Statute of Limitations

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Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-18804 May 27, 1965

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. WESTERN PACIFIC CORPORATION, respondent. Office of the Solicitor General for petitioner. R. Melo and A. S. Velasquez for respondent. PAREDES, J.: On March 2, 1959, the respondent Western Pacific Corporation, was assessed for P3,731.00, as deficiency income tax for the year 1953. This assessment was brought about by the disallowance of P8,265.82, listed in respondent's return for 1953, as expense items, and P10,387.50, as written off "bad debts." The assessment was received by respondent on the same date (March 2, 1959). On March 5, 1959, the Commissioner of Internal Revenue wrote the respondent corporation a letter of demand for the payment of the amount, including therein a breakdown of said assessment. Under date of June 29, 1959, respondent corporation, thru Ruifino Melo & Company, Consulting and Examining Auditors, requested for non-assessment, claiming that there has been prescription in making the assessment, that the expense items and bad debts were allowable deduction. The letter was accompanied by a Resolution of the corporation, dated February 2, 1954, where it was resolved to write off the debts of the people appearing in another annex. The Commissioner on July 30, 1959 replied to the request, denying the same, and demanding the payment of the amount due within thirty (30) days from receipt of said demand. On September 19, 1958, respondent corporation requested that it be permitted until September 25, 1959, to submit formal objections to the assessment. The formal objections appearing in the letter of September 22, 1959, were identical to those of the June 29, 1959 communication, reason for which the Commissioner did not give any favorable action. The last letter of the Commissioner, dated October 28, 1959, among others, requested payment of the assessment within ten (10) days from receipt thereof. On December 18, 1959, respondent Western Pacific Corporation, presented with the Court of Tax Appeals a petition for Review of assessment made by the Commissioner, on three (3) counts, to wit: (1) whether or not the making of the assessment had prescribed; (2) whether expenses incurred in securing IGC Licenses are capital expenditures, and, as such, not deductible from the income; and (3) whether the bad debts written off should likewise be deducted. When the issues were joined, by the filing of the Answer, and after hearing, the CTA rendered judgment absolving the Western Pacific Corporation from the assessment. It, however, ruled out prescription, stating that March 2, 1959, was the last day of the five (5) year period within which to make the assessment. On this point, the CTA ruled:

However, we do not agree with petitioner that the assessment in question was issued beyond the 5-year statutory limitation. February 28, 1959 fell on a Saturday. Pursuant to Republic Act No. 1880, as, implemented by Executive Order No. 25, effective July 1, 1959, all bureaus and offices of the government, except schools, court, hospitals and health clinics, hold office only five days a week or from Monday to Friday. Saturday and Sunday, are constituted public holidays or days of exemption from labor or work as far as government offices, including that of respondent Commissioner, are concerned. The offices and bureaus concerned are officially closed on those days. So that on February 28, 1959 and March 1, 1959, which were Saturday and Sunday, respectively, the office of respondent was officially closed. And where the last day for doing an act required by law falls on a holiday, the act may be done on the next succeeding business day. (Section 31, Revised Administrative Code.) Similarly, in computing any period of time prescribed by statute, the day of the act after which the designated period of time begins to run is not included. But the last day of the period so computed is to be included, unless it is a Sunday or a legal holiday, in which event the time shall run until the end of the next day which is neither a Sunday or a holiday (Section 1, Rule 28, Rules of Court). Consequently, since February 28, 1959 was a Saturday and the next day, March 1, 1959, a Sunday, respondent had until the next succeeding business day, March 2, 1959, Monday, within which to issue the deficiency assessment. The assessment in question having been issued on March 2, 1959, it was, therefore, seasonably made. We concur in the above findings and conclusions, convinced as We are, that they are actually and legally correct.. The above ruling notwithstanding, the Commissioner of Internal Revenue appealed against the judgment which absolved respondent Western Pacific Corporation from liability, alleging that the CTA erred:. (1) In taking cognizance of the case, notwithstanding lack of jurisdiction; and (2) Granting it had jurisdiction, in considering the expense items and the written off bad debts as deductible.
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Without going into the merits of the decision absolving the respondent corporation of tax liability, We find that the assessment made by the Commissioner should be maintained, for the simple reason that when the petition for review was brought to the CTA by the respondent corporation, the said Court no longer had jurisdiction to entertain the same. The assessment had long become final. A petition for review should be presented, within the reglementary period, as provided for in Section 11, Republic Act No. 1125, which is "thirty (30) days from receipt of the assessment." The thirty (30) day period is jurisdictional (Pangasinan Transportation Co. vs. Blaquera, L-13101, April 29, 1960). It will be noted that the assessment was received by the respondent corporation on March 2, 1959. It was only on June 29, 1959, when said corporation formally assailed the assessment, on the grounds of prescription in making the assessment and the impropriety of the disallowance of the listed deductions. From March 3 to June 29, 1959, manifestly more than thirty (30) days had lapsed and the assessment became final, executory and demandable (Ventanilla vs. Bd. of Tax Appeals, et al., L-7384, Dec. 19, 1955). Of course, in the interim, a number of communications were exchanged between the parties, the latest of which was dated October 28, 1959. Even if this date is considered as the commencement of the thirty (30) day period, still the petition for review with the CTA was out of time, because it was only on December 18, 1959, that said petition was presented. Failure to comply with the thirty-day statutory period would bar appeal and deprive the CTA of its jurisdiction to

entertain and determine the correctness of the assessment (Gibbs & Gibbs vs. Coll. of Int. Rev. & CTA, L-13453, Feb. 29, 1960). IN VIEW OF THE FOREGOING, the decision of the CTA is hereby set aside for having been rendered without jurisdiction, the assessment in question having been already final, executory and demandable before the petition for review was presented; and another entered, ordering respondent Western Pacific Corporation to pay the assessment made by the Collector of Internal Revenue, and the further amount of 5% surcharge and 1% monthly interest on the amount assessed, from April 1, 1959 until date of full payment. Costs against the respondent corporation. Bengzon, C.J., Concepcion, Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-19727 May 20, 1965

THE COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. PHOENIX ASSURANCE CO., LTD., respondent. ----------------------------G.R. No. L-19903 May 20, 1965

PHOENIX ASSURANCE, CO., LTD., petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent. Office of the Solicitor General for petitioner-respondent Commissioner of Internal Revenue. Sycip, Salazar, Luna & Associates and A. S. Monzon, B. V. Abela & J. M. Castillo for respondentpetitioner 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. 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.
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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 1953 1954 P316,526.75 P246,082.04 P203,384.69

upon which the Commissioner of Internal Revenue, by letter of May 6, 1958, assessed the following withholding tax: Year 1952 1953 1954 Total Withholding Tax P 75,966.42 59,059.68 48,812.32 P183,838.42 =============

On April 1, 1951, Phoenix Assurance Co., Ltd. filed its 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 P1,884.00 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 third, days are approximately the length of time required before shipments reach their destination or before claims are received by the insurance companies." 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 coded 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 a petition for review on April 11, 1956 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 P99,624.75 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 Unallowable deduction & additional income: Overclaimed Head Office expenses: Amount claimed . . . . . . . . . . . . P 35,912.25 Amount allowed . . . . . . . . . . . . Net income per investigation Tax due thereon 1954 Net income per audited Unallowable deduction & additional income: Overclaimed Head Office expenses: Amount claimed . . . . . . . . . . . . Amount allowed . . . . . . . . . . . . Net income per investigation Tax due thereon Less: amount already assessed DEFICIENCY TAX DUE P29,624.73 19,455.50 10,16.23 P170,489.41 P 39,737.00 36,890.00 P160,320.21 20,085.90 P 15,826.35 P 28,337.96 P 5,667.00 =========== P 12,511.61

P 2,847.00 =========== 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., 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 Internal Revenue have appealed to this Court raising the 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 of claimed by the 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. Commisioner 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 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 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 Filipino of the income tax return, states: SEC. 331. Period of limitation upon assessment and collection. — Except as provided in the succeeding section internal revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after 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 Appears 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: "... 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 probably 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. 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 said deduction to be excessive, the Commissioner 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 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. ... 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 (Emphasis 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 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. Lt. 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. 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 allowable to said Philippine branch. This conclusion finds support in paragraph 2, subsection (a), Section 30 of the Tax Code, quoted hereunder: (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. (Emphasis 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 deliquency of 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 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. 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. Footnotes
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.
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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. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-20601 February 28, 1966

BUTUAN SAWMILL, INC., petitioner, vs. HON. COURT OF TAX APPEALS, ET AL., respondents. David G. Nitafan for the petitioner. Office of the 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, Butuan 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: . . . that during the period from January 31, 1951 to June 8, 1953, it sold logs to Japanese firms at prices FOB 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 by 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 decisions1, were domestic or "local" sales, and, therefore, subject 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 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 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.
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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 Japanese 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 thesitus 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 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: . . . 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. Irrevocable letters of credit were opened by the Japanese buyers in favor of the petitioners. 2. Payment of freight charges of every shipment by the Japanese buyers. 3. The Japanese buyers chartered the ships that carried the logs they purchased from the Philippines to Japan. 4. The Japanese buyers insured the shipment of logs and collected the insurance coverage in case of loss in transit. 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. 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. 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) andWestern 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 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 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 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 the 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 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. Bengzon, C.J., Bautista Angelo, Concepcion, Barrera, Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-10370 January 31, 1958

THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs. MATIAS H. AZNAR and THE COURT OF TAX APPEALS, respondents.

Office of the Solicitor General Ambrosio Padilla, Solicitor Felicisimo R. Rosete, and Special Attorney Librada del Rosario-Natividad for petitioner. Primitivo N. Sato and Jose P. Enad for respondent Aznar. FELIX, J.: This is a petition filed by the Collector of Internal Revenue to review by certiorari the resolution of the Court of Tax Appeals dated February 8, 1956, in C.T.A. Case No. 109 enjoining him from enforcing collection of the alleged income tax liability of Matias H. Aznar through summary administrative method. The facts of the case are as follows: In a letter dated November 28, 1952, the Collector of Internal Revenue, through the office of the City Treasurer of Cebu, demanded from Matias H. Aznar the payment of P732,032.66 allegedly representing the latter's income tax deficiencies for the tax years 1945 to 1951. It appears on record that the Collector of Internal Revenue also instructed the City Treasurer of Cebu to place the properties of said taxpayer under constructive distraint to guarantee the satisfaction of the taxes thus assessed (Exh. 9), and this instruction was supposedly complied with by the latter official in virtue of a warrant of distraint and levy dated February 17, 1953, and served on taxpayer Aznar on February 20, 1953 (Exh. 11). An exchange of communications between the Internal Revenue Office and the taxpayer ensued as a result of which a reinvestigation of the income tax assessment of the latter was made and the same was finally reduced from P380,999.70. Aznar was correspondingly informed of this correction in a communication dated February 16, 1955, specifically stating that this later figure superseded the previous one sent by the Bureau of Internal Revenue. Upon receipt of the corrected assessment, the taxpayer filed with the Court of Tax Appeals a petition to review the same and subsequently an urgent petition was also filed to restrain therein respondent Collector of Internal Revenue from proceeding with the collection of the alleged tax deficiencies by means of the summary methods of distraint and levy (Annex B of petition), on the ground that the right of the respondent Collector to effect the collection of the taxes demanded of said taxpayer by extra judicial methods had already prescribed; that the employment of these means would cause petitioner injustice and irreparable injury; and that the petition was not merely intended to delay the payment of the taxes because petitioner stood on an even chance of winning the case if given a day in court (Annex B of the petition). The Collector of Internal Revenue set up an opposition against the grant of this petition and consequently, hearing on the matter was duly conducted by the lower Court. After the parties had filed their respective memoranda and rested their case, the lower Court, in a resolution dated February 8, 1956, issued an injunction prayed for enjoining the Collector of Internal Revenue from proceeding with the collection of the taxes by means of the summary methods of distraint and levy after finding that the warrant issued by the Treasurer of the City of Cebu dated February 17, 1953, placing the properties of Matias H. Aznar under constructive distraint and levy and which was supposedly received by said taxpayer on February 20, 1953, was not actually served on petitioner Aznar; that the warrant of garnishment served on the Philippine National Bank in Manila on August 14, 1953, was null and void in view of the respondent's failure to furnish the taxpayer with a copy of the same and that at the placing of the properties of the taxpayer under constructive distraint and levy on April 28, 1955, was made beyond the 3-year prescriptive period as provided by Section 51-(d) of the National Internal Revenue Code. From this resolution, the Collector of Internal Revenue brought the matter to this Court in a petition to review by certiorari contending that collection of taxes cannot be restrained by injunction; and that even if the court a quo could have lawfully issued the same, said tribunal acted with grave abuse of discretion when it did not require the taxpayer to file a bond as exhorted by Section 11 of Republic Act No. 1125.

There appears no record as to when Matias H. Aznar filed his income tax returns for the years 1945 and 1946, but it is not controverted that his tax returns for 1947 was filed on March 1, 1948; for 1948 on February 28, 1949; for 1949 on March 1, 1950; for 1950, on March 1, 1951; and for 1951, on March 1, 1952. There is likewise no dispute that Matias H. Aznar's alleged income tax deficiencies were assessed at P723,132.66 on November 28, 1952, which was reduced to P380,999.70 on March 17, 1955. During the hearing had in the court below, the Collector of Internal Revenue, trying to establish the fact that the properties of the taxpayer were already placed under constructive distraint and levy as of February 20, 1953, offered in evidence Exhibit 11, purportedly a duplicate of the warrant dated February 17, 1953, and allegedly received by Aznar on February 20 of the same year. Aznar, however disputed the authenticity of Exhibit 11 maintaining that it was never served on him. It appears on record of a warrant of garnishment to distrain the deposits Mr. and Mrs,. Aznar had with the Philippine National Bank was also served on said banking institution on August 14, 1953, but the taxpayer once again interposed an objection to the use of this measure on the ground that he was not notified thereof pursuant to the provision of Section 319 of the Tax Code and asserted that the issuance of said warrant was null and void. There is likewise no controversy that the City Treasurer of Cebu levied upon certain real properties belonging to the taxpayer on May 6, 1955, but Aznar took exception to the employment of this administrative method to effect collection of the taxes allegedly due by him, it having been issued 3 years, 2 months and 5 days after he ahd filed his income tax returns for the year 1951, and therefore beyond the 3-year prescriptive period required by Section 51-d of the Tax Code. Actually, the questions at issue in the instant case are: whether the Collector of Internal Revenue could enforce collection of the alleged deficiency income taxes of Matias H. Aznar through the summary methods of distraint and levy and, consequently, whether the Court of Tax Appeals erred in issuing the injunction restraining said official from employing the same; and granting the Court of Tax Appeals could issue an injunction, whether said tribunal erred in not requiring the taxpayer to make a deposit. We agree with petitioner that Section 305 of the National Internal Revenue Code precludes the use of injunction to restrain the collection of taxes, but as this Court has already pronounced, in view of the existence of the provisions of Section 11 of Republic Act No. 1125 allowing the Tax Court to issue said writ of injunction subject certain limitations, the former (Sec. 305) must be deemed to have modified by the later enactment-Republic Act No. 1125 (Collector of Internal Revenue vs. Avelino, 100 Phil., 327, 53 Off. Gaz., 645). And we have since then and even before, adhered to the doctrine that the collection of income taxes, after the lapse of three years from the date the income tax return said to be false, fraudulent or erroneous had been filed, may no longer be effected by means of administrative methods but only through judicial proceedings (Collectors of Internal Revenue vs. Villegas, 56 Phil. 554; Collector of Internal Revenue vs. Haygood, 65 Phil. 520; Juan de la Vifla vs. El Gobierno de las Islas Filipinas, G.R. No. 42669, Jan. 29, 1938; Philippine Sugar Estate Development Co., Inc. vs. Posadas, 68 Phil. 216; Collector vs. Avelino, supra; Collector vs. A.P. Reyes, 100 Phil., 822; Collector vs. Zulueta, 100 Phil., 872; 53 Off. Gaz., [9] 6532; Sambrano vs. Court of Tax Appeals, 101 Phil., 1, 53 Off. Gaz., [15] 4839. In the light of the aforementioned ruling, were We to consider as valid andin order the disputed warrant dated February 17, 1953, placing the propertiesof the taxpayer under constructive destraint and levy, the collection of thetaxes for 1949, 1950 and 1951 by extra-judicial methods would proper and the resolution of the Court of Tax Appeals as far as it concerns this later period would be erroneous, although summary administrative means would nolonger be the proper recourse for the collection of taxes corresponding to1948 and the years previous to that as 3 years, 11 months and 22 days has already elapsed from the time the income tax return for that year was filed.

