA has appellate jurisdiction.
Furthermore, the phraseology of Section 7, number (1), denotes an intent to
view the CTA’s jurisdiction over disputed assessments and over “other
matters” arising under the NIRC or other laws administered by the BIR as
separate and independent of each other. This runs counter to petitioner’s
theory that the latter is qualified by the status of the former, i.e., an “other
matter” must not be a final and unappealable tax assessment or,
alternatively, must be a disputed assessment.
Likewise, the first paragraph of Section 11 of Republic Act No. 1125, as
amended by Republic Act No. 9282,8belies petitioner’s assertion as the
provision is explicit that, for as long as a party is adversely affected by any
decision, ruling or inaction of petitioner, said party may file an appeal with
the CTA within 30 days from receipt of such decision or ruling. The wording
of the provision does not take into account the CIR’s restrictive
interpretation as it clearly provides that the mere existence of an adverse
decision, ruling or inaction along with the timely filing of an appeal operates
to validate the exercise of jurisdiction by the CTA.
_______________
8 The relevant portion of Section 11, Republic Act No. 1125 states: “Any party adversely
affected by a decision, ruling or inaction of the Commissioner of Internal Revenue, the
Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry or
the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial
Courts may file an appeal with the CTA within thirty (30) days after the receipt of such decision
or ruling or after the expiration of the period fixed by law for action as referred to in Section 7
(a)(2) herein.”
170
Philippines, Inc.
To be sure, the fact that an assessment has become final for failure of the
taxpayer to file a protest within the time allowed only means that the validity
or correctness of the assessment may no longer be questioned on appeal.
However, the validity of the assessment itself is a separate and distinct
issue from the issue of whether the right of the CIR to collect the validly
assessed tax has prescribed. This issue of prescription, being a matter
provided for by the NIRC, is well within the jurisdiction of the CTA to decide.
With respect to the second issue, the CIR insists that its right to collect the
tax deficiency it assessed on respondent is not barred by prescription since
Page 193 of 226
the prescriptive period thereof was allegedly suspended by respondent’s
request for reinvestigation.
Based on the facts of this case, we find that the CIR’s contention is without
basis. The pertinent provision of the 1986 NIRC is Section 224, to wit:
limitations provided in Sections 203 and 223 on the making of assessment and the
beginning of distraint or levy or a proceeding in court for collection, in respect of any
in court and for sixty days thereafter; when the taxpayer requests for a re-
investigation which is granted by the Commissioner; when the taxpayer cannot be
assessed or collected: Provided, That, if the taxpayer informs the Commissioner of
any change in address, the statute will not be suspended; when the warrant of
distraint and levy is duly served upon the taxpayer, his authorized representative, or
a member of his household with sufficient discretion, and no property could be
located; and when the taxpayer is out of the Philippines.” (Emphasis supplied.)
The plain and unambiguous wording of the said provision dictates that two
requisites must concur before the period to enforce collection may be
suspended: (a) that the taxpayer
171
VOL. 635, NOVEMBER 17, 2010 171
Philippines, Inc.
requests for reinvestigation, and (b) that petitioner grants such request.
On this point, we have previously held that:
“The above section is plainly worded. In order to suspend the running of the
prescriptive periods for assessment and collection, the request for reinvestigation
must be granted by the CIR.”9 (Emphasis supplied.)
Consequently, the mere filing of a protest letter which is not granted does
not operate to suspend the running of the period to collect taxes. In the case
at bar, the records show that respondent filed a request for reinvestigation
on December 3, 1993, however, there is no indication that petitioner acted
upon respondent’s protest. As the CTA Original Division in C.T.A. Case No.
6362 succinctly pointed out in its Decision, to wit:
“It is evident that the respondent did not conduct a reinvestigation, the protest having
been dismissed on the ground that the assessment has become final and executory.
There is nothing in the record that would show what action was taken in connection
with the protest of the petitioner. In fact, petitioner did not hear anything from the
respondent nor received any communication from the respondent relative to its
protest, not until eight years later when the final decision of the Commissioner was
issued (TSN, March 7, 2002, p. 24). In other words, the request for reinvestigation
was not granted. x x x.”10 (Emphasis supplied.)
Since the CIR failed to disprove the aforementioned findings of fact of the
CTA which are borne by substantial evidence on record, this Court is
constrained to uphold them as binding and true. This is in consonance with
Page 194 of 226
our oft-cited ruling that instructs this Court to not lightly set aside the
conclusions reached by the CTA, which, by the very nature of
_______________
9 Bank of the Philippine Islands v. Commissioner of Internal Revenue, G.R. No. 174942,
March 7, 2008, 548 SCRA 105, 113.
10 Rollo, p. 60.
172
Philippines, Inc.
its functions, is dedicated exclusively to the resolution of tax problems and
has accordingly developed an expertise on the subject unless there has
been an abuse or improvident exercise of authority.11
Indeed, it is contradictory for the CIR to argue that respondent’s December
3, 1993 protest which contained a request for reinvestigation was filed
beyond the reglementary period but still claim that the same request for
reinvestigation was implicitly granted by virtue of its October 27, 2001 letter.
We find no cogent reason to reverse the CTA when it ruled that the
prescriptive period for the CIR’s right to collect was not suspended under
the circumstances of this case.
WHEREFORE, the petition is DENIED. The assailed Decision of the Court
of Tax Appeals (CTA) En Banc dated August 12, 2005 is AFFIRMED. No
costs.
SO ORDERED.
Corona (C.J., Chairperson), Velasco, Jr., Peralta** and Perez, JJ.,
concur.
Petition denied, judgment affirmed.
Note.—The Commissioner of Internal Revenue (CIR) must first grant the

request for reinvestigation as a requirement for the suspension of the
statute of limitations. (Bank of the Philippine Islands vs. Commissioner of
Interval Revenue, 548 SCRA 105 [2008])
——o0o——
_______________
11 Toshiba Information Equipment (Phils.) Inc. v. Commissioner of Internal Revenue, G.R. No.
157594, March 9, 2010, 614 SCRA 526.
** Per Special Order No. 913 dated November 2, 2010.
Page 195 of 226

VOL. 18, SEPTEMBER 29, 1966 207
Republic vs. Ker ,& Company, Ltd.
No. L-21609. September 29, 1966.
REPUBLIC OF THE PHILIPPINES, plaintiff and appellant. vs. KER &
COMPANY, LTD., defendant and appellant.
208
Republic vs. Ker & Company, Ltd.
Summons; Service upon counsel of a domestic corporation is valid.—Section 13,
Rule 7, (now Section 13, Rule 14) of the. Rules of Court provides that service of
summons upon a domestic corporation may be made on its agent. In the case at
bar, when defendant corporation's counsel in the administrative stage of the present
tax case received the summons, they were still acting for and in behalf of defendant
in connection with its tax liability involved in the case. Perforce, they were the
taxpayer's agent, and under the aforecited rule service upon them is sufficient.
Same; Pleading and practice; Jurisdiction; Effect of voluntary submission to
jurisdiction of court.—In interposing, in its motion to dismiss, prescription of plaintiff's
cause of action, defendant availed of an affirmative defense on the basis of which it
prayed the court to resolve the controversy in its favor. For the court to validly decide
the said plea, it necessarily had to acquire jurisdiction upon the latter's person,
which, being the proponent of the affirmative defense, should be deemed to have
abandoned its special appearance and voluntarily submitted itself to the jurisdiction
of the court. (Flores vs. Zurbito, 37 Phil. 746; Menghra vs. Tarachand and
Rewachand, 67 Phil. 286).
Same: When defects of summons were cured by filing of answer.—Defects of
summons are cured by voluntary appearance and by the filing of an answer to the
complaint. (Ramos vs. Mañalac, 89 Phil. 270). A defendant can not be permitted to
speculate upon the judgment of the court by objecting to the court's jurisdiction over
its person if the judgment is adverse to it, and acceding to jurisdiction over its person
if and when the judgment sustains its defenses.
Taxation; Deficiency income tax; Prescription of actions; Degree of proof required to
establish fraud.—Fraud is a question of fact (Gutierrez vs. Court of Tax Appeals, 101
Phil. 713) which must be alleged and proved (Section 12, Rule 15 [now Section 5,
Rule 8], Rules of Court). It is a serious charge and, to be sustained, it must be
supported by clear and convincing proof (Collector of Internal Revenue vs.
Benipayo, L-13656, January 31, 1962). In the instant case the filing by the taxpayer
of a false return was neither alleged in the complaint nor proved in court. Hence, the
lower court correctly resolved the issue of prescription without touching upon
fraudulence of the return.
Same; Failure to object to the setting up of defense of prescription.—The
assessment for deficiency income tax for 1947 has become final and executory, and,
therefore, defendant may not anymore raise defenses which go into the merits of the
assessment, i.e., prescription of the Commissioner's right to assess the tax.
(Republic of the Philippines vs. Albert, L-12996,
209
VOL. 18, SEPTEMBER 29, 1966 209
Page 196 of 226