The respondent Court of Tax Appeals, however, made a finding that while itmay be true that Exhibit 11 could have been prepared at the time referred to,probably through omission, oversight or negligence, same was not executed and thus actually the properties of the taxpayer were only placed underconstructive distraint and levy on May 6, 1955. As Republic Act No 1125 creating the Court of Tax Appeals keep silence as to matters left open to Usfor review or the issues that We may take conizance of, and as courts have to construe statutes as they are found and not to amend or change them under the guise of construction (82 C.J.S. 530), this Court in passing upon petitionsto review by certiorari decisions or rulings of the Court of Tax Appeals may review, revise, reverse, amend or modify not only the legalissues involved therein but also the findings of fact upon which said decision or ruling is based. Notwithstanding the foregoing, it may be stated that any party adverselyaffected by any rulign, order or decision of the Court of Tax Appeals has by law two ways of elevating his case to the Supreme Court, i.e., first, by filing in the Court a quo a notice of appeal and with this Court a petition for review within 30 days from the date he receives notice of said ruling, order or decision adverse to him (Sec. 18, Rep. Act 1125), and second, by causing such ruling, order or decision of the Court of Tax Appeals likewise reviewed by Us upon a writ of certiorari in proper cases (Sec. 19, R.A. No. 1125). Premised on these provisions, it may be alleged that when a case is taken up to this Court by petition for review, We could go over the evidence on record and pass upon the questions of fact; but that in cases of review upon petition for a writ of certiorari, this Court could only pass upon issues involving questions of law. In answer to these possible arguments We may say that when the interest of justice so demands, We may interchangeably consider petitions for review as petitions for a writ of certiorari and vice-versa, and if We have the power to consider the evidence to determine the facts in the cases of review, We find no plausible reason for depriving this Court of such power in petitions for certiorari specially if We consider that in the latter cases the petitioner oftenly charges the respondent Court with the commission of grave abuse of discretion the determination of which usually depends on the facts and circumstances of the points in controversy. Moreover, in the case at bar, We find that on March 1, 1956, respondent Collector of Internal Revenue filed with the Court of Tax Appeals a notice of appeal from the resolution of said Court that is now subject of this recourse (p. 466, CTA records) and no matter how inappropriatemay be the wording of the petition filed in this instance, it could not conceal that respondent's intention was to appeal the matter to this Court, as otherwise he would not have filed said notice of appeal which is required in petitions for review (Sec. 18, R.A. No. 1125) and not in petitions forcertiorari (Sec. 19, id.). It is also to be noted that in the instant case of the Solicitor General has not filed any motion for the reconsideration of said resolution, a requisite that is necessary in petitions for certiorari. Having all this in mind, We are inclined to consider the question of facts invoved in the present controversy, and in going over the evidence presented We find contrary to the conclusion arrived at by the court a quo, that there are proofs supporting petitioner's contention that Exhibit 11 was properly executed. The respondent Court refused to give credence to the employees of the City Treasurer's Office who claimed to have served the converted warrant on the taxpayer on February 20, 1953, by reason of certain inconcistencies in their declarations during the extensive cross examination conducted by counsel for respondent Aznar. We must remember, however, that considering the time that had lasped when the incident took place and the date they were questioned under oath as regard their affidavits recounting the event, it is but natural for the human brain not to pick up certain details of an event that transpired sometime ago and thus expect minor inconsistencies in the testimonies of several witnesses. On substantial points—as to who and how the warrant in question was served, the person receiving the same, and other facts surrounding said service, the witnesses are in unison in their declarations. It is true that exhibit 11 is merely a duplicate copy of the warrant and that the original thereof could nowhere be found. But the personel of the office of the City Treasurer of Cebu admitted it was lost and for this reason thier affidavits recounting said service were executed (Exhs. 13, 14, 15, 16 and 17—p. 68-79, CTA Records). Moreover we find in the records a decisive factor that props up the contention of petitioner Collector

of Internal Revenue, for We must not lose sight of the fact that Exhibit 11 contains a list of the properties of Matias H. Aznar which were levied upon by the City Treasurer of Cebu and which the Treasurer in turn placed in the possession of said owner for safe keeping, as acknowledged by the latter in said exhibit, and such properties could not have been mentioned in the document if said properties had not been taken from and returned to taxpayer Aznar who has not denied that same were his. We cannot simply disregard this form of evidence not only because affidavits are admissable to prove the service of a summons, notice or other papers in an action or special proceeding (See Wigmore on Evidence, Vol. 6, 3rd ed., p. 42-49,) but also because respondent taxpayer was given opportunity to cross-examine the affiants before the Municipal Court of Cebu. The lower Court also placed much stress on the supposition that the Collector of Internal Revenue should not have sent the communications dated March 15 and March 28, 1955, inquiring as to what action the City Treasurer of Cebu had taken on the tax case of Matias H. Aznar if the latter had really sent the original of Exhibit 11 to respondent Collector. A close scrutiny of the letters referred to reveals that they were in connection with the correctedassessment sent by the Internal Revenue Office to Matias H. Anzar. datedFebruary 16, 1955 (p. 311, BIR records), of which the Treasurer's Office was also duly notified (p. 315, BIR records) and not in connection with the assessment of November 28, 1952. The issuance of another warrant by theTreasurer's Office on April 28, 1955 and which the was admittedly received byAnzar on May 6, of the same year was likewise taken by the Tax Court to contradict the existence of Exhibit 11. It is correct that a mistake wascommitted by said office in stating therein that the income tax deficiencies of Matiaz H. Anzar amounted to P723,032.07 because this figure as correctedshould properly be P380,999.70, but it must be noted that this second warrantcovers 2 buildings belonging to the taxpayer found in the province of Leytewhich were not included among those listed in the first warrant, Exhibit 11.As explained, this warrant was issued because the properties covered by thefirst writ would not be sufficient to satisfy the amount demanded by the Government. Thus, piecing the evidence together, it is clear to our mind thatthe warrant placing the properties of Matias H. Anzar under constructive distraint and levy was served on the latter on February 20, 1953, which was2 years, 11 months and 10 days after the taxpayer had filed his income tax return of the tax year 1949; 1 year 11 months and 19 days after he had filedhis returns for 1950; and 11 months and 19 days after he did so far for the year 1951. Section 11 of Republic Act No. 1125 contains the following: SEC 11. WHO MAY APPEAL; EFFECT OF APPEAL.— xxx xxx xxx.

No appeal taken to the Court of Appeals from the decision of the Collector of Internal Revenue or the Collector of Customs shall suspend the payment,levy, distraint and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law; Provided, however, That when in the opinion of the Court the collection by the Bureauof Internal Revenue or the Commissioner of Customs may jeopardize the interest of the Government and/or the taxpayer the Court at any stage of theproceeding may suspend the said collection and require the taxpayer eitherto deposit the amount claimed or to file a surety bond for not more than double the amount with the Court. It may be seen that the Court is allowed by law to suspend the collectionof taxes subject to certain limitations. Teh second question posed herein is whether the Court of Tax Appeals couldissue an injunction to suspend such collection without requiring the taxpayerto make a deposit or file a bond? This Court, resolving the same question in similae case, held that the requirement of a bond before a writ of

injunctioncould be issued by the Tax Court applies only to cases where the means soughtbe employed for the enforcement of the collection of the tax are by themselves legal and not where same were declared null and void, as where thesummary methods of distraint and levy would be utilized in the collection ofdeficiency income taxes, after the 3-year prescriptive period as provided bySection 51-d of the Internal Revenue Code has already elapsed (Collector ofInternal Revenue vs. A.P. Reyes,supra; Sambrano vs. CTA, supra). The court,in upholding this theory, explains: SECTION 11 of Republic Act No. 1125 is therefore promised on the assumptionthat the collection by summary proceedings is by itself in accordance with existing law; and then what is suspended in the act of collecting, whereas, in the case at bar what the respondent Court suspended was the use of methodemployed to verify the collection which was evidently illegal after the lapse of the three-year limitation period. The respondent Court issued the injunction in question on the basis of its findings that the means of intended to be used by the petitioner in the collection of the alleged deficiency taxes were in violation of law. It certainly would be an absurdityon the part of the Court of Tax Appeals to declare that the collection bysummary methods of distraint and levyt was violative of the law, and then,on the same breath, require the petitioner to deposit or file a bond as aprerequisite for the issuance of a writ of injunction. Let us suppose, for the sake of argument, that the Court a quo would have required the petitioner to post the bond in question that the taxpayer would refuse or fall to furnish said bond, would the Court, a quo be obliged to authorize or allow the Collector to proceed with the collection from the petitioner of the taxesdue by a means it previously declared to the contrary to law? (Collector vs.Reyes, supra). As the Collector of Internal Revenue, thought the Office of the City Treasurer of Cebu, placed the properties of the taxpayer under distraint andlevy only on February 20, 1953, to secure the payment of alleged income taxdeficiencies for the tax years 1945 to 1951, and as with respect to the taxesdemanded for the yeatr 1945, 1946, 1947 and 1948, the said warrant was issuedbeyond the 3year period of limitations as prescribed by Section 51-d of the Tax Code, and the following the ruling adopted by this Court as regards theissuance by the Tax Court of writs of injunction, the respondent Court didnot err in enjoining the Collector from using summary administrative methodswithout requiring the taxpayer to post a bond or make a deposit as far as thetax years 1945, 1946, 1946 and 1948 are concerned. As regards 1949 to 1951,the answer is all too obvious, though We must have in mind that the cuort a quo acted on the erroneuos assumption that the period for said summary adminstrative methods had already lapsed and that the effect of its ruling isa fait accompli. Wherefore, the resolution of the Court of Tax Apeals dated February 8, 1956,is set aside and this case is hereby remanded to the lower Court for furtherproceedings so that it may determine the income tax liabilities of MatiasH. Aznar that have not prescribed under the terms and period fixed by Sections 331 and 332 of the National Internal Revenue. Pending the disposition of this case in the lower Court, respondent Matias H. Aznar isordered to deposit with said court the amount demanded from him for the years1949 to 1951 or furnis a surety bond for not more than double said amount.Costs are taxed against respondent Matias H. Aznar. It is so ordered. Bengzon, Padilla, Montemayor, Bautista Angelo, Reyes, J.B.L., and Endencia, JJ., concur. Paras, C.J., and Reyes, A.J., concur, in the result. Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-17438

April 30, 1964

REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, vs. RITA LIM DE YU, defendant-appellee. Office of the 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 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 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 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 assessment 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, 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. 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. 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 collection of such tax may be begun without assessment, at any time within ten 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, 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 file a suit for collection without assessment. And since, it is further contended, appellee can no longer question correctness of the assessment in view of her failure to 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, 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 small incomes for the years in which she filed her returns. Indeed the Bureau itself appears none too sure as to the 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 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 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 that in paragraph 3 of the complaint appellant seeks to collect appellee the sum of P28.53, plus a surcharge of 50%, unpaid tax for the year 1948, notwithstanding the fact admitted in the stipulation, that appellee filed her return 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 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 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 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 ... (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 the same section is concerned with the collection of the tax after assessment, regardless of whether the assessment was made during the original fiveyear period or within an agreed period of extension. Collection then 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." 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 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. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-22492 September 5, 1967

BASILAN ESTATES, INC., petitioner, vs. THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents. Felix A. Gulfin and Antonio S. Alano for petitioner. Office of the Solicitor General for respondents.

BENGZON, J.P., J.:

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

been sent to petitioner. Subsequently, the Chief of the Investigation Division indorsed on March 18, 1959 (p. 24 of the BIR records) the case to the Chief of the Law Division. There it was alleged that notice was already sent to petitioner on February 26, 1959. These circumstances pointing to official performance of duty must necessarily prevail over petitioner's contrary interpretation. Besides, even granting that notice had been received by the petitioner late, as alleged, under Section 331 of the Tax Code requiring five years within which to assessdeficiency taxes, the assessment is deemed made when notice to this effect is released, mailed or sent by the Collector to the taxpayer and it is not required that the notice be received by the taxpayer within the aforementioned five-year period.1 ASSESSMENT The questioned assessment is as follows: Net Income per return Add: Over-claimed depreciation Mis. expenses disallowed Officer's travelling expenses disallowed Net Income per Investigation 20% tax on P59,702.96 Less: Tax already assessed Deficiency income tax Add: Additional tax of 25% on P347,507.01 Tax Due & Collectible P40,142.90 P10,500.49 6,759.17 2,300.40 19,560.06 P59,702.96 11,940.00 8,028.00 P3,912.00 86,876.75 P90,788.75 =========

The Commissioner disallowed: Over-claimed depreciation Miscellaneous expenses Officer's travelling expenses P10,500.49 6,759.17 2,300.40 DEDUCTIONS A. Depreciation. — Basilan Estates, Inc. claimed deductions for the depreciation of its assets up to 1949 on the basis of their acquisition cost. As of January 1, 1950 it changed the depreciable value of said assets by increasing it to conform with the increase in cost for their replacement. Accordingly, from 1950 to 1953 it deducted from gross income the value of depreciation computed on the reappraised value. In 1953, the year involved in this case, taxpayer claimed the following depreciation deduction: Reappraised assets New assets consisting of hospital building and equipment P47,342.53 3,910.45

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

B. Expenses. — The next item involves disallowed expenses incurred in 1953, broken as follows: Miscellaneous expenses Officer's travelling expenses Total P6,759.17 2,300.40 P9,059.57

These were disallowed on the ground that the nature of these expenses could not be satisfactorily explained nor could the same be supported by appropriate papers. Felix Gulfin, petitioner's accountant, explained the P6,759.17 was actual expenses credited to the account of the president of the corporation incurred in the interest of the corporation during the president's trip to Manila (pp. 33-34 of TSN of Dec. 5, 1962); he stated that the P2,300.40 was the president's travelling expenses to and from Manila as to the vouchers and receipts of these, he said the same were made but got burned during the Basilan fire on March 30, 1962 (p. 40 of same TSN). Petitioner further argues that when it sent its records to Manila in February, 1959, the papers in support of these miscellaneous and travelling expenses were not included for the reason that by February 9, 1959, when the Bureau of Internal Revenue decided to investigate, petitioner had no more obligation to keep the same since five years had lapsed from the time these expenses were incurred (p. 41 of same TSN). On this ground, the petitioner may be sustained, for under Section 337 of the Tax Code, receipts and papers supporting such expenses need be kept by the taxpayer for a period of five years from the last entry. At the time of the investigation, said five years had lapsed. Taxpayer's stand on this issue is therefore sustained. UNREASONABLY ACCUMULATED PROFITS Section 25 of the Tax Code which imposes a surtax on profits unreasonably accumulated, provides: Sec. 25. Additional tax on corporations improperly accumulating profits or surplus — (a) Imposition of tax. — If any corporation, except banks, insurance companies, or personal holding companies, whether domestic or foreign, is formed or availed of for the purpose of preventing the imposition of the tax upon its shareholders or members or the shareholders or members of another corporation, through the medium of permitting its gains and profits to accumulate instead of being divided or distributed, there is levied and assessed against such corporation, for each taxable year, a tax equal to twenty-five per centum of the undistributed portion of its accumulated profits or surplus which shall be in addition to the tax imposed by section twenty-four, and shall be computed, collected and paid in the same manner and subject to the same provisions of law, including penalties, as that tax.
1aw phîl.nèt

The Commissioner found that in violation of the abovequoted section, petitioner had unreasonably accumulated profits as of 1953 in the amount of P347,507.01, based on the following circumstances (Examiner's Report pp. 62-68 of BIR records): 1. Strong financial position of the petitioner as of December 31, 1953. Assets were P388,617.00 while the liabilities amounted to only P61,117.31 or a ratio of 6:1. 2. As of 1953, the corporation had considerable capital adequate to meet the reasonable needs of the business amounting to P327,499.69 (assets less liabilities).

3. The P200,000 reserved for electrification of drier and mechanization and the P50,000 reserved for malaria control were reverted to its surplus in 1953. 4. Withdrawal by shareholders, of large sums of money as personal loans. 5. Investment of undistributed earnings in assets having no proximate connection with the business — as hospital building and equipment worth P59,794.72. 6. In 1953, with an increase of surplus amounting to P677,232.01, the capital stock was increased to P500,000 although there was no need for such increase. Petitioner tried to show that in considering the surplus, the examiner did not take into account the possible expenses for cultivation, labor, fertilitation, drainage, irrigation, repair, etc. (pp. 235-237 of TSN of Dec. 7, 1962). As aptly answered by the examiner himself, however, they were already included as part of the working capital (pp. 237-238 of TSN of Dec. 7, 1962). In the unreasonable accumulation of P347,507.01 are included P200,000 for electrification of driers and mechanization and P50,000 for malaria control which were reserved way back in 1948 (p. 67 of the BIR records) but reverted to the general fund only in 1953. If there were any plans for these amounts to be used in further expansion through projects, it did not appear in the records as was properly indicated in 1948 when such amounts were reserved. Thus, while in 1948 it was already clear that the money was intended to go to future projects, in 1953 upon reversion to the general fund, no such intention was shown. Such reversion therefore gave occasion for the Government to consider the same for tax purposes. The P250,000 reverted to the general fund was sought to be explained as later used elsewhere: "part of it in the Hilano Industries, Inc. in building the factory site and buildings to house technical men . . . part of it was spent in the facilities for the waterworks system and for industrialization of the coconut industry" (p. 117 of TSN of Dec. 6, 1962). This is not sufficient explanation. Persuasive jurisprudence on the matter such as those in the United States from where our tax law was derived,8has it that: "In order to determine whether profits were accumulated for the reasonable needs of the business or to avoid the surtax upon shareholders, the controlling intention of the taxpayer is that which is manifested at the time of the accumulation, not subsequently declared intentions which are merely the products of after-thought."9 The reversion here was made because the reserved amount was not enough for the projects intended, without any intent to channel the same to some particular future projects in mind. Petitioner argues that since it has P560,717.44 as its expenses for the year 1953, a surplus of P347,507.01 is not unreasonably accumulated. As rightly contended by the Government, there is no need to have such a large amount at the beginning of the following year because during the year, current assets are converted into cash and with the income realized from the business as the year goes, these expenses may well be taken care of (pp. 238 of TSN of Dec. 7, 1962). Thus, it is erroneous to say that the taxpayer is entitled to retain enough liquid net assets in amounts approximately equal to current operating needs for the year to cover "cost of goods sold and operating expenses" for "it excludes proper consideration of funds generated by the collection of notes receivable as trade accounts during the course of the year."10 In fact, just because the fatal accumulations are less than 70% of the annual operating expenses of the year, it does not mean that the accumulations are reasonable as a matter of law."11 Petitioner tried to show that investments were made with Basilan Coconut Producers Cooperative Association and Basilan Hospital (pp. 103-105 of TSN of Dec. 6, 1962) totalling P59,794.72 as of December 31, 1953. This shows all the more the unreasonable accumulation. As of December 31, 1953 already P59,794.72 was spent — yet as of that date there was still a surplus of P347,507.01.

Petitioner questions why the examiner covered the period from 1948-1953 when the taxable year on review was 1953. The surplus of P347,507.01 was taken by the examiner from the balance sheet of petitioner for 1953. To check the figure arrived at, the examiner traced the accumulation process from 1947 until 1953, and petitioner's figure stood out to be correct. There was no error in the process applied, for previous accumulations should be considered in determining unreasonable accumulations for the year concerned. "In determining whether accumulations of earnings or profits in a particular year are within the reasonable needs of a corporation, it is neccessary to take into account prior accumulations, since accumulations prior to the year involved may have been sufficient to cover the business needs and additional accumulations during the year involved would not reasonably be necessary."12 Another factor that stands out to show unreasonable accumulation is the fact that large amounts were withdrawn by or advanced to the stockholders. For the year 1953 alone these totalled P197,229.26. Yet the surplus of P347,507.01 was left as of December 31, 1953. We find unacceptable petitioner's explanation that these were advances made in furtherance of the business purposes of the petitioner. As correctly held by the Court of Tax Appeals, while certain expenses of the corporation were credited against these amounts, the unspent balance was retained by the stockholders without refunding them to petitioner at the end of each year. These advances were in fact indirect loans to the stockholders indicating the unreasonable accumulation of surplus beyond the needs of the business. ALLEGED EXEMPTION Petitioner wishes to avail of the exempting proviso in Sec. 25 of the Internal Revenue Code as amended by R.A. 1823, approved June 22, 1957, whereby accumulated profits or surplus if invested in any dollar-producing or dollar-earning industry or in the purchase of bonds issued by the Central Bank, may not be subject to the 25% surtax. We have but to point out that the unreasonable accumulation was in 1953. The exemption was by virtue of Republic Act 1823 which amended Sec. 25 only on June 22, 1957 — more than three years after the period covered by the assessment. In resume, Basilan Estates, Inc. is liable for the payment of deficiency income tax and surtax for the year 1953 in the amount of P88,977.42, computed as follows: Net Income per return Add: Over-claimed depreciation Net income per finding 20% tax on P50,643.39 Less: Tax already assessed Deficiency income tax Add: 25% surtax on P347,507.01 Total tax due and collectible P40,142.90 10,500.49 P50,643.39 P10,128.67 8,028.00 P2,100.67 86,876.75 P88,977.42 ===========

WHEREFORE, the judgment appealed from is modified to the extent that petitioner is allowed its deductions for travelling and miscellaneous expenses, but affirmed insofar as the petitioner is liable for P2,100.67 as deficiency income tax for 1953 and P86,876.75 as 25% surtax on the unreasonably accumulated profit of P347,507.01. No costs. So ordered. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-23534 May 16, 1967

JOSE A. ARCHES, petitioner-appellant, vs. ANACLETO I. BELLOSILLO and JAIME ARANETA, respondents-appellees. Jose A. Arches for petitioner-appellant. Office of the Solicitor General Arturo A. Alafriz, Solicitor A.B. Afurong and Atty. S.S. Soriano for respondents-appellees. BENGZON, J.P., J.: Petitioner-appellant Jose Arches filed on February 27, 1954 his income tax return for 1953. Within five years thereafter, or on February 26, 1959, deficiency income tax and residence tax assessments were issued against him. Said assessments not having been disputed, the Republic represented by the Bureau of Internal Revenue Regional, Director, filed suit on December 29, 1960, in the municipal court of Roxas City, to recover from petitioner-appellant the sum of P4,441.25 as deficiency income tax and additional residence tax for 1953. Arches then moved to dismiss the complaint on the ground that it did not expressly show the approval of the Revenue Commissioner, as required by Section 308 of the Tax Code, and on the further ground of prescription of the action.
1äw phï1.ñët

The municipal court denied the motion. Petitioner-appellant, his motion to reconsider having been denied also, resorted to the Court of First Instance of Capiz on a petition for certiorari and prohibition assailing the order denying his motion to dismiss. The trial court dismissed the petition. Hence, this appeal. The only question here is the correctness of dismissal of the petition by the Court of First Instance. The order was predicated upon the impropriety of the writ. We find no error committed by said court. The municipal court had jurisdiction over the parties and over the subject matter, the amount demanded being less than P5,000.00.1 The suit below instituted by the Republic, based on an uncontested assessment, was one merely for the recovery of a sum of money where the amount demanded constitutes the jurisdictional test.2

Petitioner-appellant would make much of the lack of approval of the Revenue Commissioner. First of all, in this case, such requisite is not jurisdictional, but one relating to capacity to sue or affecting the cause of action only.3So, in ruling on said question, whatever error — if any — the municipal court committed, was merely an error of judgment, not correctible by certiorari.4 Neither was there grave abuse of the discretion on the part of the municipal court in ruling that the express approval of the Revenue Commissioner himself was not necessary. The court relied upon Memorandum Order No. V-634 of the Revenue Commissioner, approved by the Finance Secretary of July 1, 1956, wherein the former's functions regarding the administration and enforcement of revenue laws and regulations — powers broad enough to cover the approval of court actions as required in Section 308 of the Tax Code — were expressly delegated to the Regional Directors. This regulation, the issuance of which was authorized by statute, has the force and effect of law.5 To rely upon it, hence, would not be tantamount to whimsical, capricious and arbitrary exercise of judgment. The verification by the Regional Director of the complaint constitutes sufficient approval thereof already. It states,inter alia, that said Director has caused the preparation of the complaint and that he has read the allegations thereof and they are true and correct to the best of his knowledge and belief. Pleadings are to be liberally construed.6 Assuming, therefore, in gratia argumenti, that the suit is being erroneously — but not invalidly — entertained, for lack of express approval of the Commissioner or the Regional Director, certiorari would still not lie. An order denying a motion to dismiss is interlocutory and the remedy of the unsuccessful movant is to await the judgment on the merits and then appeal therefrom.7 And, as the Court of First Instance rightly observed, there was no showing of a special reason or urgent need to stop the proceedings at such early stage in the municipal court. Petitioner-appellant would also raise the question of prescription. Again, this is not jurisdictional. And, We have already ruled8 that the proper prescriptive period for bringing civil actions is five years from the date of the assessment, under Section 332 of the Tax Code. The three-year period urged by petitioner-appellant under Section 51 (d) refers only to the summary remedies of distraint and levy. Here, the action was commenced one year, ten months and three days after the assessments were made; hence, well within the period. Wherefore, the dismissal of appellant's petition for certiorari by the Court of First Instance is hereby affirmed. Costs against petitioner-appellant. So ordered. Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Zaldivar, Sanchez and Castro, JJ., concur. Footnotes
1

Sec. 88, Judiciary Act, as amended by Sec. 10, Rep. Act No. 2613.

2

Ventanilla vs. B.T.A., L-7384, Dec. 19, 1955; Republic vs. Gamboa, L- 16504, Oct. 27, 1961.
3

In this it differs from petitions for adoption or guardianship, where notice to or consent of specified persons is jurisdictional, since the latter are specified proceedings, in rem, whereas the suit for collection in question is a simple money claim.

4

Gala vs. Cui, 25 Phil. 522; Villa Rey Transit vs. Hon. Bello, L-18957, April 23, 1963; J.R.S. Business Corp. vs. Imperial Insurance, L-19891, July 31, 1964.
5

Art. 7, Civil Code; Re Huttman, 70 Fed. 669; Re Weeks, 82 Fed. 729; Gratiot vs. U.S., 4 How. 80; U.S. vs. Elliason, 16 Pet. 291.
6

Rule 6, Sec. 15, Rev. Rules of Court.

7

Harrison Foundry & Machinery vs. Harrison Foundry Worker's Assn., L-18432, June 20, 1963; Bautista vs. de la Cruz, L-21107, Dec. 24, 1963; 3 Moran, 1953 ed., pp. 152-153.
8

Republic vs. Ledesma, L-18759, Feb. 28, 1967.

ATLAS CONSOLIDATED MINING

[G.R. No. 31230-32. February 14, 2000] COMMISSIONER OF INTERNAL REVENUE vs. CMS LOGGING, INC., et al. THIRD DIVISION Gentlemen: Quoted hereunder, for your information, is a resolution of this Court dated FEB 14 2000. G.R. No. 31230-32 (Commissioner of Internal Revenue vs. CMS Logging, Inc. and Court of Tax Appeals.) Assailed in this petition for review is the decision of the Court of Tax Appeals (CTA) promulgated on August 30, 1969 in CTA Cases Nos. 1569, 1674 and 1804 entitled "CMS Logging, Inc. vs. Commissioner of Internal Revenue." CMS Logging, Inc., a domestic corporation, is a duly licensed forest concessionaire operating in Baganga, Davao. Pursuant to Section 5 of republic Act (RA) No. 1435, CMS Logging filed several claims for tax refund for 25% of the specific taxes on fuel and lubricants used by it in its logging operation, enumerated as follows: 1. On June 21, 1962, the sum of P4,894.63, covering the period from July 1 to December 31, 1961; 2. On November 5, 1962, the sums of P6,294.26 covering the period from January 1, to June 30, 1962;

3. On August 6, 1963, the sum of P5,998.46, covering the period from July 1 to December 31, 1962. 4. On January 20, 1964, the sum of P4,918.00, covering the period from January 1, to June 30, 1963; 5. On September 25, 1964, the sum of P4,932.96, covering the period from July 1 to December 31, 1963; 6. On May 31, 1965, the sum P5,859.84, covering the period from January 1 to July 31, 1964; 7. On June 16, 1965, the sum of P5,707.01, covering the period from August 1, 1964 to February 23, 1965; 8. On September 27, 1966, the sum of P6,135.24 covering the period from March 1 to August 31, 1965. The first five claims and the seventh were denied by the Commissioner of Internal Revenue in six separate letters addressed to private respondent. However, no letters of denial were received by private as to the sixth and eight claims. Private respondent’s motion for reconsideration of the denials of the first five claims were similarly rejected. Private respondent filed three separate cases with the CTA, which were docketed as CTA Cases Nos. 1569, 1674 and 1804.1 CTA Cases Nos. 1569, 1674 and 1804 were filed on February 8, 1965, August 5, 1965 and October 6, 1966, respectively. CTA Case No. 1569 involved the first five claims, the sixth and seventh claims constituted CTA Case No. 1674 and the eighth claim was dealt with CTA Case No. 1804.2 CTA Decision, 1-2;Rollo, 8283.

After a joint hearing, the Court of Tax Appeals rendered the assailed decision, the dispositive portion of which provides – IN VIEW OF THE FOREGOING, the petitions for review filed by petitioner in CTA Case No. 1569 is dismissed with regard to the 1st, 2nd, 3rd, 5th, and part of the 4th causes of action. Respondent is hereby ordered to refund or grant a tax credit to petitioner [in] the sums of P3,893.44, corresponding to the period from February 8 to June 30, 1963 in CTA Case No. 1569; P11,566.85 in CTA Case No. 1674; and P6,135.25 in CTA Case No. 1804, representing 25% of the specific taxes paid on manufactured oils and other fuels. Without pronouncement as to costs.

SO ORDERED. Both parties appealed to this Court from CTA’s decision. 3 The appeal of private respondent was docketed as G.R. No. 31140-42. However, in our Resolution dated February 21, 1996, we dismissed private respondent’s petition for lack of interest to prosecute, which dismissal became final and executory on June 5, 1996. Petitioner, however, in compliance with our December 15, 1999 Resolution, manifested on January 7, 2000 that he is still interested in continuing his appeal since there have been no supervening events which would render the present case moot and academic.4 Rollo, 180-181. We are therefore resolving the petition filed by the Commissioner of Internal Revenue. The parties agree that the sole issue in this case is whether the 25% specific tax exemption granted by Section 5 of RA 1435 on manufactured oils and other fuels used by miners and forest concessionaires in their operation is limited to a period of five (5) years from the effectivity of RA 1435 on June 14, 1956.5 Petition, 4; Rollo, 9; Answer,
1 Rollo, 100.

Republic Act No. 1435, entitled "An Act To Provide Means For Increasing The Highway Special Fund," was approved and took effect on June 14, 1956. Its full text is reproduced herein: Sec. 1. Section one hundred and forty-two of the National Internal Revenue Code, as amended, is further amended to read as follows: "Sec. 42. Specific Tax on manufactured oils and other fuels. – On refined and manufactured mineral oils and motor fuels, there shall be collected the following taxes: "(a) Kerosene or petroleum, per liter of volume capacity, two and one-half centavos; "(b) Lubricating oils, per liter of volume capacity, seven centavos; "(c) Naptha, gasoline, and all other similar products of distillation, per liter of volume capacity, eight centavos; and "(d) On denatured alcohol to be used for motive power, per liter of volume capacity, one centavo: Provided, That if the

denatured alcohol is mixed with gasoline, the specific tax on which has already been paid, the purpose of this subsection, the removal of denatured alcohol of not less than one hundred eighty degrees proof (ninety percentum absolute alcohol) shall be deemed to have been removed for motive power, unless shown to the contrary. "Whenever any of the oils mentioned above are, during the five years from June eighteen, nineteen hundred and fifty-two, used in agriculture and aviation, fifty percentum of the specific tax paid thereon shall be refunded by the Collector of Internal Revenue upon the submission of the following: "(1) A sworn affidavit of the producer and two disinterested persons proving that the said oils were actually used in agriculture, or in lieu thereof. "(2) Should the producer belong to any producer’s association or federation, duly registered with the Securities and Exchange Commission, the affidavit of the president of the association or federation, attesting to the fact that the oils were actually used in agriculture. "(3) In the case of aviation oils, a sworn certificate satisfactory to the Collector proving that the said oils were actually used in aviation: Provided, that no such refunds shall be granted in respect to the oils used in aviation by citizens and corporations of foreign countries which do not grant equivalent refunds or exemptions in respect to similar oils used in aviation by citizen and corporation of the Philippines."