December 28, 1961; Republic of the Philippines vs. Lim Tian Teng Sons ,& Co., Inc.,
L-21731, March 31, 1966). However, defendant raised the defense of prescription in
the proceedings below, and the Republic of the Philippines, instead of questioning
the right of the defendant to raise such defense, litigated on it and submitted the
issue for resolution of the court. By its actuation, the government should be
considered to have waived its right to object to the setting up of such defense.
Same; Suspension of prescriptive period; Effect of pendency of appeal.—Under
Section 333 of the Tax Code the running of the prescriptive period to collect
deficiency taxes shall be suspended for the period during which the Commissioner
of Internal Revenue is prohibited from beginning a distraint and levy or instituting a
proceeding in court, and for sixty days thereafter. In the case at bar, the pendency of
the taxpayer's appeal in the Court of Tax Appeals and in the Supreme Court had the
effect of temporarily staying the hands of the said Commissioner. If the taxpayer's
stand that the pendency of the appeal did not stop the running of the period because
the Court of Tax Appeals did not have jurisdiction over the case is upheld, taxpayers
would be encouraged to delay the payment of taxes in the hope of ultimately
avoiding the same. Under the circumstances, the running of the prescriptive period
was suspended.
Same; Accrual of delinquency interest.—Where the letter of assessment shows that
the deficiency income tax for 1948 and 1949 became due on March 15, 1953 and
that for 1950 accrued on February 15, 1954 and the tax in question remained
unpaid, the delinquency interest accrued and became due starting from said due
dates.
APPEAL from a judgment of the Court of First Instance of Manila. Reyes, J.
Solicitor General for plaintiff and appellant.
Leido, Andrada, Perez ,& Associates for defendant and appellant.
BENGZON, J.P., J.:
Ker ,& Co., Ltd., a domestic corporation, filed its income tax returns for the
years 1947, 1948, 1949 and 1950 on the following dates:
Year Date Filed
1947 April 12, 1948
1948 April 30, 1949
210
1949 May 15, 1950
1950 May 9, 1951
It amended its income tax returns for 1948 and 1949 on May 11, 1949 and
June 30, 1950, respectively.
In 1953 the Bureau of Internal Revenue examined and audited Ker ,& Co.,
Ltd.'s returns and books of accounts and subsequently issued the following
assessments for deficiency income tax:
Year Amount Date Assessed
Page 197 of 226
1947 P42,342.30 July 25, 1953
1948 18,651.87 Feb. 16, 1953
1949 139.67 Feb. 16, 1953
1950 12,813.00 Feb. 16, 1953
due and. payable on dates indicated in the accompanying notices of
assessment. The assessments for 1948 and 1950 carried the surcharge of
50% authorized under Section 72 of the Tax Code for the filing of fraudulent
returns,
Upon request of Ker vs Co., Ltd., through Atty. Jose Leido, its counsel, the
Bureau of Internal Revenue reduced the assessments for the year 1947
from P42,342.30 to P27,026.28 and for the year 1950 from P12,813.00 to
P8,542.00, imposed the 50% surcharge for the year 1947 and eliminated
the same surcharge from the assessment for the year 1950. The
assessments 'for years 1948 and 1949 remained the same.
On March 1, 1956 Ker ,& Co., Ltd. filed with the Court of Tax Appeals a
petition for review with preliminary injunction. No preliminary injunction was
issued, for said court dismissed the appeal for having been instituted
beyond the 30-day period provided for in Section 11 of Republic Act 1125.
We affirmed the order of dismissal in L-12396. 1
On March 15, 1962, the Bureau of Internal Revenue demanded payment of

the aforesaid assessments together with a surcharge of 5% for late payment
'and interest at the rate of 1% monthly. Ker ,& Co., Ltd. refused to
_______________
1 Ker & Company, Ltd. v. The Court of Tax Appeals and The Collector of Internal Revenue,
promulgated on January 31, 1962.
211
VOL. 18, SEPTEMBER 29, 1966 211
Republic vs, Ker & Company, Ltd.
pay, instead in its letters dated March 28, 1962 and April 10, 1962 it set up
the defense of prescription of the Commissioner's right to collect the tax.
Subsequently, the Republic of the Philippines 'f iled on March 27, 1962 a
complaint with the Court of First Instance of Manila seeking collection of the
aforesaid deficiency income tax for the years 1947, 1948, 1949 and 1950.
The complaint did not allege fraud in the filing of any of the income tax
returns for the years involved, nor did it pray for the payment of the
corresponding 50% surcharge, but it prayed for the payment of 5%
surcharge for late payment and interest of 1% per month without however
specifying from what date interest started to accrue.
Summons was served not on the defendant taxpayer but upon Messrs.
Leido and. Associates, its counsel in the proceedings before the Bureau of
Internal Revenue and the Court of Tax Appeals.
On April 14, 1962 Ker & Co., Ltd. through its counsel, Leido, Andrada, Perez
,& Associates, moved for the dismissal of the complaint on the ground that
the court did not acquire jurisdiction over the person of the defendant and
Page 198 of 226
that plaintiff's cause of action has prescribed. This motion was denied and
defendant filed a motion for reconsideration. Resolution on said motion,
however, was deferred until trial of the case on the merits.
On May 18, 1962, Ker ,& Co., Ltd. filed its answer to the complaint
interposing therein the defense set up in its motion to dismiss of April 14,
1962,
On September 18, 1962 the Republic of the Philippines amended its'
complaint, in answer to which Ker ,& Co., Ltd. adopted the same answer
which it had filed on May 18, 1962.
On January 30, 1963 the Court of First Instance rendered judgment, the
dispositive portion of which states:
"WHEREFORE, this Court dismisses the claim for the collection of deficiency
income taxes for 1947, but orders defendant taxpayer to pay the deficiency income
taxes for 1948, 1949 and 1950, in the amounts of P18,651.87, P139.67 and
P8,542.00, respectively, plus 5% surcharge thereon on each amount and interest of
1% a month computed from March 27, 1962 and until full payment thereof is made,
plus the costs of suit"
212
On February 20, 1963 the Republic of the Philippines filed a motion for
reconsideration contending that the right of the Commissioner of Internal
Revenue to collect the deficiency assessment for 1947 has not prescribed
by a lapse of merely five years and three months, because the taxpayer's
income tax return was fraudulent in which case prescription sets in ten
years from October 31, 1951, the date of discovery of the fraud, pursuant to
Section 332 (a) of the Tax Code; and that the payment of delinquency
interest of 1% per month should commence from the date it fell due as
indicated in the assessment notices instead of on the date the complaint
was filed.
On March 6, 1963 Ker ,& Co., Ltd. also filed a motion for reconsideration
reiterating its assertion that the Court of First Instance did not acquire
jurisdiction over its person, and maintaining that since the complaint was
filed nine years, one month and eleven days after the deficiency
assessments for 1948, 1949 and 1950 were made and since the filing of its
petition for review in the Court of Tax Appeals did not stop the running of the
period of limitations, the right of the Commissioner of Internal Revenue to
collect the tax in question has prescribed.
The two motions for reconsideration having been denied, both parties
appealed directly to this Court.
The issues in this case are:
1. 1. 
Did the Court of First Instance acquire jurisdiction over the person of
defendant Ker ,& Co., Ltd.?
Page 199 of 226
2. 2. 
Did the right of the Commissioner of Internal Revenue to assess
deficiency income tax for the year 1947 prescribe?
3. 3. 
Did the filing of a petition for review by the taxpayer in the Court of Tax
Appeals suspend the running of the statute of limitations to collect the
deficiency income for the years 1948, 1949 and 1950?
4. 4. 
When did the delinquency interest on the deficiency income tax for the
years 1948, 1949 and 1950 accrue?
First Issue
Ker & Co., Ltd. maintains that the court a quo did not acquire jurisdiction
over its person inasmuch as sum-
213
VOL. 18, SEPTEMBER 29, 1966 213
mons was not served upon it but upon Messrs. Leido and Associates who
do not come under any of the class of persons upon whom summons
should be served as enumerated in Section 13, Rule 7, of the Rules of
Court, which reads:
2
"SEC. 13. Service upon private domestic corporation or partnership.—If the