Sec. 2. Section one hundred and forty-five of the National Internal Revenue Code, as amended, is further amended to read as follows: "Sec. 145. Specific Tax on Diesel fuel oil. - On fuel oil commercially known as diesel fuel oil, and on all similar fuel oils, having more or less the same generating power, there shall be collected, per metric ton, one peso." Sec. 3. The proceed of the increased taxes accruing to the Highway Special Fund, as a result of the amendment of sections one hundred and forty-two and one hundred and forty-five of the National Internal revenue Code as above provided, shall be set aside exclusively for amortizing loans or bonds that may have been authorized for the construction, reconstruction or improvement for highways including bridges as well as for liquidating toll bridges constructed from revolving funds authorized under Act Numbered Thirty-five hundred, as amended, whenever such liquidation is recommended by the Secretary of Public Works and Communication and approved by the President. Sec. 4. Municipal boards or councils may, notwithstanding the provisions of sections one hundred and forty-two and one hundred and forty-five of the National Internal Revenue Code, as hereinabove amended, levy an additional tax of not exceeding twenty-five per cent of the rates fixed in said sections, on manufactured oils sold or distributed within the limits of the city or the municipality: Provided, That municipal taxes heretofore levied by cities through city ordinances on gasoline, airplane fuel, lubricating oil and other fuels, are hereby ratified and declared valid. The method of collecting said additional tax shall be prescribe by the municipal board or council concerned. Sec. 5. The proceeds of the additional tax on manufactured oils shall accrue to the road and bridge funds of the political subdivision for whose benefit the tax is collected. Provided, however, That whenever any oils mentioned above are used by miners or forest concessionaires in their operations, twenty-five per centum of the specific tax paid thereon shall be refunded by the Collector of Internal Revenue upon submission of proof of actual use of oils and under similar conditions enumerated in subparagraphs one and two of section one hereof, amending section one hundred forty-two

of the Internal Revenue Code: Provided, further, That no new road shall be constructed unless the routes or location thereof shall have been approved by the Commissioner of Public Highways after a determination that such road can be made part of an integral and articulated route in the Philippine Highway System, as required in section twenty-six of the Philippine Highway Act of 1953. Sec. 6. This Act shall take effect upon its approval. Approved, June 14, 1956. It is petitioner’s contention that the 25% tax refund of specific tax paid on oils used by miners or forest concessionaires granted by Section 5 RA 1435 should be limited to a period of five years to be counted from June 14, 1956, the date of effectivity of RA 1435, as is the case in the partial tax refund of specific tax paid on oils used in agriculture and aviation granted by Section 142 of the National Internal Revenue Code, as amended by Section 1 of RA 1435. Petitioner maintains that the Court of Tax Appeals erred in ordering him to grant tax refunds to private respondents corresponding to the period from February 8, 1963 to August 31, 1965 since said period is obviously beyond the five-year period.6 Petition, 4-5; Rollo, 9-10. The petition must fail. This issue has already been resolved in Insular Lumber Co. vs. Court of Tax Appeals,7 104 SCRA 710 (1981). which is squarely applicable to the case at bench. In Insular Lumber, a licensed forest concessionaire filed a claim with the Commissioner of Internal revenue for refund of P19,921.37 representing 25% of the specific tax paid on manufactured oil and fuel used in its operations pursuant to Section 5 of RA 1435. The Commissioner denied the company’s claim for refund on the ground that the privileged of partial tax refund granted by Section 5 of RA 1435 to those using oil in the operation of forest and mining concessions is limited to a period of five (5) years from June 14, 1956, the date of effectivity of said law. Thus, oil used in such concessions after June 14, 1961 are subject to the full tax prescribe in Section 142 of the National Internal Revenue Code (NIRC). In passing upon this issue, the Court held that – Based on the aforequoted provisions, it is very apparent that the partial refund of specific tax paid for oils in agriculture and aviation is limited to five years while there is no time limit for the partial refund of specific tax paid for oils used by miners and forest concessionaires. We find no basis in applying the limitation of the operative period provided for oils used in agriculture and aviation

to the provisions on the refund to miners and forest concessionaires. It should be noted that Section 5 makes reference to subparagraphs 1 and 2 of Section 1 only for the purpose of prescribing the procedure for refund. This express reference cannot be expanded in scope to include the limitation to include the limitation of the period of refund. If the limitations of the period of refund of specific taxes on oils used in aviation and agriculture is intended to cover similar taxes paid on oil use by miners and forest concessionaires, there would have been no need of dealing with oil used in mining and forest concessions separately and Section 5 should very well have been included in Section 1 of Republic Act No. 1435, notwithstanding the different rate of exemption.8 Id., 718719.

In fact, in a recent case we declared that mining and logging companies were entitled to the refund privilege granted by RA 1435 on specific taxes paid up to 1985, after which the Highway Special Fund was abolished.9 Commissioner of Internal Revenue vs.
Rio Tuba Nickel Mining Corporation, 207 SCRA 549 (1992).

The rationale for extending a tax privilege to lumber and mining companies was explained in Commissioner of Internal Revenue vs. Rio Tuba Nickel Mining Corporation.10 202 SCRA 137 (1991). Commissioner of Internal Revenue vs. Rio Tuba Nickel Mining Corporation, 207 SCRA 549 (1992). Citing the congressional deliberations on RA 1435, we explained that it would be unfair to subject miners and forest concessionaires to the increased rates and in effect make them subsidize the construction of highways from which they did not directly benefit since these companies seldom used the national highways because they have roads and compounds of their own.11 Id., citing Congressional
record, 3rd Congress, 3rd Regular Session, 7, 1967, Vol. III, No. 67, pp. 2093-2107.

WHEREFORE, the petition is DENIED. The challenged decision of the Court of Tax Appeals in CTA Cases Nos. 1569, 1674, and 1804 is AFFIRMED. SO ORDERED. Very truly yours, (Sgd.) JULIETA Y. CARREON Clerk of Court

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

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 Nestle Phils, Inc.), 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 the decision of the Court of Tax Appeals 2 dated January 26, 1993, the 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 Demand Letter NO. FAS-1B-81-87 and Assessment Notices Nos. FAS-1-81-87-005824, FAS-4-81-87005825 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: . . . 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 anytime 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 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-481-87-005826. 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: 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 No. FAS-1-81-87-005824, FAS4-81-87-005825, 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 6 as to toll the running of the prescriptive period for assessment and not bar the Government from issuing subject deficiency tax assessments. Sec. 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 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 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 limitation shall not apply to cases already investigated prior to the approval of this Code. 7 (emphasis 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 8 and November 20, 1981, 9 respectively. In accordance with the above-quoted provision of law, private respondent's 1981 income and sales taxes could have been validly assessed only until January 14, 1987 and November 19, 1986, respectively. 10 However, Carnation's income and sales taxes were assessed 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 its implied consent to such waivers; (b) the signature of the Commissioner is a mere formality and the lack of it does not vitiate binding effect of the waivers; and (c) that a waiver is not a contract but a unilateral act of renouncing ones 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) . . . (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 anytime prior to the expiration of the period agreed upon. The period so 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. Solano 13 is in point, thus:

. . . The only agreement that could have suspended the running of the prescriptive period 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 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. 15 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, 16 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. 17 This point becomes more evident in the case under consideration where the findings and conclusions of bath 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. 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 end 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 agreements 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, Panganiban and Gonzaga-Reyes, JJ., concur. Vitug, J, abroad on official business. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

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.

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 1 dated February 14, 1992, promulgated by the Court of Appeals 2 in CA-GR SP No. 25100. The assailed Decision reversed the Court of Tax Appeals (CTA) 3 which upheld the BIR commissioner's assessments made beyond the five-year statute of limitations. The Facts The facts undisputed. 4 Private Respondent BF Goodrich Phils., Inc. (now Sime Darby International Tire Co, Inc.), was an American-owned and controlled corporation previous to July 3, 1974. As a condition for approving the manufacture by private respondent of tires and other rubber products, the Central Bank of the Philippines required that it should develop a rubber plantation. In compliance with this requirement, private respondent purchased from the Philippine government in 1961, under the Public Land Act and the Parity Amendment to the 1935 Constitution, certain parcels of land located in Tumajubong, Basilan, and there developed a rubber plantation. More than a decade later, on August 2, 1973, the justice secretary rendered an opinion stating that, upon the expiration of the Parity Amendment on July 3, 1974, the ownership rights of Americans over public agricultural lands, including the right to dispose or sell their real estate, would be lost. On the basis of this Opinion, private respondent sold to Siltown Realty Philippines, Inc. on January 21, 1974, its Basilan landholding for P500,000 payable in installments. In accord with the terms of the sale, Siltown Realty Philippines, Inc. leased the said parcels of land to private respondent for a period of 25 years, with an extension of another 25 years at the latter's option. Based on the BIR's Letter of Authority No. 10115 dated April 14, 1975, the books and accounts of private respondent were examined for the purpose of determining its tax liability for taxable year 1974. The examination resulted in the April 23, 1975 assessment of private respondent for deficiency income tax in the amount of P6,005.35, which it duly paid. Subsequently, the BIR also issued Letters of Authority Nos. 074420 RR and 074421 RR and Memorandum Authority Reference No. 749157 for the purpose of examining Siltown's business, income and tax liabilities. On the basis of this examination, the BIR commissioner issued against private respondent on October 10, 1980, an assessment for deficiency in donor's tax in the amount of P1,020,850, in relation to the previously mentioned sale of its Basilan landholdings to Siltown. Apparently, the BIR deemed the consideration for the sale insufficient, and the difference between the fair market value and the actual purchase price a taxable donation.

In a letter dated November 24, 1980, private respondent contested this assessment. On April 9, 1981, it received another assessment dated March 16, 1981, which increased to P 1,092,949 the amount demanded for the alleged deficiency donor's tax, surcharge, interest and compromise penalty. Private respondent appealed the correctness and the legality of these last two assessments to the CTA. After trial in due course, the CTA rendered its Decision dated March 29, 1991, the dispositive portion of which reads as follows: WHEREFORE, the decision of the Commissioner of Internal Revenue assessing petitioner deficiency gift tax is MODIFIED land petitioner is ordered to pay the amount of P1,311,179.01 plus 10% surcharge and 20% annual interest from March 16, 1981 until fully paid provided that the maximum amount that may be collected as interest on delinquency shall in no case exceed an amount corresponding to a period of three years pursuant to Section 130(b)(l) and (c) of the 1977 Tax Code, as amended by P.D. No. 1705, which took effect on August 1, 1980.
SO ORDERED. 5

Undaunted, private respondent elevated the matter to the Court of Appeals, which reversed the CTA, as follows:
What is involved here is not a first assessment; nor is it one within the 5-year period stated in Section 331 above. Since what is involved in this case is a multiple assessment beyond the five-year period, the assessment must be based on the grounds provided in Section 337, and not on Section 15 of the 1974 Tax Code. Section 337 utilizes the very specific terms "fraud, irregularity, and mistake". "Falsity does not appear to be included in this enumeration. Falsity suffices for an assessment, which is a first assessment made within the five-year period. When it is a subsequent assessment made beyond the fiveyear period, then, it may be validly justified only by "fraud, irregularity and mistake" on the part of the taxpayer. 6

Hence, this Petition for Review under Rule 45 of the Rules of Court. 7 The Issues Before us, petitioner raises the following issues: I Whether or not petitioner's right to assess herein deficiency donor's tax has indeed prescribed as ruled by public respondent Court of Appeals II Whether or not the herein deficiency donor's tax assessment for 1974 is valid and in accordance with law Prescription is the crucial issue in the resolution of this case.

The Court's Ruling The petition has no merit. Main Issue: Prescription The petitioner contends that the Court of Appeals erred in reversing the CTA on the issue of prescription, because its ruling was based on factual findings that should have been left undisturbed on appeal, in the absence of any showing that it had been tainted with gross error or grave abuse of discretion. 8 The Court is not persuaded. True, the factual findings of the CTA are generally not disturbed on appeal when supported by substantial evidence and in the absence of gross error or grave abuse of discretion. However, the CTA's application of the law to the facts of this controversy is an altogether different matter, for it involves a legal question. There is a question of law when the issue is the application of the law to a given set of facts. On the other hand, a question of fact involves the truth or falsehood of alleged facts. 9 In the present case, the Court of Appeals ruled not on the truth or falsity of the facts found by the CTA, but on the latter's application of the law on prescription. Sec. 331 of the National Internal Revenue Code provides: Sec. 331. Period of limitation upon assessment and collection. — Except as provided in the succeeding section, internal-revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after expiration of such period. For the purposes of this section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day: Provided, That this limitation shall not apply to cases already investigated prior to the approval of this Code. Applying this provision of law to the facts at hand, it is clear that the October 16, 1980 and the March 1981 assessments were issued by the BIR beyond the five-year statute of limitations. The Court has thoroughly studied the records of this case and found no basis to disregard the five-year period of prescription. As succinctly pronounced by the Court of Appeals:
The subsequent assessment made by the respondent Commissioner on October 40, 1980, modified by that of March 16, 1981, violates the law. Involved in this petition is the income of the petitioner for the year 1974, the returns for which were required to be filed on or before April 15 of the succeeding year. The returns for the year 1974 were duly filed by the petitioner, and assessment of taxes due for such year — including that on the transfer of properties on June 21, 1974 — was made on April 13, 1975 and acknowledged by Letter of Confirmation No. 101155 terminating the examination on this subject. The subsequent assessment of October 10, 1980 modified, by that of March 16, 1981, was made beyond the period expressly set in Section 331 of the National Internal Revenue Code . . . . 10

Petitioner relies on the CTA ruling, the salient portion of which reads: Falsity is what we have here, and for that matter, we hasten to add that the second assessment (March 16, 1981) of the Commissioner was well-advised having been made in contemplation of his power under Section 15 of the 1974 Code (now Section 16, of NIRC) to assess the proper tax on thebest 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) (seeDeclaration of Real Property form, p. 28, and p. 15, no. 5, BIR Record). 11

For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. 12 As a corollary, the exceptions to the law on prescription should perforce be strictly construed. Sec. 15 of the NIRC, on the other hand, provides that "[w]hen a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by law or regulation, or when there is reason to believe that any such report is false, incomplete, or erroneous, the Commissioner of Internal Revenue shall assess the proper tax on the best evidence obtainable." Clearly, Section 15 does not provide an exception to the statute of limitations on the issuance of an assessment, by allowing the initial assessment to be made on the basis of the best evidence available. Having made its initial assessment in the manner prescribed, the commissioner could not have been authorized to issue, beyond the five-year prescriptive period, the second and the third assessments under consideration before us. Nor is petitioner's claim of falsity sufficient to take the questioned assessments out of the ambit of the statute of limitations. The relevant part of then Section 332 of the NIRC, which enumerates the exceptions to the period of prescription, provides: Sec. 332. Exceptions as to period of limitation of assessment and collection of taxes. — (a) In the case of a false or fraudulent return with intent to evade a tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the falsity, fraud, or omission: . . . . Petitioner insists that private respondent committed "falsity" when it sold the property for a price lesser than its declared fair market value. This fact alone did not constitute a false return which contains wrong information due to mistake, carelessness or ignorance. 13 It is possible that real property may be sold for less than adequate consideration for a bona fide business purpose; in such event, the sale remains an "arm's length" transaction. In the present case, the private respondent was compelled to sell the property even at a price less than its market value, because it would have lost all ownership rights over it upon the expiration of the parity amendment. In other words, private respondent was attempting to minimize its losses. At the same time, it was able to lease the property for 25 years, renewable for another 25. This can be regarded as another consideration on the price. Furthermore, the fact that private respondent sold its real property for a price less than its declared fair market value did not by itself justify a finding of false return. Indeed, private respondent declared the sale in its 1974 return submitted to the BIR. 14 Within the five-year prescriptive period, the BIR could have issued the questioned assessment, because the declared fair market value of said property was of public record. This it did not do, however, during all those five years. Moreover, the