defendant is a corporation formed under the laws of the Philippines or a partnership
duly registered, service may be made on the president, manager, secretary, cashier,
agent, or any of its directors."
Messrs, Leido and Associates acted as counsel for Ker & Co., Ltd. when
this tax case was in its administrative stage. The same counsel represented
Ker ,& Co., Ltd., when it appealed said case to the Court of Tax Appeals and
later to this Court. Subsequently, when the Deputy Commissioner of Internal
Revenue, by letter dated March 15, 1962, demanded the payment of the
deficiency income tax in question, it was Messrs. Leido, Andrada, Perez ,&
Associates who replied in behalf of Ker ,& Co., Ltd. in two letters, dated
March 28, 1962 and April 10, 1962, both after the complaint in this case was
filed. At least therefore on April 2. 1962 when Messrs. Leido and Associates
received the summons, they were still acting for and in behalf of Ker ,& Co.,
Ltd. in connection with Its tax liability involved in this case. Perforce, they
were the taxpayer's agent when summons was served. Under Section 13 of
Rule 7, aforequoted, service upon the agent of a corporation is sufficient.
We observe that the motion to dismiss filed on April 14, 1962, aside from
disputing the lower court's juris-diction over defendant's person, prayed for
dismissal of the complaint on the ground that plaintiff's cause of action has
prescribed. By interposing such second ground in its motion to dismiss.
Ker ,& Co., Ltd. availed of an affirmative defense on the basis of which it
prayed the court to resolve controversy in its favor. For the court to validly
decide the said plea of defendant Ker ,& Co., Ltd., it necessarily had to
Page 200 of 226
acquire jurisdiction upon the latter's person, who, being the proponent of the
affirmative defense, should be deemed to have abandoned its special
_______________
2 Now Section 13, Rule 14.
214
appearance and voluntarily submitted itself to the jurisdiction of the court. 3
Voluntary appearance cures defects of summons, if any. Such defect, if any, 4
was further cured when defendant filed its answer to the complaint. A 5
defendant can not be permitted to speculate upon the judgment of the court
by objecting to the court's jurisdiction over its person if the judgment is
adverse to it, and acceding to jurisdiction over its person if and when the
judgment sustains its defenses.
Second Issue
Ker 22 Co., Ltd. contends that under Section 331 of the Tax Code the right
of the Commissioner of Internal Revenue to assess against it a deficiency
income tax for the year 1947 has prescribed because the assessment was
issued on July 25, 1953 after a lapse of five years, three months and
thirteen days from the date (April 12, 1948) it filed Its income tax return. On
the other hand, the Republic of the Philippines Insists that the taxpayer's,
income tax return was fraudulent, therefore the Commissioner of Internal
Revenue may assess the tax within ten years from discovery of the fraud on
October 31, 1951 pursuant to Section 322(a) of the Tax Code.
The stand of the Republic of the Philippines hinges on whether or not
taxpayer's income tax return for 1947 was fraudulent
The court a quo, conf ining itself to determining whether or not the
assessment of the tax for 1947 was issued within the five-year period
provided for in Section 331 of the Tax Code, ruled that the right of the
Commissioner of Internal Revenue to assess the tax has prescribed. Said
the lower court:
"The Court resolves the second issue in the negative, because Section 331 of the
Revenue Code explicitly provides, in mandatory terms, that 'lnternal Revenue taxes
shall be assessed within 5, years after the return was filed, and no proceedings
_______________
3 Flores v. Zurbito, 37 Phil. 746; Menghra vs. Tarachand and Rewachand, 67 Phil. 286.
4 Infante v. Toledo and Santiong, 44 Phil. 834. 840.
5 Ramos v. Mañalac, et al., 89 Phil. 270.
215
VOL. 18, SEPT EMBER 29, 1966 215
in court without assessment, for the collection of such taxes, shall be begun after
expiration of such period. The attempt by the Commissioner of Internal Revenue to
make an assessment on July 25, 1953, on the basis of a return filed on April 12,
1948, is an exercise of authority against the afore-quoted explicit and mandatory
limitations of statutory law. Settled in our system is the rule that acts committed
Page 201 of 226
against the provisions of mandatory or prohibitory laws shall be void (Art. 5, New
Civil Code). x x x"
Said court resolved the issue without touching upon fraudulence of the
return. The reason is that the complaint alleged no fraud, nor did the plaintiff
present evidence to prove fraud.
In reply to the lower court's conclusion, the Republic of the Philippines
maintains in its brief that Ker ,& Co., Ltd. filed a false return and since the
fraud penalty of 50% surcharge was imposed in the deficiency income tax
assessment, which has become final and executory, the finding of the
Commissioner of Internal Revenue as to the existence of the fraud has also
become final and need not be proved. This contention suffers from a flaw in
that it fails to consider the well-settled principle that fraud is a question of
fact which must be alleged and proved. Fraud is a serious charge and, to
6 7
be sustained, it must be supported by clear and convincing proof. 8
Accordingly, fraud should have been alleged and proved in the lower court.
On these premises We therefore sustain the ruling of the lower court upon
the point of prescription.
It would be worth mentioning that since the assessment for deficiency
income tax for 1947 has become 'f inal and executory, Ker & Co., Ltd. may
not anymore raise defenses which go into the merits of the assessment, i.e.,
prescription of the Commissioner's right to assess the tax. Such was our
ruling in previous cases. In this case however,
9
_______________
6 Gutierrez v. Court of Tax Appeals, L-9738, L-9771, May 31, 1957.
7 Section 12, Rule 15 (now Section 5, Rule 8), Rules of Court.
8 Collector of Internal Revenue v. Benipayo, L-13656, January 31, 1?62.
9 Republic of the Philippines v. Albert, L-12996, December 28, 1961 Republic of the Philippines
v. Lim Tian Teng Sons ,& Co., Inc., L-21731, March 31, 1966,
216
Ker ,& Co., Ltd. raised the defense of prescription in the proceedings below
and the Republic of the Philippines, instead of questioning the right of the
defendant to raise such defense, litigated on it and submitted the issue for
resolution of the court. By its actuation, the Republic of the Philippines
should be considered to have waived its right to object to the setting up of
such defense.
Third Issue
Ker & Co., Ltd. impresses upon Us that since the Republic of the Philippines
filed the complaint for the collection of the deficiency income tax for the
years 1948, 1949 and 1950 only on March 27, 1962, or nine years, one
month and eleven days from February 16, 1953, the date the tax was
assessed, the right to collect the same has prescribed pursuant to Section
332(c) of the Tax Code. The Republic of the Philippines however contends
Page 202 of 226

that the running ,of the prescriptive period was interrupted by the filing of the
taxpayer's petition for review in the Court of Tax Appeals on March 1, 1956,
If the period during which the case was pending in the Court of Tax Appeals
and in the Supreme Court were not counted in reckoning the prescriptive
period, less than five years would have elapsed, hence, the right to collect
the tax has not prescribed.
The taxpayer counters that the filing of the petition for review in the Court of
Tax Appeals could not have stopped the running of the prescriptive period to
collect because said court did not have jurisdiction over the case, the appeal
having been interposed beyond the 30-day .period set forth in Section 11 of
Republic Act 1125. Precisely, it adds, the Tax Court dismissed the appeal for
lack of jurisdiction and said dismissal was affirmed by the Supreme Court in
L-12396 aforementioned.
Under Section 333 of the Tax Code, quoted hereunder:
"SEC. 333. Suspension of running of statute.—The running of the statute of
limitations provided in Section 331 or three hundred thirty-two on the making of
assessments and the beginning of distraint or levy or a proceeding in court for
collection, in respect of any deficiency, shall be suspended for the period during
which the Collector of Internal Revenue is prohibited from making the assessment or
beginning distraint or levy or a proceeding in court, and for sixty days thereafter."
217
VOL. 18, SEPTEMBER 29, 1966 217
the running of the prescriptive period to collect the tax shall be suspended 'f
or the period during which the Commissioner of Internal .Revenue is
prohibited from beginning a distraint and levy or instituting a proceeding in
court, and for. sixty days thereafter.
Did the pendency of the taxpayer's appeal in the Court of Tax Appeals and
in the Supreme Court have the effect of legally preventing the
Commissioner of Internal Revenue from instituting an action in the Court of
First Instance for the collection of the tax? Our view is that it did.
From March 1, 1956 when Ker ,& Co., Ltd. filed a petition for review in the
Court of Tax Appeals contesting the legality of the assessments in question,
until the termination of its appeal in the Supreme Court, the Commissioner
of Internal Revenue was prevented, as recognized in this Court's ruling in
Ledesma, et al. v. Court of Tax Appeals, from filing an ordinary action in the
10
Court of First Instance to collect the tax. Besides, to do so would be to

violate the judicial policy of avoiding multiplicity of suits and the rule on lis
pendens. 11
It would be interesting to note that when the Commissioner of Internal

Revenue issued the final deficiency assessments on January 5, 1954, he
had already lost, by prescription, the right to collect the tax (except that for
1950) by the summary method of warrant of distraint and levy. Ker ,& Co.,
Ltd. immediately thereafter requested suspension of the collection of the tax
Page 203 of 226
without penalty incident to late payment pending the filing of a memorandum
in support of its views. As requested, no tax was collected. On May 22, 1954
the projected memorandum was filed, but as of that date the
Commissioner's right to collect by warrant of distraint and levy the deficiency
tax for 1950 had already prescribed. So much so, that on March 1, 1956
when Ker ,& Co., Ltd. filed a petition for review in the Court of Tax Appeals,
the Commissioner of Internal Revenue had but one remedy left to collect the
tax, that is, by judicial action. However, as stated, an independent
12
_______________
10 L-11343, January 29, 1958.
11 Par. (d), Section 1, Rule 8, now Par. (g), Section 1, Rule 16, Rules of Court.
12 See Sec. 316, Tax Code.
218
ordinary action in the Court of First Instance was not available to the
Commissioner pursuant to Our ruling in Ledesma, et al. v. Court of Tax
Appeals, supra, in view of the pendency of the taxpayer's petition for review
in the Court of Tax Appeals. Precisely he urgently filed a motion to dismiss
the taxpayer's petition for review with a view to terminating therein the
proceedings in the shortest possible time in order that he could file a
collection case in the Court of First Instance before his right to do so is cut
off by the passage of time. As moved, the Tax Court dismissed the case and
Ker & Co., Ltd. appealed to the Supreme Court. By the time the Supreme
Court affirmed the order of dismissal of the Court of Tax Appeals in L-12396
on January 31, 1962 more than five years had elapsed since the final
assessments were made on January 5, 1954. Thereafter, the.
Commissioner of Internal Revenue demanded extra-judicially the payment
of the deficiency tax in question and in reply the taxpayer, by its letter dated
March 28, 1962, advised the Commissioner of Internal Revenue \that the
right to collect the tax has prescribed pursuant to Section 332 (c) of the Tax
Code.
Thus, did the taxpayer produce the effect of temporarily staying the hands of
the Commissioner of Internal Revenue simply through a choice of remedy,
And, if We were to sustain the taxpayer's stand, We would be encouraging
taxpayers to delay the payment of taxes in the hope of ultimately avoiding
the same,
Under the circumstances, the Commissioner of Internal Revenue was in
effect prohibited from collecting the tax in question. This being so, the
provisions of Section 333 of the Tax Code will apply.
Fourth Issue
The Republic of the Philippines maintains"that 'the delinquency interest on
the deficiency income tax for 1948, 1949 and 1950 accrued and should
commence from the date of the assessments as shown in the assessment
Page 204 of 226
notices, pursuant to Section 51 (e) of the Tax Code, instead of from the date
the complaint was filed as determined in the decision appealed from.
219
VOL. 18, SEPTEMBER 29, 1966 219
Section 51 (e) of the Tax Code states:
"SEC. 51(e). Surcharge and interest in case of delinquency.—To any sum or ,sums
due and unpaid after the dates prescribed in subsections (b), (c) and (d) for the
payment of the same,. there shall be added the sum of five per centum on the
amount of tax unpaid and interest at the rate of one per centum a month upon said
tax 'f rom the time the same became due, except from the estates of insane,
deceased, or insolvent persons." (italics supplied)
Exhibit "F"—the letter of assessment—shows that the deficiency income tax
for 1948 and 1949 became due 011 March 15, 1953 and that for 1950
accrued on February 15, 1954 in accordance with Section 51 (d) of the Tax
Code. Since the tax in question remained unpaid, delinquency interest
accrued and became due starting from said due dates. The decision
appealed from should therefore be modified accordingly.
WHEREFORE, the decision appealed from is affirmed with the
modification that the delinquency interest at the rate of 1% per month shall
be computed from March 15, 1953; for the deficiency income tax for 1948
and 1949 and from February 15, 1954 for the deficiency income tax for
1950. With costs against Ker ,& Co., Ltd. So ordered,
Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal,
Zaldivar, Sanchez and Castro, JJ., concur.
Judgment modified.
AN N OTATI O N
SERVICE OF SUMMONS
Generally, service of summons on the lawyer is not sufficient—The rule is
that “an attorney cannot, without authority to do so, accept service of
process which commences action against his client. Moreover, as a general
rule, "an attorney-at-law has no authority merely by virtue of his general
employment as such, to waive or admit service for his client of original
process by which the court for the first time acquires jurisdiction of the
client." (5 Am. Jur. 313; Johnlo Trading Company vs. Flores, 88 Phil. 741).
Service of summons on attorney-in-fact or lessee—Service upon the
attorney-in-fact does not have the effect of service
220
on his principal. No rule allows service of summons upon an agent. Service
must be made on the principal himself (a non-resident) by substituted
service or by registered mail, or by publication, if his properties are desired
to be affected by the proceedings. (Banco Español Filipino vs. Palanca, 37
Page 205 of 226
Phil. 921; Idonah Slade Perkins vs. Dizon, 69 Phil. 186; Ng Si Choc vs.
Vera, 64 Phil. 1066; Brown vs. Brown, L-17953, Oct. 31, 1961).
An order of default should be set aside when summons was served on a
lessee of the defendant, who is not in anyway authorized to receive any
paper or pleading in her behalf and defendant was at the time residing at
another place, which is quite apart from the residence of the lessee. (J. M.
Tuason ,& Co., Inc. vs. Fernandez, L-19556, Oct. 30, 1964).
Effect of failure to serve summons validly—Courts acquire jurisdiction
over the person of a party defendant and of the subject matter of the action
by virtue of the service of summons in the manner required by law. Hence,
when there is no service of summons or a general voluntary appearance by
the defendant the Court acquires no jurisdiction to pronounce a judgment in
the cause. (Salmon vs. Tan Cueco, 36 Phil. 556).
The filing by the defendant of a motion praying for the dissolution of an
attachment without impugning the jurisdiction of the trial court and the
subsequent giving of a counterbond for its dissolution could be regarded as
a voluntary appearance, equivalent to service of summons. (Flores vs.
Zurbito, 37 Phil. 746; Monteverde vs. Jaranilla, 60 Phil. 306; Lim Cay vs. Del
Rosario, 55 Phil. 962; Lezama vs. Piccio, 95 Phil. 899).
A judgment against a defendant, who was not properly summoned, is
void (Echevarria, vs. Parsons Hardware Co., 51 Phil. 980; Reyes vs. Paz,
60 Phil. 440; Caneda, vs. Narvasa, L-18076, August 31, 1962).
Defective service of summons may, however, be waived—Where the
appellant altogether failed to raise the question of the defective service of
summons upon him at anytime in the justice of the peace court and it was
only in the Court of First Instance that the appellant raised the question of
defective service of summons for the first time,
221
VOL. 18, SEPTEMBER 29, 1966 221
the lower court correctly ruled that the appellant had waived the lack of valid
service of summons upon him in the inferior court. Defects in jurisdiction
arising from defective process, or even absence of process, may be waived
by failure to make seasonable objection, (Punzalan vs. Papica, No.
L-13804, Feb. 29, 1960).
The defect in the service of summons was cured when the petitioners
voluntarily appeared and answered the complaint through their attorney of
record, who appeared in their behalf in all the stages of the case (Ramos vs.
Mañalac, 89 Phil. 270; Jaranilla vs. Gonzales, 96 Phil. 3).
Service upon a general counsel or a lawyer likewise acting in a
representative capacity is valid.—In Johnlo Trading Company vs. Flores, 88
Phil. 741, it was held:
"Granting', however, for the sake of argument that Balcoff merely acted as counsel
for the petitioner, still we are of the opinion that, upon the strength of the authorities
Page 206 of 226
we have quoted, the service made upon him of the summons intended for the
petitioner can be deemed sufficient in contemplation of law, or within the meaning of
Section 14, Rule 7, (now Section 14, Rule 14), of our Rules of Court, to bind his
client Johnlo Trading Company, upon the theory that, as the only person in the
Philippines charged with the duty of settling claims against it, he must be presumed,
as was said in the Saunders case, to communicate to his client the service made
upon him of any process that may result in a judgment and execution that may
deprive it.of its property, and the probabilities are, under such circumstances, that
the corporation will be duly informed of the pendency of the suit. And this is a very
realistic interpretation 01 the law, for it goes on the assumption that men holding
such relationship 'will be prompt to protect their own interest, and diligent in the
discharge of their duties to those who have reposed confidence in them.' "
As explained in Saunders vs. Sioux City Nursery, 6, Utah 431, 24 Pac. 532,
the principle involved is similar to that when the law authorizes service
made by a copy left at the defendant's usual place of abode with some
person of sufficient age and capacity, or in cases of constructive notice. The
legislature doubtless thought the authority to make such service might be
necessary to meet the contingencies which might arise in the administration
of public justice. Conceding human motives, their usual play, such service is
likely to result in actual notice to persons whose rights may be
222
affected by such methods and modes of procedure.
Service of summons on foreign corporations.—A foreign corporation
actually doing business in this jurisdiction, with or without license or
authority to do so, is amenable to process and the jurisdiction of local
courts. If such corporation has a license to do business, then summons will
be served on the agent designated by it for the purpose, or otherwise in
accordance with the provisions of the Corporation Law.
Where such foreign corporation actually doing business here has not
applied for license to do so and has not designated an agent to receive
summons, then service of summons on it will be made pursuant to the
provisions of the Rules of Court, particularly Section 14, Rule 14 of the
Revised Rules of Court. Service upon a settling agent or adjusting agent of
a foreign corporation was, held. sufficient. (General Corporation of the
Philippines vs. Union Insurance Society of Canton, 88 Phil. 313; Salonga vs.
Warner, Barnes & Co., Ltd., 88 Phil. 125).
Doing business in the Philippines is a sine qua non in order that
summons may be effected and jurisdiction acquired over foreign
corporations.—In order that service of processes may be effected in the
manner stated in Section 14, Rule 14 of the Revised Rules of Court, said
section also requires that the foreign corporation be one which is doing
business in the Philippines. This fact must first be established in order that
summons can be made and jurisdiction acquired. As long as a foreign
Page 207 of 226
private corporation engages in business in this jurisdiction, it should and will
be amenable to the process and the jurisdiction of the local courts. And in
order that a foreign corporation may be regarded as doing business within a
State, there must be continuity of conduct and intention to establish a
continuous business. Consequently, since petitioner is a corporation,
exclusively engaged in the business of carrying goods and passengers by
sea between the territory of Guam and the Trust Territories of the Pacific
Islands; it has no property or office in the Philippines and the only act it did
was to secure the services of the deceased to act as cook and chief
steward, authorizing to
223
VOL. 18, SEPTEMBER 29, 1966 223
Bautista vs. Peralta
that ef fect a domestic corporation, service of summons on such domestic
corporation did not bring the petitioner, within the jurisdiction of our courts.
(Pacific Micronisian Line, Inc. vs. del Rosario, 96 Phil. 23).—MARIA LUISA
A. MENDOZA.
_____________
Page 208 of 226