BIR failed to prove that respondent's 1974 return had been filed fraudulently. Equally significant was its failure to prove respondent's intent to evade the payment of the correct amount of tax. Ineludibly, the BIR failed to show that private respondent's 1974 return was filed fraudulently with intent to evade the payment of the correct amount of tax. 15 Moreover, even though a donor's tax, which is defined as "a tax on the privilege of transmitting one's property or property rights to another or others without adequate and full valuable consideration," 16 is different from capital gains tax, a tax on the gain from the sale of the taxpayer's property forming part of capital assets, 17 the tax return filed by private respondent to report its income for the year 1974 was sufficient compliance with the legal requirement to file a return. In other words, the fact that the sale transaction may have partly resulted in a donation does not change the fact that private respondent already reported its income for 1974 by filing an income tax return. Since the BIR failed to demonstrate clearly that private respondent had filed a fraudulent return with the intent to evade tax, or that it had failed to file a return at all, the period for assessments has obviously prescribed. Such instances of negligence or oversight on the part of the BIR cannot prejudice taxpayers, considering that the prescriptive period was precisely intended to give them peace of mind. Based on the foregoing, a discussion of the validity and legality of the assailed assessments has become moot and unnecessary. WHEREFORE, the Petition for Review is DENIED and the assailed Decision of the Court of Appeals is AFFIRMED. No costs. SO ORDERED. Romero, Purisima and Gonzaga-Reyes, JJ., concur. Vitug, J., on official leave. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-11527 November 25, 1958

THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs. SUYOC CONSOLIDATED MINING COMPANY, ET AL., respondents. Office of the Solicitor General Ambrosio Padilla and Solicitor Sumilang V. Bernardo for petitioner. Ohnick, Velilla and Balongkita for respondents. BAUTISTA ANGELO, J.: Suyoc Consolidated Mining Company, a mining corporation operating before the war, was unable to file in 1942 its income tax return for the year 1941 due to the last war. After liberation, Congress enacted Commonwealth Act No. 722 which extended the filing of tax returns for 1941 up to

December 31, 1945. Its records having been lost or destroyed, the company requested the Collector of Internal Revenue to grant it an extension of time to file its return, which was granted until February 15, 1946, and the company was authorized to file its return for 1941 on the basis of the best evidence obtainable. The company filed three income tax returns for the calendar year ending December 31, 1941. On February 12, 1946, it filed a tentative return as it had not yet completely reconstructed its records. On November 28, 1946, it filed a second final return on the basis of the records it has been able to reconstruct at that time. On February 6, 1947, it filed its third amended final return on the basis of the available records which to that date it had been able to reconstruct. On the basis of the second final return filed by the company on November 28, 1946, the Collector assessed against it the sum of P28,289.96 as income tax for 1941, plus P1,414.50 as 5 per cent surcharge and P3,894.80 as 1 per cent monthly interest from March 1, 1946 to February 28, 1947, or a total of P33,099.26. The assessment was made on February 11, 1947. On February 21, 1947, the company asked for an extension of at least one year from February 28, 1947 within which to pay the amount assessed, reserving its right to question the correctness of the assessment. The Collector granted an extension of only three months from March 20, 1947. The company failed to pay the tax within the period granted to it and so the Collector sent to it a letter on November 28, 1950 demanding payment of the tax due as assessed, plus surcharge and interest up to December 31, 1950. On April 6, 1951, the company asked for a reconsideration and reinvestigation of the assessment, which was granted, the case being assigned to another examiner, but the Collector made another assessment against the company in the sum of P33,829.66. This new assessment was made on March 7, 1952. On April 18, 1952, the Collector revised this last assessment and required the company to pay the sum of P28,289.96 as income tax, P1,414.50 as surcharge, P20,934.57 as interest up to April 30, 1952 and P40 as compromise. After several other negotiations conducted at the request of respondent, including an appeal to the Conference Staff created to act on such matters in the Bureau of Internal Revenue, the assessment was finally reduced by the Collector to P24,438.96, without surcharge and interest, and of this new assessment the company was notified on July 28, 1955. Within the reglementary period, the company filed with the Court of Tax Appeals a petition for review of this assessment made on July 26, 1955 on the main ground that the right of the Government to collect the tax has already prescribed. After the case was heard, the court rendered its decision upholding this defense and, accordingly, it set aside the ruling of the Collector of Internal Revenue. The Collector interposed the present petition for review. Under the law, an internal revenue tax shall be assessed within five years after the return is filed by the taxpayer and no proceeding in court for its collection shall be begun after the expiration of such period (Section 331, National Internal Revenue Code). The law also provides that where an assessment of internal revenue tax is made within the above period, such tax may be collected by distraint or levy or by a proceeding in court but only if the same is begun (1) within five years after assessment or (2) within the period that may be agreed upon in writing between the Collector and the taxpayer before the expiration of the 5-year period [Section 332 (c), Idem.]. 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. 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 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 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. 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. 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 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]. The following authorities cited in the brief of the Solicitor General are in point: The petitioner makes the point that by the Revenue Act of May 29, 1928 (chap. 852, 45 Stat. at L. 791, 875, sec. 609, U.S.C. title 26, sec. 2609), a credit against a liability in respect of any taxable year shall be "void" if it has been made against a liability barred by limitation. The aim of that provision, as we view it, was to invalidate such a credit if made by the Commissioner of his own motion without the taxpayer's approval or with approval failing short of inducement or request. Cf. Stange vs. United States, 282 U. S. 270, 75 L. ed. 335, 51 S. Ct. 145, supra; Revenue Act of 1928, sec. 506 (b) (c), chap. 852, 45 Stat. at L. 791, 870, 871, U.S.C. title 26, see. 1062a. If nothing more than this appeared, there was to be no exercise in invitum of governmental power. But the aim of the statute suggests a restraint upon its meaning. To know whether liability has been barred by limitation it will not do to refer to the flight of time alone. The limitation may have been postponed by force of a simple

waiver, which must then be made in adherence to the statutory forms, or so we now assume. It may have been postponed by deliberate persuasion to withhold official action. We think it an unreasonable construction that would view the prohibition of the statute as over-riding the doctrine of estoppel (Randon vs. Tobey, 11 How. 493, 519, 13 L. ed. 784, 795) and invalidating a credit made at the taxpayer's request. Here at the time of the request, the liability was still alive, unaffected as yet by any statutory bar. The request in its fair meaning reached forward into the future and prayed for the postponement of collection till the audits for later years had been completed in the usual course. This having been done, the suspended collection might be effected by credit or by distraint or by other methods prescribed by law. Congress surely did not mean that a credit was to be void if made by the Government in response to such prayer. The applicable principle is fundamental and unquestioned. "He who prevents a thing from being done may not 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," ' " Dolan vs. Rogers, 149 N. Y. 489, 491, 44 N.E. 167, and Imperator Realty Co. vs. Tull, 228 N. Y. 447, 457, 127 N.E. 263, quoting West vs. Blakeway, 2 Mann. & G. 729, 751, 133 Eng. Reprint, 940, 949. Sometimes the resulting disability has been characterized as an estoppel, sometimes as a waiver. The label counts for little. Enough for present purposes that the disability has its roots in a principle more nearly ultimate than either waiver or estoppel, the principle that no one shall be permitted to found any claim upon his own inequity or take advantage of his own wrong. Imperator Realty Co. vs. Tull, 228 N.Y. 447, 127 N.E. 263, supra. A suit may not be built on an omission induced by him who sues. Swain vs. Seamens, 9 Wall. 254, 274, 19 L. ed. 554, 560; United States vs. Peck, 102 U.S. 64, 26 L. ed. 46; Thomson vs. Poor, 147 N.Y. 402, 42 N.E. 13; New Zealand Shipping Co. vs. Societe des Ateliers (1919) A. C. 1, 6-H. L.; 2 Williston, Contr. sec. 689. (R. H. Stearns Co. vs. U.S., supra;Emphasis supplied.) . . . It is admitted that these assessments were timely made in August 1923. Upon the making of the assessment the Commissioner sought to make collection, which likewise was at a time when the statute had not ran on collection, but the authorized representative of the Lattimores strenuously objected to the collection and urged the Commissioner to withhold collection, pending adjustment of the controversy between them and the Commissioner. The Commissioner yielded to their request and postponed collection until August 19, 1926, which was after the statute had run on collection. In the meantime, further claims for refund and protests were filed, conferences were held and consideration was given to the settlement of the controversy, and the matter was not finally disposed of until 1926, when the statute had run on collection. The procedure carried out was that requested by plaintiffs, and they cannot now be heard to say that the collection was not timely. R. H. Stearns Company vs. United States, 291 U.S. 54, 54 S. Ct. 325, 78 L. Ed. 647. (Lattimore vs. U.S., 12 F. Supp. 895, 91.) Wherefore, the decision appealed from is reversed. The decision of the Collector of Internal Revenue rendered on July 26, 1955 is hereby affirmed. No costs. Paras, C. J., Bengzon, Labrador, Concepcion, Reyes, J. B. L. and Endencia, JJ., concur.

Separate Opinions

MONTEMAYOR, J., dissenting: As stated in the majority opinion, the respondent Suyoc Consolidated Mining Company was unable to file in 1942 its income tax return for the year 1941, because of the last war. Acting upon an extension granted by Commonwealth Act 722 and by the Collector of Internal Revenue, it finally filed the first income tax return (tentative) on February 12, 1946. For purposes of reference I am listing below in chronological order, the dates which are material and relevant for purposes of computation of the period of prescription. February 12, 1946 November 28, 1946 February 6, 1947 February 11, 1947 Respondent filed its "tentative return". Respondent filed its "final return". Respondent filed its amended final return". Notice of 1st assessment (Based on the final return sent to the respondent) (Amount of assessment — P33,099.26). Receipt of respondent said assessment. Respondent asked for extension of time (one year) to pay the assessment, but reserving right to question its validity. He was given only three months from March 20, 1957. Petitioner demanded payment of tax assessed. Respondent asked for reconsideration and reinvestigation of the assessment. Notice of 2nd assessment (Based on the amended final return) was sent to respondent. (Amount — P33,289.96). Petitioner revised the assessment made on March 7, 1952 (Now it is P50,697.03) Petitioner reduced the assessment of April 18, 1952 after various negotiations. (Now it is P24,438.96)

February 14, 1947 February 21, 1947

November 28, 1950 April 6, 1951 March 7, 1952 April 18, 1952 July 26, 1955

It will be noticed that petitioner Collector made his first assessment based on the final return submitted by Suyoc on November 28, 1946, on February 11, 1947. The assessment was in the amount of P33,099.26. Suyoc asked for an extension of time of one year within which to make payment, at the same time reserving its right to question the validity of the assessment, but it was granted only three months from March 20, 1947, that is to say, up to June 20, 1947. After said deadline, the Collector should immediately have demanded payment or resorted to the administrative remedy of distraint and levy, but strange to say, the Collector did not act and allowed more than three years to pass (from June 20, 1947 to November 28, 1950). It was only on November 28, 1950 that the Collector demanded payment on the basis of his assessment. On April 6, 1951, Suyoc asked for reconsideration and reinvestigation. After about a year, that is, on March 7, 1952, the Collector made a second assessment of P33,829.66, which was larger than his first assessment by about P800. Then on April 18, 1952, the Collector made a revised third assessment of P28,289.96 as income tax, P1,414.50 as surcharge, P20,934.57 as interest up to April 30, 1952, and P40.00 as compromise, which all added up to the staggering amount of P50,679.03, far different

from and much larger than the first and second assessment by almost P17,000. After several negotiations, including appeal to the conference staff created to act on such matters in the Bureau of Internal Revenue, the assessment was finally reduced on July 26, 1955 to only P24,438.96, without surcharge, without interest and without any amount as compromise. It is this last assessment which Suyoc appealed to the Court of Tax Appeals. For purposes of reference, I am reproducing the pertinent sections of the National Internal Revenue Code: SEC. 331. Period of limitation upon assessment and collection. — Except as provided in the succeeding section, internal revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after 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. SEC. 332. Exceptions as to period of limitation of assessment and collection of taxes. — . . . . (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 Collector 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. SEC. 333. Suspension of running of statute. — The running of the statute of limitations provided in section three hundred thirty-one 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. To me, the best argument against the contention of the Collector, and the ruling contained in the majority opinion that the right of the Collector to collect the tax assessed by it has not prescribed, and that the petitions or petitions filed by Suyoc for investigation and revision of the assessment extended the period of prescription, is the well written and reasoned decision (Resolution) of the Court of Tax Appeals, through Judge Roman M. Umali to which I agree. I am reproducing with approval the pertinent portions of said decision: Petitioner filed the instant petition for review on the grounds that certain losses were improperly disallowed by respondent as deductions from its gross income, and that the right of the Government to collect the tax, if any is due, has prescribed. When this case was called for hearing counsel for petitioner asked that the question of prescription be first resolved before hearing the case on the question involving the correctness of the assessment. The sole issue raised at this time for resolution of this Court is, therefore, confined to the question of prescription. Upon the evidence submitted and admitted by the parties, it appears that the last and final assessment made by respondent covering the income tax due from petitioner for the year

1941 was made on July 26, 1955, more than five years from the date the "amended return" was filed on November 28, 1946, or from the date the amended final return' was filed on February 6, 1947. The right of respondent to assess the tax has, therefore, prescribed pursuant to Section 331 of the National Internal Revenue which requires that the assessment be made within five years from the date the return was filed. Even granting that the first assessment made on February 11, 1947, is the one to be considered in determining whether or not the assessment was made within the statutory period it follows that it must have to be considered also as the starting point from which the period within which the right to collect should be computed. Accordingly, on the theory that the assessment in this case was made within five years from the date the return was filed, the right of the Government to collect the tax assessed has prescribed, respondent having failed at any time from February 14, 1947 up to the time the instant petition for review was filed on September 19, 1955, a period of more than 8 years, to institute appropriate proceedings, judicially or otherwise, for the collection of the tax. (See Sec. 332 [c], National Internal Revenue Code.) From whatever angle the case is viewed, we find that the right of the Government to collect the income tax assessed against petitioner for the year 1941 has prescribed. But it is insisted that the requests of petitioner for reconsideration of the assessment, and while the same were pending consideration by respondent, had the effect of suspending the running of the statute of limitations. The statute of limitations upon assessment and collection of national internal revenue taxes provided in Sections 331 and 332 of the Revenue Code may be suspended only "for the period during which the Collector of Internal Revenue is prohibited from making the assessment or beginning destraint or levy or a proceeding in court, and sixty day thereafter." (Sec. 333, Revenue Code.) Nowhere does the law recognize that a simple request for reconsideration of an assessment, unaccompanied by any positive indication that the taxpayer is waiving his right to assert the defense of prescription, has the effect of suspending the running of the statute of limitations. That a request for re-examination or reconsideration of an assessment does not suspend the running of the statute of limitations seems to be the prevailing opinion in the Bureau of Internal Revenue. This may he inferred from the fact that General Circular No. V-182 dated January 17, 1955 had to be promulgated. Paragraph 6 of said circular provides: 6. Within thirty (30) days from the receipt of the deficiency tax assessment notice, the taxpayer may request reinvestigation or re-examination of the assessment, subject to the following requirements prescribed in paragraph 3 of Department Order No. 213: "(a) The taxpayer shall put the specific grounds of his protest in writing and under oath, accompanied by such additional documents and evidence supporting his protest; (b) He shall pay one-half (1/2) of the total assessment and file a bond to guarantee the payment of the balance together with the penalties that shall have accrued at the time of final payment; and (c) He shall sign a statement that he is waiving the periods of prescription involved in the assessment and collection of the deficiency tax in question." (Emphasis supplied.)