Republic vs. Acebedo
No. L-20477. March 29, 1968.
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, vs. FELIX B.
ACEBEDO, defendant-appellee.
Taxation; Prescription; Request for reinvestigation.—The defendant after receiving
the assessment notice asked for a reinvestigation. There is no evidence that this
request was considered or acted upon. The then Acting Collector of Internal
Revenue issued a warrant of distraint and levy for the full amount of the assessment.
There was no follow-up of this warrant. The request for reinvestigation did not
suspend the running of the period for filing an action for collection.
Same; Same; Waiver of statute of limitations.—The delay in collection could not be
attributed to the defendant at all. His requests had been unheeded until then, and
there was nothing to impede enforcement of the tax liability by any of the means
provided by law. By Oct. 4, 1955, more than five years had elapsed since the
assessment in question was made. Prescription had already set in, making
subsequent events in connection with. the said assessment entirely immaterial. The
written waiver of the statute signed by the defendant could no longer revive the right
of action, for under the law such waiver must be executed within the original five-
year period within which suit could be commenced.
APPEAL from an order of dismissal of the Court of First Instance of Manila.
Morfe, J.
Solicitor General for plaintiff-appellant.
Angel C. Facundo for defendant-appellee.
MAKALINTAL, J.:
This is a suit for collection of deficiency income tax for the year 1948 in the
amount of P5,962.83. The corresponding notice of assessment was issued
on September 24, 1949. The complaint was filed on December 27, 1961.
After the defendant filed his answer but before trial started
1357
VOL. 22, MARCH 29, 1968 1357
he moved to dismiss on the ground of prescription. The court received
evidence on the motion, and on September 1, 1962 issued an order finding
the same meritorious and hence dismissing the complaint. The case is
before us on appeal by the plaintiff from the order of dismissal.
The statute of limitations which governs this case is Section 332, subsection
(c), of the National Internal Revenue Code, which reads:
"SEC. 332. Exemptions as to period of limitation of assessment and collection of
taxes.—
"x x x x x x x
"x x x x x x x
"(c) Where the assessment of any internal-revenue tax has been made with the
period of limitation above prescribed such tax may be collected by distraint or levy or
by a proceeding in court, but only if begun (1) within five years after the assessment
Page 209 of 226
of the tax, or (2) prior to the expiration of any period for collection agreed upon in
writing by the Collector of Internal Revenue and the taxpayer before the expiration of
such fiveyear period. The period so agreed upon may be extended by subsequent
agreements in writing made before the expiration of the period previously agreed
upon."
The present suit was not begun within five years after the assessment of the
tax, which was in 1949. Was it, however, begun prior to the expiration of any
period for collection agreed upon in writing by the Commissioner of Internal
Revenue and the defendant before the expiration of such five-year period?
The only evidence of such written agreement, in the form of a "waiver of the
statute of limitations" signed by the defendant, is Exhibit U (also Exh. 4),
dated December 17, 1959. But this waiver was ineffective because it was
executed beyond the original five-year limitation.
The plaintiff contends that the period of prescription was suspended by the
defendant's various requests for reinvestigation or reconsideration of the tax
assessment. The trial court rejected this contention, saying that a mere
request for reinvestigation or reconsideration of an assessment does not
have the effect of such suspension. The ruling is logical, otherwise there
would be no point to the legal requirement that the extension of the original
period be agreed upon in writing.
1358
To be sure, this legal provision, according to some decisions of this Court,
does not rule out a situation where the taxpayer may be in estoppel to claim
prescription. Thus we said in Commissioner of Internal Revenue vs.
Consolidated Mining Co., L-11527, Nov. 25, 1958:
"x x x There are cases however where a taxpayer may be prevented from setting up
the defense of prescription even if he has not previously waived it in writing as when
by his repeated requests or positive acts the Government has been, for good
reasons, persuaded to postpone collection to make him feel that the demand was
not unreasonable or that no harassment or injustice is meant by the
Government." (Italics supplied.)
Likewise, when a taxpayer asks f or a reinvestigation of the tax assessment
issued to him and such reinvestigation is made, on the basis of which the
Government makes another assessment, the five-year period within which
an action f or collection may be commenced should be counted from this
last assessment. (Republic vs. Lopez, L-18007, March 30, 1963;
Commissioner v. Sison, et al., L-13739, April 30, 1963.)
In the case at bar, the defendant, after receiving the assessment notice of
September 24, 1949, asked for a reinvestigation thereof on October 11,
1949 (Exh. A). There is no evidence that this request was considered or
acted upon. In fact, on October 23, 1950 the then Collector of Internal
Revenue issued a warrant of distraint and levy for the full amount of the,
assessment (Exh. D), but there was no follow up of this warrant.
Page 210 of 226
Consequently, the request for reinvestigation did not suspend the running of
the period for filing an action for collection. The next communication of
record is a letter signed for the defendant by one Troadio Concha and dated
October 6, 1951, again, requesting a reinvestigation of his tax liability (Exh.
B), Nothing came ,of this request either. Then on February 9, 1954, the
defendant's lawyers wrote the Collector of Internal Revenue informing him
that the books of their client were ready at their office for examination (Exh.
C). The reply was dated more than a year later, or on October 4, 1955,
when the Collector bestirred himself for the first time in connection with the
rein vestigation sought, and required that the defendant spe-
1359
VOL. 22, MARCH 29, 1968 1359
city his objections to the assessment and execute "the enclosed forms for
waiver of the statute of limitations." (Exh. E). The last part of the letter was a
warning that unless the waiver "was accomplished and submitted within 10
days the collection of the deficiency taxes would be enforced by means of
the remedies provided for by law."
It will be noted that up to October 4, 1955 the delay in collection could not
be attributed to the defendant at all. His requests in fact had been unheeded
until then, and there was nothing to impede enforcement of the tax liability
by any of the means provided by law. By October 4, 1955, more than five
years had elapsed since the assessment in question was made, and hence
prescription had already set in, making subsequent events in connection
with the said assessment entirely immaterial. Even the written waiver of the
statute signed by the defendant on December 17, 1959 could no longer
revive the right of action, for under the law such waiver must be executed
within the original ,five-year period within which suit could be commenced.
The order appealed from is affirmed, without pronouncement as to costs.
Reyes, J.B.L., Actg. C.J., Dizon, Bengzon, J.P., Zaldivar, Sanchez,
Angeles and Fernando, JJ., concur.
Castro, J., did not take part.
Order affirmed.
Note.—Partial payment, though it c onstitutes an ac knowledgment of the
tax obligation, is not a waiver in writing within the meaning of Section 332
(c) of the National Internal Revenue Code. Neither does it provide a ground
for finding the taxpayer in estoppel to claim prescription of the right to collect
the tax, for the Government is not thereby "persuaded to postpone
collection to make him feel that the demand was not unreasonable or that
no harassment or injustice is meant" (Cordero vs. Gonda, L-22369, October
15, 1966, 18 SCRA 331).
Page 211 of 226

Repeated requests for re-investigation and repeated requests for
extension of time to pay have, however, been held to have the effect of
suspending the running of the
1360
Republic vs. Republic Surety & Insurance Co., Inc.
prescriptive period. (Republic vs. Arcache, L-15547, Feb. 29, 1964). The
same effect was given to a taxpayer's petition for clarification in
Commissioner of Internal Reenue vs. Capitol Subdivision, Inc., L-18993,
April 30, 1964.
For a case upholding the legality of requiring waiver of the statute of
limitations before a petition for reinvestigation may be granted, see Republic
vs. Lim Tian Teng Sons & Co., Inc., L-21731, March 31, 1966, 16 SCRA
584.
____________
Page 212 of 226

VOL. 202, SEPTEMBER 30, 1991 125
Commissioner of lnternal Revenue vs. Wyeth Suaco
Laboratories, Inc.
G.R. No. 76281. September 30, 1991. *
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. WYETH

SUACO LABORATORIES, INC. and THE COURT OF TAX APPEALS,
respondents.
Taxation; Prescription; Rule that the prescriptive period provided by law to make a
collection by distraint or levy or by a proceeding in court is interrupted once a
taxpayer requests for reinvestigation or reconsideration of the assessment is settled.
—Settled is the rule that the prescriptive period provided by law to make a collection
by distraint or levy or by a proceeding in court is interrupted once a taxpayer
requests for reinvestigation or reconsideration of the assessment.
Same; Same; Same; The statutory period of limitation for collection may be
interrupted if by the taxpayer's repeated requests or positive acts the Government
has been for good reasons persuaded to postpone collection to make him feel that
the demand was not unreasonable or that no harassment or injustice is meant by the
government.—In another case, this Court stated that the statutory period of limitation
for collection may be interrupted if by the taxpayer's repeated requests or positive
Same; Same; Same; Wyeth Suaco admitted that it was seeking reconsideration of
the tax assessments as shown in a letter of its President and General Manager.—
After carefully examining the records of the case, we find that Wyeth Suaco admitted
that it was seeking reconsideration of the tax assessments as shown in a letter of
James A. Gump, its President and General Manager, dated April 28, 1975, the
relevant portion of which is quoted hereunder, to wit: "We submit this letter as a
follow-up to our protest filed with. your office, through our tax advisers, Sycip,
Gorres, Velayo & Co., on January 20 and February 10, 1975 regarding alleged
deficiency on withholding tax at source of P3,178,994.15 and on percentage tax of
P60,855.21, including interest and surcharges, on which we are seeking
reconsideration."
_______________
* THIRD DIVISION.
126
Commissioner of lnternal Revenue vs. Wyeth Suaco Laboratories,
Inc.
Same; Same; Same; Same; Although the protest letters prepared by SGV and Co.
did not categorically state or use the words "reinvestigation" and "reconsideration,"
the same are to be treated as letters of reinvestigation, and reconsideration.—
Although the protest letters prepared by SGV & Co. in behalf of private respondent
did not categorically state or use the words "reinvestigation" and "reconsideration,"
the same are to be treated as letters of reinvestigation and reconsideration. By virtue
of these letters, the Bureau of Internal Revenue ordered its Manufacturing Audit
Division to review the assessments made. Furthermore, private respondent's claim
Page 213 of 226

that it did not seek reinvestigation or reconsideration of the assessments is belied by
the subsequent correspondence or letters written by its officers, as shown above.
Same; Same; Same; Same; Letters of Wyeth Suaco interrupted the running of the
five-year prescriptive period to collect the deficiency taxes.—These letters of Wyeth
Suaco interrupted the running of the five-year prescriptive period to collect the
deficiency taxes. The Bureau of Internal Revenue, after having reviewed the records
of Wyeth Suaco, in accordance with its request for reinvestigation, rendered a final
assessment. This final assessment issued by then Acting Commissioner Ruben B.
Ancheta was dated December 10, 1979 and received by private respondent on
January 2,1980, fixed its tax liability at P1,973,112.86 as deficiency withholding tax
at source and P61,1 55.21 as deficiency sales tax. It was only upon receipt by
Wyeth Suaco of this final assessment that the five-year prescriptive period started to
run again.
PETITION for review on certiorari from the decision of the Court of Tax
Appeals.
FERNAN, C.J.:
The sole issue in this petition for review on certiorari is whether or not
petitioner's right to collect deficiency withholding tax at source and sales tax
liabilities from private respondent is barred by prescription.
The antecedent facts are as follows:
Private respondent Wyeth Suaco Laboratories, Inc. (Wyeth Suaco for
brevity) is a domestic corporation engaged in the manufacture and sale of
assorted pharmaceutical and nutri-
127
VOL. 202, SEPTEMBER 30, 1991 127
Laboratories, Inc.
tional products. Its accounting period is on a fiscal year basis ending
October 31 of every year.
By virtue of Letter of Authority No. 52415 dated June 17, 1974 issued by
then Commissioner of Internal Revenue Misael P. Vera, Revenue Examiner
Dante Kabigting conducted an investigation and examination of the books of
accounts of Wyeth Suaco. On October 15, 1974, he submitted a report
1
containing the result of his investigation. The report disclosed that Wyeth
Suaco was paying royalties to its foreign licensors as well as remuneration
for technical services to Wyeth International Laboratories of London. Wyeth
Suaco was also found to have declared cash dividends on September 27,
1973 and these were paid on October 31, 1973. However, it allegedly failed
to remit withholding tax at source for the fourth (4th) quarter of 1973 on
accrued royalties, remuneration for technical services and cash dividends,
resulting in a deficiency withholding tax at source in the aggregate amount
of P3,1 78,994.15. 2
Moreover, it was reported that during the periods from November 1, 1972 to
December 31, 1972 and January 1, 1973 to October 31, 1973, Wyeth
Page 214 of 226
Suaco deducted the cost of non-deductible raw materials, resulting in its
alleged failure to pay the correct amount of advance sales tax. There was
reportedly also a short payment of advance sales tax in its importation of
"Mega Polymycin D" on October 3, 1972. All these resulted in a deficiency
sales tax in the amount of P60,855.21 and compromise penalty in the
amount of P300.00, or a total amount of P61,155.21. 3
Consequently, the Bureau of Internal Revenue assessed Wyeth Suaco on