If a simple request for reinvestigation or re-examination of an assessment suspends the running of the statute of limitations, as alleged by respondent, there is no necessity for the requirement that a taxpayer must sign a statement that he is waiving the periods of prescription' as a condition for the granting of the request for reinvestigation or reexamination. General Circular No. V-182 obviously in line with Section 332 (c) of the Revenue Code which provides that the waiver of the taxpayer must be contained in an agreement in writing extending the five year period of limitation upon the right of the respondent to collect internal revenue taxes. FOR THE FOREGOING CONSIDERATIONS We are of the opinion that the right of the Government to collect from petitioner the sum of P24,438.96 as income tax for the year 1941 has prescribed. Accordingly, the decision appealed from is hereby set aside, without pronouncement as to costs. I fully agree with the Court of Tax Appeals that whether we consider February 11, 1947 or July 26, 1955, as the date of the assessment, the right of the Collector, either to make collection within five years from February 11, 1947 or to make assessment within five years from February 6, 1947, has prescribed. I do not believe that a mere petition for revision or reinvestigation can be regarded as an agreement of the taxpayer to extend the period of prescription. The very law clearly so states. Section 333 says that the running of the statute of limitations provided in Sections 331 and 332 shall be suspended only when the Collector is prohibited from making the assessment or beginning the distraint. No such prohibition or inability to make assessment or begin the distraint is claimed for the Collector. And Section 332 (c) says that the period for collection may be extended only by express agreement in writing by the taxpayer and the Collector. Evidently, nothing short of such express written agreement to extend will suspend the running of the period. It will be observed that Suyoc made only one petition for extension, that is, for one year within which to pay the assessment, but reserving its right to question the validity thereof. It was given only three months. Thereafter, it never asked for any other extension. True, it asked for revision and reconsideration of the different assessments made by the Collector, but this in no way can be regarded as an express agreement to extend the period; and the Collector was well aware of the fact that a mere petition to amend, modify, revise or revive the assessment or reinvestigate the case cannot extend the period of prescription, as evidenced by the very General Circular No. V-182, promulgated for the guidance of the Bureau of Internal Revenue. Said circular among other things provides that in order that there be an extension of the period of prescription and presumably, for the protection of the Government, the taxpayer must sign a statement that he is waiving the period of prescription involved in the collection of the tax. The trouble with the actuations of the Collector in this case is that he would appear to have unduly delayed definite and affirmative action on the assessment and collection as shown by the wide gaps — first, a period of more than three years from February 14, 1947, when Suyoc received notice of the first assessment (extended by the Collector to June 20, 1947) to November 28, 1950, when the Collector demanded payment; then another period of about two years from November 28, 1950 to March 7, 1952 when he made the second assessment. Not only was there undue delay on the part of the Collector, but his actuations would seem to have been characterized by indecision and uncertainty. First, he made an assessment in the amount of P33,099.26. Then he increased this to P33,829.66. Then on April 18, 1952, he again increased this assessment to P50,678.03, until on July 26, 1955, this sum of over P50,000 was reduced to P24,438.96, without surcharge, without interest and without any amount as compromise. Why all this difference or differences in the amounts of the assessment?

One could well imagine and understand that a first assessment more or less hastily prepared may be revised within a reasonable time, say a few months or even a year, either increasing it or decreasing it. But when the Collector over a period of more than eight years kept changing his assessment, increasing the same by substantial amounts and then decreasing the same substantially, and at the same time utterly forgetting the period of prescription set by the law and also forgetting to protect the interest of the Government by requiring the taxpayer to agree expressly and in writing to extend the period of such prescription; and equally important, forgetting and failing up to the present time to institute proceedings, administrative by distraint and levy or judicial by court action, to collect, the Government has no one to blame but itself and its officials, certainly not the taxpayer who did nothing but ask for revision of the assessment to obtain a correct figure while it finally got but too late, after a wait of over eight years. The majority opinion places much reliance on the case of R. H. Stearns Company vs. U.S., 291 U.S., 54, and makes extensive quotation therefrom. After reading said case, I agree with counsel for Suyoc that it not applicable, for the reason that in that case, the taxpayer signed two waivers of the period of limitation; that although the second waiver was not signed by the Commissioner, nevertheless, the taxpayer on several ocassions had requested him to withhold collection. Naturally, the United States Supreme Court was constrained to hold that when the taxpayer not only signed waivers but had deliberately asked and persuaded the Commissioner to postpone collection, he cannot invoke the benefit of prescription to the running of which he has contributed. Our law expressly and clearly provides that in order to suspend the period of prescription or to extend it, the taxpayer and the Collector must sign an agreement to that effect. Nothing short of this will effect said extension or suspension of the period of limitation. Mere petitions for revision or reinvestigation by the taxpayer cannot suspend the running of the period of prescription. The taxpayer may make as many requests for revision or examination as he wishes, but the Collector need not act upon them to the prejudice of the Government; and even if he does act upon said petitions, he should always keep an eye on the running of the period, on the dead line, so that for the protection of the Government, he could enforce collection before it is too late. Prescription in the assessment and in the collection of taxes is provided by the Legislature for the benefit of both the Government and 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 said 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 which 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, either by filing an action for the refund, if already paid, under the old law, or appeal the disputed assessment to the Court of Tax Appeals under the present law creating the Tax Court. 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 that 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. In connection with this extension of the period of prescription or limitation for the Government to collect taxes, it will be noticed from Section 332(c) of the Internal Revenue Code that even If the taxpayer and the Collector agree to extend the period of limitation, said period has to be specific or fixed, and if said period of extension is to be further extended, another agreement has to be made again specifying the period of said further extension. From all this, it is evident that to extend the period of limitation or prescription, an express agreement in writing to that effect, signed by the Collector and the taxpayer is necessary. Naturally, a mere petition by the taxpayer for revision or reexamination of the assessment cannot and will not automatically extend the period of limitation. However, under the theory espoused by the majority, let the taxpayer just ask, not for an extension

of the time to pay or the Government to collect, but for a mere re-examination or revision of the assessment, and lo, and behold, all the carefully prepared provisions of the tax law about prescription and statutory limitation are laid aside, and the collecting agency of the Government may then postpone and delay the collection indefinitely, until such time as it is good and ready to resume proceedings from where it left off, and if the taxpayer complains of the delay or invokes prescription, he is instantly met with and silenced by the done of estoppel. I believe that is not what the law and the Legislature contemplated. To me, this matter of the extension of the period of limitation is quite clear, but assuming for a moment that there were any doubt about it, then we have the time honored and well settled rule of statutory construction that tax laws should be interpreted liberally in favor of the taxpayer and strictly against the Government, except in the matter of tax exemptions, in which case the rule is reversed. In the case of Manila Railroad Co. vs. Collector of Customs, 52 Phil. 952, this Tribunal said: . . . . It is the general rule in the interpretation of statutes levying taxes or duties not to extend their provisions beyond the clear import of the language used. In every case of doubt, such statutes are construed most strongly against the Government and in favor of the citizen, because burdens are not to be imposed, nor presumed to be imposed, beyond what the statutes expressly and clearly import. (U. S. vs. Wigglesworth [1842], 2 Story, 369; Froehlich & Kuttner vs. Collector of Customs [1911], 19 Phil., 461.) Years ago, the Supreme Court of the United States, through Chief Justice Marshall, in the case of McCulloch vs. The State of Maryland, 4 Law Ed. 579, said that the power to tax is the power to destroy. Evidently, to moderate this awesome and dangerous taxing power of the Legislature, and in order to temper the rigor of tax laws, this sound and salutary rule of liberal construction of tax laws in favor of the taxpayer has been evolved and laid down. For the foregoing reasons, I dissent. Padilla, J., concurs. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 162852 December 16, 2004

PHILIPPINE JOURNALISTS, INC., petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent.

DECISION

YNARES-SANTIAGO, J.: This is a petition for review filed by Philippine Journalists, Incorporated (PJI) assailing the Decision1 of the Court of Appeals dated August 5, 2003,2 which ordered petitioner to pay the assessed tax liability of P111,291,214.46 and the Resolution3 dated March 31, 2004 which denied the Motion for Reconsideration. The case arose from the Annual Income Tax Return filed by petitioner for the calendar year ended December 31, 1994 which presented a net income of P30,877,387.00 and the tax due of P10,807,086.00. After deducting tax credits for the year, petitioner paid the amount of P10,247,384.00. On August 10, 1995, Revenue District Office No. 33 of the Bureau of Internal Revenue (BIR) issued Letter of Authority No. 871204 for Revenue Officer Federico de Vera, Jr. and Group Supervisor Vivencio Gapasin to examine petitioner’s books of account and other accounting records for internal revenue taxes for the period January 1, 1994 to December 31, 1994. From the examination, the petitioner was told that there were deficiency taxes, inclusive of surcharges, interest and compromise penalty in the following amounts: Value Added Tax Income Tax Withholding Tax Total P 229,527.90 125,002,892.95 2,748,012.35 P 127,980,433.20

In a letter dated August 29, 1997, Revenue District Officer Jaime Concepcion invited petitioner to send a representative to an informal conference on September 15, 1997 for an opportunity to object and present documentary evidence relative to the proposed assessment. On September 22, 1997, petitioner’s Comptroller, Lorenza Tolentino, executed a "Waiver of the Statute of Limitation Under the National Internal Revenue Code (NIRC)".5 The document "waive[d] the running of the prescriptive period provided by Sections 223 and 224 and other relevant provisions of the NIRC and consent[ed] to the assessment and collection of taxes which may be found due after the examination at any time after the lapse of the period of limitations fixed by said Sections 223 and 224 and other relevant provisions of the NIRC, until the completion of the investigation".6 On July 2, 1998, Revenue Officer De Vera submitted his audit report recommending the issuance of an assessment and finding that petitioner had deficiency taxes in the total amount of P136,952,408.97. On October 5, 1998, the Assessment Division of the BIR issued Pre-Assessment Notices which informed petitioner of the results of the investigation. Thus, BIR Revenue Region No. 6, Assessment Division/Billing Section, issued Assessment/Demand No. 33-1-000757-947 on December 9, 1998 stating the following deficiency taxes, inclusive of interest and compromise penalty: Income Tax Value Added Tax Expanded Withholding P108,743,694.88 184,299.20 2,363,220.38

Tax Total P111,291,214.46

On March 16, 1999, a Preliminary Collection Letter was sent by Deputy Commissioner Romeo S. Panganiban to the petitioner to pay the assessment within ten (10) days from receipt of the letter. On November 10, 1999, a Final Notice Before Seizure8 was issued by the same deputy commissioner giving the petitioner ten (10) days from receipt to pay. Petitioner received a copy of the final notice on November 24, 1999. By letters dated November 26, 1999, petitioner asked to be clarified how the tax liability of P111,291,214.46 was reached and requested an extension of thirty (30) days from receipt of the clarification within which to reply.9 The BIR received a follow-up letter from the petitioner asserting that its (PJI) records do not show receipt of Tax Assessment/Demand No. 33-1-000757-94.10 Petitioner also contested that the assessment had no factual and legal basis. On March 28, 2000, a Warrant of Distraint and/or Levy No. 33-06-04611 signed by Deputy Commissioner Romeo Panganiban for the BIR was received by the petitioner. Petitioner filed a Petition for Review12 with the Court of Tax Appeals (CTA) which was amended on May 12, 2000. Petitioner complains: (a) that no assessment or demand was received from the BIR; (b) that the warrant of distraint and/or levy was without factual and legal bases as its issuance was premature; (c) that the assessment, having been made beyond the 3-year prescriptive period, is null and void; (d) that the issuance of the warrant without being given the opportunity to dispute the same violates its right to due process; and (e) that the grave prejudice that will be sustained if the warrant is enforced is enough basis for the issuance of the writ of preliminary injunction. On May 14, 2002, the CTA rendered its decision,13 to wit: As to whether or not the assessment notices were received by the petitioner, this Court rules in the affirmative. To disprove petitioner’s allegation of non-receipt of the aforesaid assessment notices, respondent presented a certification issued by the Post Master of the Central Post Office, Manila to the effect that Registered Letter No. 76134 sent by the BIR, Region No. 6, Manila on December 15, 1998 addressed to Phil. Journalists, Inc. at Journal Bldg., Railroad St., Manila was duly delivered to and received by a certain Alfonso Sanchez, Jr. (Authorized Representative) on January 8, 1999. Respondent also showed proof that in claiming Registered Letter No. 76134, Mr. Sanchez presented three identification cards, one of which is his company ID with herein petitioner. … However, as to whether or not the Waiver of the Statute of Limitations is valid and binding on the petitioner is another question. Since the subject assessments were issued beyond the three-year prescriptive period, it becomes imperative on our part to rule first on the validity of the waiver allegedly executed on September 22, 1997, for if this court finds the same to be ineffective, then the assessments must necessarily fail. …

After carefully examining the questioned Waiver of the Statute of Limitations, this Court considers the same to be without any binding effect on the petitioner for the following reasons: The waiver is an unlimited waiver. It does not contain a definite expiration date. Under RMO No. 20-90, the phrase indicating 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… … Secondly, the waiver failed to state the date of acceptance by the Bureau which under the aforequoted RMO should likewise be indicated… … Finally, petitioner was not furnished a copy of the waiver. It is to be noted that under RMO No. 20-90, the waiver must be executed in three (3) copies, the second copy of which is for the taxpayer. It is likewise required that the fact of receipt by the taxpayer of his/her file copy be indicated in the original copy. Again, respondent failed to comply. It bears stressing that RMO No. 20-90 is directed to all concerned internal revenue officers. The said RMO even provides that the procedures found therein should be strictly followed, under pain of being administratively dealt with should non-compliance result to prescription of the right to assess/collect… Thus, finding the waiver executed by the petitioner on September 22, 1997 to be suffering from legal infirmities, rendering the same invalid and ineffective, the Court finds Assessment/Demand No. 33-1-000757-94 issued on December 5, 1998 to be time-barred. Consequently, the Warrant of Distraint and/or Levy issued pursuant thereto is considered null and void. WHEREFORE, in view of all the foregoing, the instant Petition for Review is hereby GRANTED. Accordingly, the deficiency income, value-added and expanded withholding tax assessments issued by the respondent against the petitioner on December 9, 1998, in the total amount of P111,291,214.46 for the year 1994 are hereby declared CANCELLED, WITHDRAWN and WITH NO FORCE AND EFFECT. Likewise, Warrant of Distraint and/or Levy No. 33-06-046 is hereby declared NULL and VOID. SO ORDERED.14 After the motion for reconsideration of the Commissioner of Internal Revenue was denied by the CTA in a Resolution dated August 2, 2002, an appeal was filed with the Court of Appeals on August 12, 2002. In its decision dated August 5, 2003, the Court of Appeals disagreed with the ruling of the CTA, to wit: … The petition for review filed on 26 April 2000 with CTA was neither timely filed nor the proper remedy. Only decisions of the BIR, denying the request for reconsideration or reinvestigation may be appealed to the CTA. Mere assessment notices which have become

final after the lapse of the thirty (30)-day reglementary period are not appealable. Thus, the CTA should not have entertained the petition at all. … … [T]he CTA found the waiver executed by Phil. Journalists to be invalid for the following reasons: (1) it does not indicate a definite expiration date; (2) it does not state the date of acceptance by the BIR; and (3) Phil. Journalist, the taxpayer, was not furnished a copy of the waiver. These grounds are merely formal in nature. The date of acceptance by the BIR does not categorically appear in the document but it states at the bottom page that the BIR "accepted and agreed to:"…, followed by the signature of the BIR’s authorized representative. Although the date of acceptance was not stated, the document was dated 22 September 1997. This date could reasonably be understood as the same date of acceptance by the BIR since a different date was not otherwise indicated. As to the allegation that Phil. Journalists was not furnished a copy of the waiver, this requirement appears ridiculous. Phil. Journalists, through its comptroller, Lorenza Tolentino, signed the waiver. Why would it need a copy of the document it knowingly executed when the reason why copies are furnished to a party is to notify it of the existence of a document, event or proceeding? … As regards the need for a definite expiration date, this is the biggest flaw of the decision. The period of prescription for the assessment of taxes may be extended provided that the extension be made in writing and that it be made prior to the expiration of the period of prescription. These are the requirements for a valid extension of the prescriptive period. To these requirements provided by law, the memorandum order adds that the length of the extension be specified by indicating its expiration date. This requirement could be reasonably construed from the rule on extension of the prescriptive period. But this requirement does not apply in the instant case because what we have here is not an extension of the prescriptive period but a waiver thereof. These are two (2) very different things. What Phil. Journalists executed was a renunciation of its right to invoke the defense of prescription. This is a valid waiver. When one waives the prescriptive period, it is no longer necessary to indicate the length of the extension of the prescriptive period since the person waiving may no longer use this defense. WHEREFORE, the 02 August 2002 resolution and 14 May 2002 decision of the CTA are hereby SET ASIDE. Respondent Phil. Journalists is ordered [to] pay its assessed tax liability of P111,291,214.46. SO ORDERED.15 Petitioner’s Motion for Reconsideration was denied in a Resolution dated March 31, 2004. Hence, this appeal on the following assignment of errors: I. The Honorable Court of Appeals committed grave error in ruling that it is outside the jurisdiction of the Court of Tax Appeals to entertain the Petition for Review filed by the herein Petitioner at the CTA despite the fact that such case inevitably rests upon the validity of the issuance by the BIR of warrants of distraint and levy contrary to the provisions of Section 7(1) of Republic Act No. 1125. II.

The Honorable Court of Appeals gravely erred when it ruled that failure to comply with the provisions of Revenue Memorandum Order (RMO) No. 20-90 is merely a formal defect that does not invalidate the waiver of the statute of limitations without stating the legal justification for such conclusion. Such ruling totally disregarded the mandatory requirements of Section 222(b) of the Tax Code and its implementing regulation, RMO No. 20-90 which are substantive in nature. The RMO provides that violation thereof subjects the erring officer to administrative sanction. This directive shows that the RMO is not merely cover forms. III. The Honorable Court of Appeals gravely erred when it ruled that the assessment notices became final and unappealable. The assessment issued is void and legally non-existent because the BIR has no power to issue an assessment beyond the three-year prescriptive period where there is no valid and binding waiver of the statute of limitation. IV. The Honorable Court of Appeals gravely erred when it held that the assessment in question has became final and executory due to the failure of the Petitioner to protest the same. Respondent had no power to issue an assessment beyond the three year period under the mandatory provisions of Section 203 of the NIRC. Such assessment should be held void and non-existent, otherwise, Section 203, an expression of a public policy, would be rendered useless and nugatory. Besides, such right to assess cannot be validly granted after three years since it would arise from a violation of the mandatory provisions of Section 203 and would go against the vested right of the Petitioner to claim prescription of assessment. V. The Honorable Court of Appeals committed grave error when it HELD valid a defective waiver by considering the latter a waiver of the right to invoke the defense of prescription rather than an extension of the three year period of prescription (to make an assessment) as provided under Section 222 in relation to Section 203 of the Tax Code, an interpretation that is contrary to law, existing jurisprudence and outside of the purpose and intent for which they were enacted.16 We find merit in the appeal. The first assigned error relates to the jurisdiction of the CTA over the issues in this case. The Court of Appeals ruled that only decisions of the BIR denying a request for reconsideration or reinvestigation may be appealed to the CTA. Since the petitioner did not file a request for reinvestigation or reconsideration within thirty (30) days, the assessment notices became final and unappealable. The petitioner now argue that the case was brought to the CTA because the warrant of distraint or levy was illegally issued and that no assessment was issued because it was based on an invalid waiver of the statutes of limitations. We agree with petitioner. Section 7(1) of Republic Act No. 1125, the Act Creating the Court of Tax Appeals, provides for the jurisdiction of that special court: SEC. 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 laws or part of law administered by the Bureau of Internal Revenue; (Emphasis supplied). The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the Commissioner of Internal Revenue on matters relating to assessments or refunds. The second part of the provision covers other cases that arise out of the NIRC or related laws administered by the Bureau of Internal Revenue. The wording of the provision is clear and simple. It gives the CTA the jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the Waiver of Statute of Limitations was validly effected. This is not the first case where the CTA validly ruled on issues that did not relate directly to a disputed assessment or a claim for refund. In Pantoja v. David,17 we upheld the jurisdiction of the CTA to act on a petition to invalidate and annul the distraint orders of the Commissioner of Internal Revenue. Also, in Commissioner of Internal Revenue v. Court of Appeals,18 the decision of the CTA declaring several waivers executed by the taxpayer as null and void, thus invalidating the assessments issued by the BIR, was upheld by this Court. The second and fifth assigned errors both focus on Revenue Memorandum Circular No. 20-90 (RMO No. 20-90) on the requisites of a valid waiver of the statute of limitations. The Court of Appeals held that the requirements and procedures laid down in the RMO are only formal in nature and did not invalidate the waiver that was signed even if the requirements were not strictly observed. The NIRC, under Sections 203 and 222,19 provides for a statute of limitations on the assessment and collection of internal revenue taxes in order to safeguard the interest of the taxpayer against unreasonable investigation.20Unreasonable investigation contemplates cases where the period for assessment extends indefinitely because this deprives the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time. As was held in Republic of the Phils. v. Ablaza:21 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, lawabiding citizens. Without such a legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law.(Emphasis supplied) RMO No. 20-90 implements these provisions of the NIRC relating to the period of prescription for the assessment and collection of taxes. A cursory reading of the Order supports petitioner’s argument that the RMO must be strictly followed, thus: 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 concernedbut there should be no deviation from such form. The phrase "but not after __________ 19___" should be filled up… 2. … 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… 3. The following revenue officials are authorized to sign the waiver. A. In the National Office … 3. Commissioner For tax cases involving more than P1M

B. In the Regional Offices 1. The Revenue District Officer with respect to tax cases still pending investigation and the period to assess is about to prescribe regardless of amount. … 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. (Emphasis supplied)22 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.23 The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the Court of Appeals. It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal. 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.24 RMO No. 20-90 explains the rationale of a waiver: ... 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. (Emphasis supplied) As found by the CTA, the Waiver of Statute of Limitations, signed by petitioner’s comptroller on September 22, 1997 is not valid and binding because it does not conform with the provisions of RMO No. 20-90. It did not specify a definite agreed date between the BIR and petitioner, within which the former may assess and collect revenue taxes. Thus, petitioner’s waiver became unlimited in time, violating Section 222(b) of the NIRC. The waiver is also defective from the government side because it was signed only by a revenue district officer, not the Commissioner, as mandated by the NIRC and RMO No. 20-90. The waiver is not a unilateral act by the taxpayer or the BIR, but is a bilateral agreement between two parties to extend the period to a date certain. The conformity of the BIR must be made by either the Commissioner or the Revenue District Officer. This case involves taxes amounting to more than One Million Pesos (P1,000,000.00) and executed almost seven months before the expiration of the threeyear prescription period. For this, RMO No. 20-90 requires the Commissioner of Internal Revenue to sign for the BIR. The case of Commissioner of Internal Revenue v. Court of Appeals,25 dealt with waivers that were not signed by the Commissioner but were argued to have been given implied consent by the BIR. We invalidated the subject waivers and ruled: Petitioner’s submission is inaccurate… … 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-year26 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)." … For sure, no such written agreement concerning the said three waivers exists between the petitioner and private respondent Carnation. … 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…. 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.27 (Emphasis supplied) The other defect noted in this case is the date of acceptance which makes it difficult to fix with certainty if the waiver was actually agreed before the expiration of the three-year prescriptive period. The Court of Appeals held that the date of the execution of the waiver on September 22, 1997 could reasonably be understood as the same date of acceptance by the BIR. Petitioner points out however that Revenue District Officer Sarmiento could not have accepted the waiver yet because she was not the Revenue District Officer of RDO No. 33 on such date. Ms. Sarmiento’s transfer and assignment to RDO No. 33 was only signed by the BIR Commissioner on January 16, 1998 as shown by the Revenue Travel Assignment Order No. 14-98.28 The Court of Tax Appeals noted in its decision that it is unlikely as well that Ms. Sarmiento made the acceptance on January 16, 1998 because "Revenue Officials normally have to conduct first an inventory of their pending papers and property responsibilities."29 Finally, the records show that petitioner was not furnished a copy of the waiver. Under RMO No. 2090, the waiver must be executed in three copies with the second copy for the taxpayer. The Court of Appeals did not think this was important because the petitioner need not have a copy of the document it knowingly executed. It stated that the reason copies are furnished is for a party to be notified of the existence of a document, event or proceeding. The flaw in the appellate court’s reasoning stems from its assumption that the waiver is a unilateral act of the taxpayer when it is in fact and in law an agreement between the taxpayer and the BIR. When the petitioner’s comptroller signed the waiver on September 22, 1997, it was not yet complete and final because the BIR had not assented. There is compliance with the provision of RMO No. 2090 only after the taxpayer received a copy of the waiver accepted by the BIR. 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 of the acceptance by the BIR and the perfection of the agreement. The waiver document is incomplete and defective and thus the three-year prescriptive period was not tolled or extended and continued to run until April 17, 1998. Consequently, the Assessment/Demand No. 33-1-000757-94 issued on December 9, 1998 was invalid because it was issued beyond the three (3) year period. In the same manner, Warrant of Distraint and/or Levy No. 33-06-046 which petitioner received on March 28, 2000 is also null and void for having been issued pursuant to an invalid assessment. WHEREFORE, premises considered, the instant petition for review is GRANTED. The Decision of the Court of Appeals dated August 5, 2003 and its Resolution dated March 31, 2004 are REVERSED and SET ASIDE. The Decision of the Court of Tax Appeals in CTA Case No. 6108 dated May 14, 2002, declaring Warrant of Distraint and/or Levy No. 33-06-046 null and void, is REINSTATED. SO ORDERED. Davide, Jr., C.J. (Chairman), Quisumbing, Carpio, and Azcuna, JJ., concur. Republic of the Philippines SUPREME COURT Baguio City EN BANC

G.R. No. 167756

April 8, 2008

THE PEOPLE OF THE PHILIPPINES, appellee, vs. JERRY NAZARENO, appellant. DECISION REYES, R.T., J.: IN this rape case, the Court is confronted with remedial questions on (a) specificity of dates in the Information; (b) quantum of proof; and (c) concurrence of allegation and proof. For Our final review is the Decision1 of the Court of Appeals (CA) affirming with modification appellant's conviction for rape of his two minor daughters. The Facts In line with Our ruling in People v. Cabalquinto,2 the real names of the rape victims will not be disclosed. We will instead use fictitious initials to represent them throughout the decision. The personal circumstances of the victims or any other information tending to establish or compromise their identities will likewise be withheld. Private complainants AAA and BBB are the legitimate daughters of appellant Jerry Nazareno with CCC. AAA was born on April 30, 1983.2-a BBB, the second child of the union, was born on June 24, 1984.2-b At that time, appellant and CCC were yet to wed. It was only in 1987 that the couple formally tied the knot in simple church ceremonies. Three more children sprang from the marriage since then.3 Sometime in 1990, AAA was inside a room in their house located at Barangay Codon, Municipality of San Andres, Province of Catanduanes. All of her siblings were playing in their yard. Unexpectedly, appellant entered the room, and without saying a word, held AAA tightly. He then directed AAA to crouch on the floor and raise her buttocks (baka-bakahan). While in that position, appellant removed the girl's short pants and underwear. He then proceeded to remove his own undergarments. Subsequently, appellant forcibly entered AAA from behind, inserting his penis into the girl's vagina. She was seven.4 Appellant threatened AAA not to reveal what happened to her to anyone; or else, she and the rest of her family would be killed. Expectedly, AAA suffered in silence. She feared for her life as well as that of her mother and siblings.5 AAA's ordeal with her father became a regular fare. Appellant would rape her whenever they were left alone in the house.6 CCC was rarely home because she attended to farm work and accepted laundry jobs from neighbors to support the family. Appellant was jobless and stayed at home.7 On March 25, 1996, appellant again imposed his bestial urges on AAA. AAA distinctly remembered the incident because she graduated from primary school on that day. At around 2:00 p.m., appellant and AAA were left alone in the house. He told AAA to remove her shorts and panty. Appellant then asked her to crouch on the floor and raise her buttocks. Just as he did before, appellant positioned himself behind the girl and then inserted his penis into her vagina. All that time, appellant's hands

were clutching the girl's back.8 Coincidentally, AAA's graduation from elementary school also marked the end of appellant's sexual abuses. BBB suffered the same fate as her older sister AAA. Sometime in January 1992, appellant and BBB were left alone in their house. Suddenly, appellant told BBB to kneel on all fours (pig baka-baka).9 Appellant then removed BBB's shorts and panties. He then removed his maong pants. Appellant positioned himself at BBB's rear and then inserted his penis into the young girl's vagina. At the time of the rape, BBB was only seven years old and was a Grade II pupil.10 Appellant continued raping BBB, using the girl for his sexual gratification every other day. From BBB's account, appellant would rape her fifteen times in a month. Every time, appellant would threaten her that he would kill all of them should she tell anyone what was happening between them.11 On October 27, 1998, AAA and BBB found the courage to tell their mother CCC what appellant had been doing to them. AAA accidentally found that BBB was likewise being subjected to sexual abuses by their father. Gathering strength from one another, AAA and BBB tearfully recounted to their mother their individual ordeals. CCC was devastated.12 On December 6, 1998, appellant again attempted to force himself on BBB. He inserted his finger into BBB's vagina. BBB felt extreme pain from the nails protruding from her father's fingers. That was the last time appellant abused BBB.13 On February 16, 1999, CCC, with AAA and BBB, secretly went to the Municipal Building of San Andres, Catanduanes to file a complaint against appellant for the rape of AAA and BBB. AAA and BBB were immediately attended to by personnel from the Department of Social Welfare and Development. The two were later examined at the JMA District Hospital by Dr. Erlinda H. Arcilla. CCC testified as to the age of the victims AAA and BBB at the time of the commission of the crimes. She affirmed that AAA was born on April 30, 1983 while BBB was born on June 24, 1984.14 CCC narrated that she was shocked when she heard her two daughters complain that they were raped by their own father. She knew appellant to be temperamental. He would hit AAA and BBB at the slightest provocation. She failed to act immediately on her daughters' plight for fear of her husband. CCC was convinced that appellant might make good his threats to kill all of them.15 Dr. Arcilla narrated that she examined both AAA and BBB on February 16, 1999. During her examination, she uncovered old healed hymenal lacerations on both AAA and BBB at the 3 o'clock, 6 o'clock and 9 o'clock positions. The lacerations suggested that the two girls were no longer in a virgin state.16 On March 17, 1999, appellant Jerry Nazareno was indicted for violation of Article 266-A of the Revised Penal Code in Criminal Case No. 2638 for the rape of BBB. The information reads: That sometime and between January 1992 up to December 06, 1998, in Barangay Codon, Municipality of San Andres, Province of Catanduanes, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused by means of force, violence and intimidation did then and there willfully, unlawfully, feloniously and repeatedly made sexual intercourse with his daughter BBB at the age of 7 through 14 years old against her will. CONTRARY TO LAW.17

On May 3, 1999, another Information docketed as Criminal Case No. 2650, for the rape of AAA, was levelled against appellant. The indictment is worded thus: That from sometime in January 1990 up to December 1998 in barangay Codon, municipality of San Andres, Catanduanes, and within the jurisdiction of the Honorable Court, the said accused, being the father of the complainant, did then and there willfully, feloniously and criminally repeatedly had sexual intercourse with her daughter AAA, then five years old up to the time when she was 15-years-old against her will. CONTRARY TO LAW.18 The case for the People, which portrayed the foregoing facts, revolved around the combined testimonies of AAA, BBB, CCC, and Dr. Erlinda Arcilla of the JMA District Hospital in San Andres, Catanduanes. The defense, anchored on denial, was summed up by the trial court in this wise: The defense presented JERRY NAZARENO, the accused himself who testified that he is 34 years old, married, fisherman, a resident of Codon, San Andres, Catanduanes. He denied having raped his daughters. He said that he sometimes beat his children because he is strict with them in their studies especially during weekdays. He did not want them to watch television during schooldays. Though he is strict, he could not molest the complainants because they are his daughters. He said that the reason why his daughters filed these cases against him was because his father-in-law wants him to be incarcerated for the reason that from the very start, he was opposed to his marriage to CCC, his daughter. He also said that in December 1998, the last molestation of BBB, he was in the motor launch that plies the San Andres and Caramoran route.19 RTC and CA Dispositions On October 25, 2002, the trial court handed down a joint judgment of conviction, imposing upon appellant the capital punishment of death in both cases. The fallo of the RTC decision reads: WHEREFORE, in view of all the foregoing, the prosecution having proved the guilt of the accused beyond reasonable doubt, he is sentenced to suffer the extreme penalty of DEATH for raping BBB in Criminal Case No. 2638 and the same penalty for raping AAA in Criminal Case No. 2650 in accordance with Article 335 of the Revised Penal Code as amended by R.A. 7659. The accused is further ordered to indemnify both complainants the amount of Fifty Thousand Pesos (P50,000.00) each, to pay each of them the amount of Fifty Thousand Pesos (P50,000.00) as moral damages and the cost of suit. SO ORDERED.20 Conformably with the pronouncement in People v. Mateo21 providing for an intermediate review by the CA of cases in which the penalty imposed is death, reclusion perpetua or life imprisonment, the Court issued a Resolution dated September 21, 2004,22 transferring the case to the appellate court for appropriate action and disposition.