the aforesaid tax liabilities in two (2) notices dated December 16, 1974 and
December 17, 1974. These assessment notices were both received by
Wyeth Suaco on December 19, 1974. 4
Thereafter, Wyeth Suaco through its tax consultant SGV & Co., sent the
Bureau of Internal Revenue two (2) letters dated
_______________
1 Original Record, Volume II, p. 61.
2 Original Record, Volume II, pp. 65-66; 62-63.
3 Original Record, Volume I, pp. 9-10.
128
Laboratories, Inc.
January 17, 1975 and February 8, 1975, protesting the assessments and
requesting their cancellation or withdrawal on the ground that said
assessments lacked factual or legal basis.
Wyeth Suaco argued that it was not liable to pay withholding tax at source
on the accrued royalties and dividends because they have yet to be remitted
or paid abroad. It claimed that it was not able to remit the balance of fifty
percent (50%) of the accrued royalties to its foreign licensors because of
Central Bank Circular No. 289 allowing remittance of royalties up to fifty
percent (50%) only. With regard to what the Bureau of Internal Revenue
claimed as the amount of P2,952,391.00 forming part of the cash dividends
declared in 1973, Wyeth Suaco alleged that the same was due its foreign
stockholders. Again, Wyeth Suaco was not able to remit these dividends
because of the restriction of the Central Bank in a memorandum
implementing CB Circular No. 289 dated February 21, 1970. Thus, Wyeth
Suaco's contention was that a withholding tax at source on royalties and
dividends becomes due and payable only upon their actual payment or
remittance,
On the matter of the withholding tax at source on remuneration for technical
services, Wyeth Suaco insisted that it was upto-date in remitting the
corresponding withholding tax on this income to the Bureau of Internal
Revenue.
As to the assessed deficiency sales tax, Wyeth Suaco maintained that the
difference between its landed cost figure (which is the basis for computing
Page 215 of 226
the advance sales tax) and that of the revenue examiner, was due to the
use of estimated amounts by the Bureau of Customs and to foreign
exchange differential.
Wyeth Suaco however, admitted liability with respect to the short payment of
advance sales tax in the amount of P1,000.00 on its importation of "Mega
Polymycin D." 5
On September 12, 1975, the Commissioner of Internal Revenue asked

Wyeth Suaco to avail itself of the compromise settlement under LOI 308. In
its answer, Wyeth Suaco manifested its conformity to a 10% compromise
provided it be applied only to the basic sales tax, excluding surcharge and
interest. As to the deficiency withholding tax at source, Wyeth took
exception on
_______________
5 Original Record, Volume II, pp. 137-145.
129
VOL. 202, SEPTEMBER 30, 1991 129
Laboratories, Inc.
the ground that it involves purely a legal question and some of the amounts
included in the assessment have already been paid.
On December 10, 1979, petitioner, thru then acting Commissioner of
Internal Revenue Ruben B. Ancheta, rendered a decision reducing the
assessment of the withholding tax at source for 1973 to P1,973,112.86.
However, the amount of P61,155.21 as deficiency sales tax remained the
same. 6
Thereafter, Wyeth Suaco filed a petition for review in the Court of Tax
Appeals on January 18,1980, praying that petitioner be enjoined from
enforcing the assessments by reason of prescription and that the
assessments be declared null and void for lack of legal and factual basis. 7
On February 7, 1980, petitioner issued a warrant of distraint of personal

property and warrant of levy of real property against private respondent to
enforce collection of the deficiency taxes. These were served on private
respondent on March 12,1980. However, collection of the deficiency taxes
8
by virtue of the warrants of distraint and levy was enjoined by respondent

court upon motion of Wyeth Suaco in a resolution dated May 22, 1980. 9
On May 30, 1980, petitioner filed his answer to Wyeth Suaco's petition for
review praying, among others, that private respondent be declared liable to
pay the amount of P61,155.21 as deficiency sales tax for the periods
November 1, 1972 to December 31, 1972 and January 1, 1973 to October
31, 1973, plus 14% annual interest thereon from December 17, 1974 until
full payment thereof pursuant to Section 183 (now Section 193) of the Tax
Code, and the amount of P1,973,112.86 as deficiency withholding tax at
source for the 4th quarter of 1973 plus 5% surcharge and 14% per annum
Page 216 of 226

interest thereon from December 16, 1974 to December 16, 1977, pursuant
to Section 51 (e) of the Tax Code of 1977, as amended. 10
_______________
7 Rollo, pp. 44-49; Original Record, Volume I, pp. 1-6.
10 Rollo, pp. 50-53.
130
Laboratories, Inc.
On August 29, 1986, the Court of Tax Appeals rendered a decision enjoining
the Commissioner of Internal Revenue from collecting the deficiency taxes,
the dispositive portion of which reads as follows:
"WHEREFORE, the decision appealed from is hereby reversed and respondent
Commissioner of Internal Revenue is hereby enjoined from collecting the deficiency
withholding tax at source for the fourth quarter of 1973 as well as the deficiency
sales tax assessed against petitioner (Wyeth Suaco). Without pronouncement as to
costs.11
The basis of the above decision was the finding of the Tax Court that while
the assessments for the deficiency taxes were made within the five-year
period of limitation, the right of petitioner to collect the same has already
prescribed, in accordance with Section 319 (c) of the Tax Code of 1977. The
said law provides that an assessment of any internal revenue tax within the
five-year period of limitation may be collected by distraint or levy or by a
proceeding in court, but only if begun within five (5) years after the
Hence, this recourse by petitioner.
The applicable laws in the instant case are Sections 318 and 319 (c) of the
National Internal Revenue Code of 1977 (now Sections 203 and 224 of the
National Internal Revenue Code of 1986), to wit:
"SEC. 318. 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 the expiration of such period. x x x"
taxes.—
x x x
(c) Where the assessment of any internal revenue tax has been made within the
period of limitation above-prescribed s uch tax may be collected by distraint or levy
or by a proceeding in court, but only if
_______________
11 Rollo, pp. 30-35, through Associate Judge Alex Z. Reyes, ponente, and Presiding Judge Amante Filler
and Associate Judge Constante C. Roaquin, concurring.
131
VOL. 202, SEPTEMBER 30, 1991 131
Page 217 of 226
Commissioner of lnternal Revenue us. Wyeth Suaco Laboratories,
Inc.
begun (1) within five years after the assessment of the tax, or (2) prior to the
expiration of any period for collection agreed upon in writing by the Commissioner
and the taxpayer before the expiration of such five-year period. The period so
agreed upon may be extended by subsequent agreements in writing made before
the expiration of the period previously agreed upon." (italics supplied)
The main thrust of petitioner for the allowance of this petition is that the five-
year prescriptive period provided by law to make a collection by distraint or
levy or by a proceeding in court has not yet prescribed. Although he admits
that more than five (5) years have already lapsed from the time the
assessment notices were received by private respondent on December 19,
1974 up to the time the warrants of distraint and levy were served on March
12, 1980, he avers that the running of the prescriptive period was stayed or
interrupted when Wyeth Suaco protested the assessments. Petitioner
argues that the protest letters sent by SGV & Co. in behalf of Wyeth Suaco
dated January 17, 1975 and February 8, 1975, requesting for withdrawal
and cancellation of the assessments were actually requests for
reinvestigation or reconsideration, which could interrupt the running of the
five-year prescriptive period.
Wyeth Suaco, on the other hand, maintains the position that it never asked
for a reinvestigation nor reconsideration of the assessments. What it
requested was the cancellation and withdrawal of the assessments for lack
of legal and factual basis. Thus, its protest letters dated January 17, 1975
and February 8, 1975 did not suspend or interrupt the running of the five-
year prescriptive period.
Settled is the rule that the prescriptive period provided by law to make a
collection by distraint or levy or by a proceeding in court is interrupted once
a taxpayer requests for reinvestigation or reconsideration. of the
assessment. In the case of Commissioner of Internal Revenue vs. Capitol
Subdivision, Inc., this Court held:
12
"The period of prescription of action to collect a taxpayer's deficiency income tax

assessment is interrupted when the taxpayer re-
________________
12 G.R. No. L-18993, April 30, 1964, 10 SCRA 773.
132
Commissioner of lnternal Revenue vs. Wyeth Suaco Laboratories,
Inc.
quests for a review or reconsideration of said assessment, and starts to run again
when said request is denied."
In another case, this Court stated that the statutory period of limitation for
collection may be interrupted if by the taxpayer's repeated requests or
positive acts the Government has been, for good reasons, persuaded to
postpone collection to make him feel that the demand was not unreasonable
Page 218 of 226
or that no harassment or injustice is meant by the Government. Also in the
13
case of Cordero vs. Gonda, we held:

14
"Partial payment would not prevent the government from suing the taxpayer.
Because, by such act of payment, the government is not thereby 'persuaded to
postpone collection to make him feel that the demand was not unreasonable or that
no harassment or injustice is meant.' This is the underlying reason behind the rule
that the prescriptive period is arrested by the taxpayer's request for re-examination
or reinvestigation—even if he 'has not previously waived it (prescription in writing/. x
x x" (italics supplied)
Thus, the pivotal issue in this case is whether or not Wyeth Suaco sought
reinvestigation or reconsideration of the deficiency tax assessments issued
by the Bureau of Internal Revenue.
After carefully examining the records of the case, we find that Wyeth Suaco
admitted that it was seeking reconsideration of the tax assessments as
shown in a letter of James A. Gump, its President and General Manager,
dated April 28, 1975, the relevant portion of which is quoted hereunder, to
wit:
"We submit this letter as a follow-up to our protest filed with your office, through our
tax advisers, Sycip, Gorres, Velayo & Co., on January 20 and February 10, 1975
regarding alleged deficiency on withholding tax at source of P3,1 78,994.15 and on
percentage tax of P60,855.21, including interest and surcharges, on which we are
seeking reconsideration."15 (italics supplied)
_______________
13 Commissioner of Internal Revenue v. Consolidated Mining Co., G.R. No. 11527, November
29,1968.
14 G.R. No. L-22369, October 15, 1966, 18 SCRA 331.
15 Original Record, Volume II, pp. 116-117.
133
VOL. 202, SEPTEMBER 30, 1991 133
Laboratories, Inc.
Furthermore, when Wyeth Suaco thru its tax consultant SGV & Co. sent the
letters protesting the assessments, the Bureau of Internal Revenue,
Manufacturing Audit Division, conducted a review and reinvestigation of the
assessments. This fact was admitted by Wyeth Suaco thru its Finance
Manager in a letter dated July 1, 1975 addressed to the Chief, Tax Accounts
Division. The pertinent portion of said letter reads as follows:
"This will acknowledge receipt of your letter dated May 22, 1975 regarding our
alleged income and business tax deficiencies for fiscal year 1972/73.
x x x
Nevertheless, please be advised that the deficiency tax stated in your letter is what
we are protesting on pursuant to the letters we filed with the Bureau of Internal
Revenue on January 20, 1975 and on February 10, 0, 1975.
x x x
As we understand, the matter is now undergoing review and consideration by your
Manufacturing Audit Division. Pending the outcome of their decision, we regret our
inability to make settlement. x x x"16 (Italics supplied)
Page 219 of 226
Although the protest letters prepared by SGV & Co. in behalf of private
respondent did not categorically state or use the words "reinvestigation" and
"reconsideration," the same are to be treated as letters of reinvestigation
and reconsideration. By virtue of these letters, the Bureau of Internal
Revenue ordered its Manufacturing Audit Division to review the
assessments made. Furthermore, private respondent's claim that it did not
seek reinvestigation or reconsideration of the assessments is belied by the
subsequent correspondence or letters written by its officers, as shown
above.
These letters of Wyeth Suaco interrupted the running of the five-year
prescriptive period to collect the deficiency taxes. The Bureau of Internal
Revenue, after having reviewed the records of Wyeth Suaco, in accordance
with its request for reinvestigation, rendered a final assessment. This final
assessment issued by then Acting Commissioner Ruben B. Ancheta was
dated
_______________
134
Laboratories, Inc.
December 10, 1979 and received by private respondent on January 2,
1980, fixed its tax liability at P1,973,112.86 as deficiency withholding tax at
source and P61,155.21 as deficiency sales tax. It was only upon receipt by
Wy eth Suaco of this final assessment that the five-year prescriptive period
started to run again.
Verily, the original assessments dated December 16 and 17, 1974 were
both received by Wyeth Suaco on December 19, 1974. However, when
Wyeth Suaco protested the assessments and sought its reconsideration in
two (2) letters received by the Bureau of Internal Revenue on January 20
and February 10, 1975, the prescriptive period was interrupted. This period
started to run again when the Bureau of Internal Revenue served the final
assessment to Wyeth Suaco on January 2,1980. Since the warrants of
distraint and levy were served on Wyeth Suaco on March 12, 1980, then,
only about four (4) months of the five-year prescriptive period was used.
Having resolved the issue of prescription, we now come to the merits of the
case.
Wyeth Suaco questions the legality of the regulation imposed by the Bureau
of Internal Revenue of requiring a withholding agent or taxpayer to remit the
taxes deducted and withheld at source on incomes which have not yet been
paid. It maintains the stand that withholding tax at source should only be
remitted to the Bureau of Internal Revenue once the incomes subject to
withholding tax at source have actually been paid. Thus, private respondent
avers that it was not liable to remit the taxes withheld at source on royalties
Page 220 of 226
and dividends unless these incomes have been actually paid to its foreign
licensors and stockholders.
It is said that taxes are what we pay for civilized society. Without taxes, the
government would be paralyzed for lack of the motive power to activate and
operate it. x x x It is the lifeblood of the government and so should be
collected without unnecessary hindrance x x x. 17
_______________
17 Commissioner of Internal Revenue v. Algue, Inc., No. L-28896, February 17, 1988, 158
SCRA 9.
135
VOL. 202, SEPTEMBER 30, 1991 135
Laboratories, Inc.
In line with this principle, the Tax Code, particularly Section 54 (a) [now
Section 51 (a)] provides that "the Commissioner of Internal Revenue may,
with the approval of the Secretary of Finance, require the withholding agents
to pay or deposit the taxes deducted and withheld at more frequent intervals
when necessary to protect the interest of the government. The return shall
be filed and the payment made within 25 days from the close of each
calendar quarter". Presently, Revenue Regulation No. 6-85 effective July 1,
1985, requires the filing of monthly return and payment of taxes withheld at
source within (10) days after the end of each month.
Moreover, the records show that Wyeth Suaco adopted the accrual method
of accounting wherein the effect of transactions and other events on assets
and liabilities are recognized and reported in the time periods to which they
relate rather than only when cash is received or paid. The "Report of
Investigation" submitted by the tax examiner indicated that accrual was the
basis of the taxpayer's return. Thus, private respondent recorded accrued
18
royalties and dividends payable as well as the withholding tax at source

payable on these incomes. Having deducted and withheld the tax at source
and having recorded the withholding tax at source payable in its books of
accounts, private respondent was obligated to remit the same to the Bureau
of Internal Revenue.
With regard to the accuracy of the assessment on deficiency sales tax, we
rule that the examiner's assessment should be given full weight and credit,
in the absence of proof submitted by Wyeth Suaco to the contrary. This is in
line with our ruling in several cases wherein we said that tax assessments
by tax examiners are presumed correct and made in good faith. The
taxpayer has the duty to prove otherwise. In the absence of proof of any
irregularities in the performance of duties, an assessment duly made by a
Bureau of Internal Revenue examiner and approved by his superior officers
will not be disturbed. All presumptions are in favor of the correctness of tax
assessments. The case of Commissioner of Internal Revenue vs.
19
_______________
Page 221 of 226
19 Sy Po v. Court of Tax Appeals, No. L-81446, August 18,1988, 164 SCRA 524.
136
Commissioner of Internal Revenue vs. Wyeth Suaco
Laboratories, Inc.
Construction Resources of Asia, Inc., where this Court cited 51 Am. Jur. pp.
20
620-621, states the principle in detail, thus:

"All presumptions are in favor of the correctness of tax assessments. The good faith
of tax assessors and the validity of their actions are presumed. They will be
presumed to have taken into consideration all the facts to which their attention was
called. No presumption can be indulged that all of the public officials of the State in
the various counties who have to do with the assessment of property for taxation will
knowingly violate the duties imposed upon them by law."
The final assessment issued by the Bureau of Internal Revenue declared
the issuance of deficiency sales tax assessments to be legal and valid. It
was ascertained that during the investigation, Wyeth Suaco deducted non-
deductible raw materials which were not subjected to advance sales tax
thereby resulting in its failure to pay the correct amount of sales tax under
Section 183, in relation to Section 186 and 186-B of the Tax Code, prior to
and after amendment by Presidential Decree No. 69. Wyeth Suaco was not
able to refute this by submitting supporting documents. 21
WHEREFORE, the petition is GRANTED. Wyeth Suaco Laboratories,

Inc. is hereby ordered to pay the Bureau of Internal Revenue the amount of
P1,973,112.86 as deficiency withholding tax at source, with interest and
surcharge in accordance with law, without prejudice to any reduction
brought about by payments or remittance made. Wyeth Suaco Laboratories,
Inc. is also ordered to pay the Bureau of Internal Revenue the amount of
P60,855.21 as deficiency sales tax with interest and surcharge in
accordance with law. Costs against private respondent.
SO ORDERED.
Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ., concur.
Petition granted.
_______________
20 No. 68230, November 25, 1986, 145 SCRA 671.
21 Original Record, Vol. I, p. 11.
137
Page 222 of 226

Querol vs. Collector of Internal Revenue
No. L-16705. October 30, 1962.
ANTONIO E. QUEROL, petitioner, vs. COLLECTOR OF INTERNAL
REVENUE, respondent.
Taxation; Prescriptive period for filing court action period between petition for
reconsideration and revised assessment, to be deducted.—The period between the
petition, filed by taxpayer, for the reconsideration of an assessment, and the revised
assessment, should be subtracted from the total pre-
305
VOL. 6, OCTOBER 30, 1962 305

scriptive period under Sec. 331 of the Internal Revenue Code (Republic vs. Ablaza,
L-14519, July 26, 1960).
Same; Period to run from date of reconsidered assessment.—Once the assessment
has been reconsidered at the taxpayer’s instance, the five-year period for the filing of
court action for collection should begin to run from the date of the reconsidered or
modified assessment (Collector vs. Pineda, L-14522, May 31, 1961).
Same; Taxpayer’s burden of proving of period of limitation.—Prescription being a
matter of defense, the burden is on the taxpayer to prove that the full period of
limitation has expired, so that he should positively establish the date when the period
started to run and when it ended.
Marcelino B. Florentino for petitioner.
Solicitor General for respondent.
REYES, J.B.L., J.:
Review of a decision of the Court of Tax Appeals sentencing petitioner to
pay a deficiency income tax of P753.-51 for the year 1947, plus 5%
surcharge for late payment and interest at the rate of 1 % per month from
March 16, 1955.
On February 28, 1948, petitioner filed his income tax return for the year
1947. Subsequently, he also filed income tax returns for the years 1948 to
1950. Sometime in 1951, respondent Collector issued an income tax
assessment notice charging petitioner an income tax on the amount of
P9,004.22, representing expenses incurred by petitioner for the repair of his
house, and which petitioner claimed as deductible expense in his 1947
returns. On December 14, 1951, in a letter addressed to respondent
Collector, petitioner requested reconsideration of this opinion of the
Collector on the ground that there was nothing added to the house to
increase its original value, and, therefore, said amount cannot be made part
of the asset. On May 25, 1953, without having received a reply to his first
request, petitioner reiterated his request for exemption from the income tax
mentioned in respondent’s assessment notice in another letter addressed to
Page 223 of 226
the Municipal Treasurer of San Fernando, La Union. On July 10, 1954, the
Ex-
306
aminer assigned to investigate the case submitted his report recommending
denial of petitioner’s request, and charging as disallowances the costs of
repairs but recommending instead that said repairs be capitalized and
depreciated yearly. On February 9, 1955, respondent Collector issued a tax
assessment notice of P753.51 for 1947. He also issued assessment tax
notices for the years 1948 to 1950. On February 19, 1955, petitioner
returned assessment notices from 1947 to 1950, with a request for
information how the computation of his tax liability had been arrived at.
On September 14, 1956, respondent Collector issued a warrant of distraint
and levy against petitioner’s properties to satisfy the amount of P1,808.10,
petitioner’s total income tax liability for the years 1947 to 1950, plus its legal
increments. On September 19, 1956, the municipal treasurer distrained and
levied on petitioner’s residential house. On September 22, 1956, petitioner
filed a petition for review, seeking to declare the warrant of distraint and levy
null and void, and to enjoin respondent from executing the warrant. On
appeal to the Tax Court, that Court held that the right to collect summarily
had already prescribed, and declared the warrant null and void. Appeal by
the respondent Collector to this Court was later dismissed.
On March 18, 1959, petitioner filed an amended petition for review to the
end that the real matter in dispute may be completely determined in a single
proceeding; and on October 7, 1959, the Tax Court rendered the decision,
modifying respondent Collector’s decision in the sense stated above, and
from which petitioner is now appealing.
Petitioner argues that the Tax Court erred in holding that an initial
assessment notice for the year 1947 was sent to petitioner sometime in
1951 and in finding that his requests for reconsideration suspended the
running of the prescriptive period, thus upholding the non-prescriptibility of
the right of the Collector to collect from petitioner a deficiency income tax for
1947; the respondent claims, in turn, that the evidence on record regarding
the initial assessment is clear, as admitted in petitioner’s requests
307
VOL. 6, OCTOBER 30, 1962 307
for reconsideration (letters of December 14, 1951 and May 25, 1953), which
evidence the Tax Court can take cognizance of since evidence not formally
offered may be taken into account in deciding a case; that since the period
from the first request for reconsideration to the date of the respondent’s
receipt of the result of the investigation suspended the running of the period
Page 224 of 226
for the running of prescription, the tax assessment notices issued on
February 9, 1955 were on time, and so was the judicial action for collection,
which was considered filed when respondent Collector filed his answer to
the amended petition for review on April 8, 1959.
The issue is here concentrated by the appellant taxpayer on his defense of
prescription of the action to collect the tax due on his income during 1947.
Starting from the ruling of the Tax Court that the irregularities in his return do
not make it false or fraudulent, the appellant first contends that the
Collector’s 1955 revised assessment is void, because it was not made
within the five years prescribed by section 331 of the Internal Revenue
Code, from and after the filing of his income tax return (Exhibit A) on
February 28, 1948. We agree with the court below that this contention is not
tenable, because there had been a preceding assessment in 1951. In his
own letter of December 14, 1951 (Exhibit O or 11-A), Querol stated:
“With reference to the income tax assessment notice No. 24-A-36-51/47, I have the
honor to request reconsideration of your opinion charging me an income tax for the
amount of expenses I incurred for the repair of my house.”
These words necessarily import that the taxpayer had received a tax
assessment notice before the date of the letter. That such assessment
referred to his 1947 income tax return is shown by his reference to the value
of the repairs made to his house, that he had claimed as deduction in his
1947 return (Exhibit A). No similar claim appears in any other tax return
made by him. Now, from February, 1948 (when the return was filed) to
December, 1951 is less than four years; hence, the first assessment was
made on time.
308
It is true that the Collector revised the original assessment on February 9,
1955; and appellant avers that this revision was invalid in that it was not
made within the five-year prescriptive period fixed by law (Collector vs.
Pineda, L-14522, 31 May 1961). But the fact is that the revised assessment
was merely a result of petitioner Querol’s requests for reconsideration of the
original assessment, contained in his letters of December 14, 1951 and May
25, 1953. The records of the Bureau of Internal Revenue show that after
receiving the letters, the Bureau conducted a reinvestigation of petitioner’s
tax liabilities, and, in fact, sent a tax examiner to San Fernando, La Union,
for that purpose; that because of the examiner’s report, the Bureau revised
the original assessment, and that while it still refused to allow full deduction
of the repairs to the taxpayer’s residence as a business expense, it allowed
him to capitalize the amount, and permitted him to deduct a reasonable
depreciation for 1947. In other words, the reconsideration was granted in
part, and the original assessment was altered. Consequently, the period
between the petition for reconsideration and the revised assessment should
Page 225 of 226
be subtracted from the total prescriptive period (Republic vs. Ablaza,
L-14519, 26 July 1960).
We have also ruled that once the assessment has been reconsidered at the
taxpayer’s instance, the five-year period for filing of the court action for
collection should begin to run from the date of the reconsidered or modified
assessment. (Collector vs. Pineda, supra.) The judicial action to recover the
taxes in the present case was made when the Collector, countering the
taxpayer’s suit in the Court of Tax Appeals, asked the Court, in April of 1959,
to order payment thereof, less than 5 years after the revised assessment
was made.
Much is made by appellant of the fact that no clear evidence exists on the
date when the original tax assessment was issued by the Collector or when
it was received by the taxpayer. But it must be remembered that prescription
is a matter of defense; hence, the burden is on the taxpayer to prove that
the full period of limitation has expired, and this requires him to positively
establish
309
VOL. 6, OCTOBER 30, 1962 309
Lao vs. Republic
the date when the period started running, and when the same was fully
accomplished.
Finding no cogent reason to vary the ruling of the Tax Court, its decision
is hereby affirmed, with costs against appellant.
Padilla, Bautista Angelo, Labrador, Concepcion, Barrera, Paredes,
Dizon, Regala and Makalintal, JJ., concur.
Bengzon, C.J., took no part.
Decision affirmed.
Note.—In Republic v. Lim Tian Tong Sons & Co., Inc., L-21731, March 31,
1966, 16 SCRA 584, the taxpayer requested a reinvestigation of its income
tax liability. The taxpayer was sued in court for the collection of the
deficiency income tax upon its failure to execute a waiver of the statute of
limitations as requested by the Deputy Collector. The Court held that the
Collector can go to court for the purpose of collecting the tax assessed
without need of deciding first on a taxpayer’s request for reinvestigation.
_______________
Page 226 of 226

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VOL.

506, OCTOBER 31, 2006 427

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. PHILIPPINE

428 SUPREME COURT REPORTS ANNOTATED

VOL. 506, OCTOBER 31, 2006 429

430 SUPREME COURT REPORTS ANNOTATED

VOL. 506, OCTOBER 31, 2006 431

withdraw and cancel Assessment Notice No. 000688-80-7333 issued

Resolution dated 22 September 2004 in C.T.A. Case No. 6568.

On 6 May 1994, respondent, through its counsel Ponce Enrile Cayetano

prescription and found it unnecessary to decide the issues on the validity

1977). The dispositive portion of this decision reads:

assess or to begin a court proceeding for the collection without an

The assessment, in this case, was presumably issued on 14 April 1994

affirmed that the law on prescription should

explaining why a request for reinvestigation, and not a request for

demands a reinvestigation, the time employed in reinvestigating should be

government and the taxpayers.

450 SUPREME COURT REPORTS ANNOTATED

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. B.F.

VOL. 303, FEBRUARY 24, 1999 547

548 SUPREME COURT REPORTS ANNOTATED

the Court of Appeals in CA-GR SP No. 25100. The assailed Decision

commissioner’s assessments made beyond the five-year statute of

The petition has no merit.

perforce be strictly construed.

privilege of transmitting one’s property or property rights to another or others

278 SUPREME COURT REPORTS ANNOTATED

JOSE B. AZNAR, in his capacity as Administrator of the Estate of the

522 SUPREME.COURT REPORTS ANNOTATED

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MELCHOR J.

VOL. 199, JULY 31, 1991 825

Commissioner’s Motion for Reconsideration and Motion for New Trial on

the deletion of the 50% surcharge assessment or imposition.

Appeals on December 10, 1981.

return, was discussed in this manner:

738 SUPREME COURT REPORTS ANNOTATED

758 SUPREME COURT REPORTS ANNOTATED

VOL. 18, NOVEMBER 24, 1966 759

within which to institute an appeal in the Court of Tax Appeals should

jurisdiction to adjudicate the contentions in question, which .—assuming

existence and nonexistence is final unless clearly shown to be erroneous, 10

Page 101 of 226

quote Section 332 (a):

Page 103 of 226

Page 105 of 226

beneficiary, should be paid by the executor or administrator. Failure to pay

the estate and

penalties is obviously much less than her distributive share.

Page 107 of 226

Page 109 of 226

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Subsequently, petitioner sent to LMCEC by constructive service allowed

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