On February 22, 2005, the CA affirmed with modification the RTC judgment, disposing as follows: WHEREFORE, finding the accused guilty beyond reasonable doubt of the crime of rape as defined and penalized under Art. 335 of the Revised Penal Code as amended by Anti Rape Law of 1997, with the aggravating circumstance of relationship and minority, the decision of the court a quo sentencing him to death in both Criminal Cases Nos. 2638 and 2650 is hereby AFFIRMED. The award of civil indemnity is MODIFIED and INCREASED to P75,000.00 each, in both cases. The award of moral damages ofP50,000.00 for each case is AFFIRMED. We also award P25,000.00 as exemplary damages in each case. Let the records of this case be transmitted to the Supreme Court for appropriate action. SO ORDERED.23 Issues On September 27, 2005, the Court resolved to require the parties to submit their respective supplemental briefs, if they so desired, within thirty (30) days from notice. In a manifestation dated December 6, 2005, the Public Attorney's Office, representing appellant Jerry Nazareno, informed the Court that it is adopting its main brief on record.24 The Office of the Solicitor General, for the People, similarly opted to dispense with the filing of a supplemental brief in its manifestation dated March 9, 2006.25 Appellant stands by the same lone error he raised before the appellate court: THE TRIAL COURT ERRED (IN) NOT FINDING THAT THE INFORMATION(S) IN CRIMINAL CASE NO[S]. 2638 AND 2650 ARE INSUFFICIENT TO SUPPORT A JUDGMENT OF CONVICTION FOR ITS (SIC) FAILURE TO STATE THE PRECISE DATES OF THE COMMISSION OF THE OFFENSE CHARGED.26 (Corrections and underscoring supplied) Our Ruling In the main, appellant argues that the Informations charging him with the rape of AAA and BBB are defective for failure to state with specificity the approximate date of the commission of the offenses. According to him, the twin convictions have no basis in law because the People violated his constitutional right to be informed of the nature and cause of the accusations against him. The argument is specious. An information is intended to inform an accused of the accusations against him in order that he could adequately prepare his defense. Verily, an accused cannot be convicted of an offense unless it is clearly charged in the complaint or information. Thus, to ensure that the constitutional right of the accused to be informed of the nature and cause of the accusation against him is not violated, the information should state the name of the accused; the designation given to the offense by the statute; a statement of the acts or omissions so complained of as constituting the offense; the name of the offended party; the approximate time and date of the commission of the offense; and the place where the offense has been committed.27 Further, it must embody the essential elements of the crime charged by setting forth the facts and circumstances that have a bearing on the culpability and liability of the accused, so that he can properly prepare for and undertake his defense.28

However, it is not necessary for the information to allege the date and time of the commission of the crime with exactitude unless time is an essential ingredient of the offense.29 In People v. Bugayong,30 the Court held that when the time given in the information is not the essence of the offense, the time need not be proven as alleged; and that the complaint will be sustained if the proof shows that the offense was committed at any time within the period of the statute of limitations and before the commencement of the action. In People v. Gianan,31 the Court ruled that the time of the commission of rape is not an element of the said crime as it is defined in Article 335 of the Revised Penal Code. The gravamen of the crime is the fact of carnal knowledge under any of the circumstances enumerated therein, i.e.: (1) by using force or intimidation; (2) when the woman is deprived of reason or otherwise unconscious; and (3) when the woman is under twelve years of age or is demented. In accordance with Rule 110, Section 11 of the 2000 Rules of Criminal Procedure, as long as it alleges that the offense was committed "at any time as near to the actual date at which the offense was committed," an information is sufficient. The doctrine was reiterated with greater firmness in People v. Salalima32 and in People v. Lizada.33 In the case under review, the information in Criminal Case No. 2638 alleged that the rape of BBB transpired "sometime and between January 1992 up to December 6, 1998 in Barangay Codon, Municipality of San Andres, Province of Catanduanes." In Criminal Case No. 2650, the information averred that "from sometime in January 1990 up to December 1998 in Barangay Codon, Municipality of San Andres, Province of Catanduanes," AAA was raped by appellant. To the mind of the Court, the recitals in the informations sufficiently comply with the constitutional requirement that the accused be informed of the nature and cause of the accusation against him. In People v. Garcia,34 the Court upheld a conviction for ten counts of rape based on an Information which alleged that the accused committed multiple rapes "from November 1990 up to July 21, 1994." In People v. Espejon,35 the Court found the appellant liable for rape under an information charging that he perpetrated the offense "sometime in the year 1982 and dates subsequent thereto" and "sometime in the year 1995 and subsequent thereto." Indeed, this Court has ruled that allegations that rapes were committed "before and until October 15, 1994,"36"sometime in the year 1991 and the days thereafter,"37 and "on or about and sometime in the year 1988"38constitute sufficient compliance with Rule 110, Section 11 of the 2000 Rules of Criminal Procedure. More than that, the Court notes that the matter of particularity of the dates in the information is being raised for the first time on appeal. The rule is well-entrenched in this jurisdiction that objections as to matter of form or substance in the information cannot be made for the first time on appeal.39 Appellant failed to raise the issue of defective informations before the trial court. He could have moved to quash the informations or at least for a bill of particulars. He did not. Clearly, he slumbered on his rights and awakened too late. Too, appellant did not object to the presentation of the evidence for the People contending that the offenses were committed "sometime and between January 1992 up to December 6, 1998" for Criminal Case No. 2632 and "sometime in January 1990, up to December 1998" in Criminal Case No. 2650. On the contrary, appellant actively participated in the trial, offering denial and alibi as his defenses. Simply put, he cannot now be heard to complain that he was unable to defend himself in view of the vagueness of the recitals in the informations. We now tackle appellant's convictions for the multiple rape of AAA and BBB.

In an effort to exculpate himself, appellant contends that the charges for rape are mere fabrications and lies. He insists his daughters were instigated by his father-in-law to file the complaints. According to appellant, his father-in-law has an axe to grind against him. His in-law disdained him from the very beginning and wanted him out of CCC's life. In reviewing rape cases, the Court is guided by the following jurisprudential guidelines: (a) an accusation of rape can be made with facility; it is difficult to prove but more difficult for the person accused, though innocent, to disprove; (b) due to the nature of the crime of rape in which only two persons are usually involved, the testimony of complainant must be scrutinized with extreme caution; and (c) the evidence for the prosecution must stand or fall on its own merits and cannot be allowed to draw strength from the weakness of the evidence for the defense.40 Tersely put, the credibility of the offended party is crucial in determining the guilt of a person accused of rape. By the very nature of this crime, it is usually only the victim who can testify as to its occurrence. Thus, in rape cases, the accused may be convicted solely on the basis of the testimony of the victim, provided that such testimony is credible, natural, convincing and consistent with human nature and the normal course of things. Elsewise stated, the lone testimony of the offended party, if credible, suffices to warrant a conviction for rape.41 In her testimony before the trial court, AAA narrated: Q Why, when were you particularly raped by your father? A Since 1990, when I was in Grade I until I was in Grade VI, Sir. Q When you were in Grade I, how old were you then? A Seven (7) years old, Sir. Q Can you remember the first time, you said your father raped you in 1990? A I could no longer remember the date, Sir. Q But how did your father rape you, do you remember how he raped you in 1990, the first time? A Yes, Sir. Q Could you please tell us how he raped you for the first time? A I was croaching with raised buttocks, Sir. Q Do you remember where did he tell you to make that position? A No, Sir. Q Where particularly in your house? A In our room, Sir.

Q Do you still remember the date, the first time he raped you? A No, Sir. Q Who were with you in your house during that time? A No one, Sir, because all my other siblings are playing outside the house, and my mother was at work. Q When you were in that position with your buttocks raised and hands and knees on the floor, what did your father do next? A He positioned behind me and s[tar]ted raping me, Sir. Q When you used the term "rape," what do you mean? A He inserted his penis into my vagina, Sir. Q You mean your father inserted his penis to your vagina? A Yes, Sir. Q Now after that first time, do you remember the second time that he did it to you? A I could not remember anymore, Sir. Q Do you remember how long the period was between the first and the second time he raped you? A I could not longer remember, Sir. COURT Fiscal, we are only trying here the rape that occurred on March 25, so if you can prove to us really, maybe several times before that, the court cannot do something about that, because it is not included in the information. AYO Q So when was the last time that your father raped you? A When I graduated from the elementary school, Sir. Q When was that? A March 24, 1996, Sir. Q Between the first time that your father raped you and the last time that your father raped you, did you not report this to anybody, the thing that your father had been doing to you?

A I did not report this to anybody, Sir. Q Why? A Because I was threatened by my father that if we tell this matter to anybody, he would not only kill me but the rest of us, Sir. Q What other things did your father do when you said that he raped you, whenever your father raped you, you said you have been raped by your father in the time that you are in Grade I up to the time that you were in Grade VI, what did your father do to you? CABRERA The question is vague, because there is no definite date. COURT Recess for ten (10) minutes. COURT (After ten minutes) Court session resumed. AYO Q Do you remember the last time that your father raped you? A March 25, 1996, Sir. Q Where? A In our house, Sir. Q How old were you then? A Thirteen (13) years old, Sir. Q How did he rape you? A I was croaching with raised buttocks, Sir. Q And what did he do again when you are in that position? A He told me to remove my shorts and my panty, Sir. Q And did you do it? A Yes, Sir. Q Then what did he do next?

A He positioned behind me and he raped me, Sir. Q In that position while he was raping you, where was (sic) his hands? A His hands were on my back, Sir.42 Upon the other hand, BBB testified thus: AYO Q Now, Miss witness, you said your first rape by your father in 1992, do you remember the specific time when he first raped you? A I could no longer recall the date, because that has been sometime already, Sir. Q In 1992, were you already in school then? A Yes, Sir. Q What grade were you in when your father first raped you? A Grade II, Sir. Q Do you recall the circumstances when you were first raped by your father in 1992? A I was made to lie on top of my father, Sir. Q When you used the term "Pig baka-baka," will you please demonstrate to us how it is done? A (Witness demonstrating by kneeling and had her two hands on the floor, a position similar to four-legged animal, and she stated that her father is at her rear portion). Q And that was the first time your father raped with that position? A Yes, Sir. Q And what clothes were you wearing at that time when you were at that position, if you can still remember? A Yes, Sir, I can remember, I was wearing shorts. Q How about your father, do you remember what clothes he was wearing in that position? A He was wearing maong pants, Sir. Q And what was your father doing aside from having that position? A He removed my shorts and panty, Sir.

Q And after removing your shorts and panty, what did he do? A My father inserted his penis in my vagina, Sir. Q That was the first time you said he raped you? A Yes, Sir. Q Do you remember the date again, the first time that he raped you? A I could no longer remember the exact date, Sir. Q You could only remember the month and the year? A Yes, Sir, I could not remember the date, but I remember only the month and the year. Q How about the second time, do you remember when he raped you, the second time? A I could not, Sir.43 On cross-examination, BBB stated that: CABRERA Q You said you were allegedly raped by your own father, sometime in 1992, will you tell us what time is that alleged incident committed to you? A About 2:00 p.m., Sir. Q And who were the persons in the house, at around 2:00 o'clock in the afternoon? A The two of us only, Sir. Q Where were your companions in the home? A By that time, my mother is working in the farm, my ate is in school, and the rest of my siblings are playing outside, Sir. Q What was your age then at the time you were allegedly raped? A I was eight years old, Sir. Q You were never forced to have that position of "baka-bakahan"? A I was forced to do that, Sir. Q You were only told in mild manner, correct? A He kepts (sic) on telling me that I should do that position, although I don't like it, he kepts (sic) on prodding me, Sir.

Q At that time your father was telling you on a very low voice, because you were near to the children who are playing? A They were playing, Sir. Q Will you describe to us your house, what is the elevation of your house from the ground floor? A The flooring of our house is quite elevated. (Witness is demonstrating a height of about one [1] foot). Q Who were those children playing outside the house? A My three (3) siblings are playing outside the house, Sir. Q Your house has a window fronting the yard, correct? A Yes, Sir. Q And that yard was the playing ground of the children while your father was telling you that position of "baka-bakahan"? A They were playing in our yard, but they are playing near the house of our neighbor, Sir. Q How far is the house of your neighbor to your house? A (Witness demonstrating a distance of one two-arms length). Q And those children could hear what your father is saying? A They could not have heard what my father said, because they were playing, Sir. Q Why, what kind of game they are playing? A They were playing hide and seek, Sir. Q What time did you eat your lunch? A I took my lunch at 11:00 o'clock a.m., Sir. Q Will you tell us what was the nature of your father's work at that time you were allegedly raped? A He is jobless, Sir. Q Who is the one providing for your subsistence? A My mother, Sir. Q From where does your mother get your subsistence?

A She is doing some laundry works and works in the farm, Sir. Q If your story is correct that you were allegedly raped, will you tell us what happened to your vagina after the alleged rape? A My vagina became painful, Sir. Q Was there blood that oozed in your vagina? A I do not know if there was blood, what I could feel was the pain, Sir. Q After the alleged intercourse, did you wear your panty? A Yes, Sir. Q After the rape, what time did your mother arrive in your home? A My mother arrived at about 4:00 o'clock in the afternoon, Sir. Q Since you were still a child, if your story is correct, why did you not tell your mother that you were allegedly raped at 2:00 o'clock in the afternoon? A I did not tell my mother because he threatened me, Sir. Q Were you threatened before, during, or after the rape? A Before I was raped, Sir. Q And you were silent after the rape, he did not threaten you anymore? A Yes, Sir, he threatened me again after he committed the rape. Q Would you tell us the exact words, what did your father tell you? A He told me that if you will tell anybody, I am going to kill all of you, Sir. Q Was there any occasion on the part of your mother and you that you were alone without the presence of your father, after the rape? A There was none, Sir. Q You mean your father was always in your house? A There are times that he stays outside the house, he is jobless, he hangs around, Sir. Q After you were allegedly raped, did you have any occasion in the evening to talk to your mother immediately after this alleged rape? A There are, but then I could not tell my mother, because I was afraid of my father, Sir.

Q But there was an occasion that you were together with your mother and you could have told her what happened to you, is that correct? A Yes, there were occasions and opportunities that I could tell my mother, but I could not because of the threat of my father, Sir. Q Was there any occasion that actually happened after that threat when you were harmed by your father? A Yes, Sir. Q When was that? A Right after that evening, I did not do anything wrong, he just punished us, because he is not tempered, Sir. Q Your father is not insane, he will not do anything to you without any reason? A Yes, because every time he has no money, he becomes ill tempered, because he wanted to gamble, Sir. Q You are a young child then, is it not a fact that as a loving father he tried to discipline you, because of your mischievous acts? A We do not considered that a discipline, although we feel we did not do anything wrong, he keeps on punishing us, because he is ill tempered, Sir. Q Where was your mother when your father is trying to harm you? A She is at work, Sir. Q You mean he tried to harm you when your mother is out? A When my mother is around, he punishes us every time we did something wrong, but then he does that too when my mother is not around, Sir. Q Do you tell that to your mother that your father punished you without any reason? A Yes, Sir. Q Will you tell us the date, the first you were abused by your father in the year 1992? A I could no longer remember the date, Sir. Q But you can recall the fifteen (15) times? A Yes, Sir. Q What is important to you is the fifteen (15) times, but the first rape is not important to you?

A Yes, Sir. Q You said you were last raped on February 16, 1998, is that correct? A No, Sir, December 16, 1998. February 16 was when we reported to the police. Q This last incident, did you tell your mother about this? A Yes, Sir. Q And what did your mother say? A My mother told us that we report the matter, but we told her that we could not manage to do it, Sir. Q How were you raped on December 6, 1998? A He used his finger, Sir. Q Was there any nail in the finger? A Yes, Sir. Q And how did you feel when your father used his finger? A It is painful, Sir. Q What he used is finger only? A Yes, Sir. Q Could it be possible that there was inside your vagina and your father is trying to remove it? A There is none, Sir.44 (Underscoring supplied) The trial court observed that AAA's and BBB's testimonies bear the hallmarks of truth. Their testimonies are "spontaneous, convincing and highly-credible."45 We find no cogent reason not to apply here the oft-repeated rule that the matter of assigning values to the declaration of witnesses on the stand is a matter best left to the discretion of the trial court. The trial court has the advantage of observing the witnesses through the different indicators of truthfulness or falsehood, such as the angry flush of an insisted assertion or the sudden pallor of a discovered lie or the tremulous mutter of a reluctant answer or the forthright tone of a ready reply; or the furtive glance, the blush of conscious shame, the hesitation, the sincere or the flippant or sneering tone, the heat, the calmness, the yawn, the sigh, the candor or lack of it, the scant or full realization of the solemnity of an oath, the carriage and mien.46 This doctrine assumes greater significance when the determination of the trial court on the credibility of a witness has been affirmed by the appellate court.47 The Court has consistently ruled that no young girl would concoct a sordid tale of defloration at the hands of her own father, undergo medical examination, then subject herself to the stigma and

embarrassment of a public trial, if her motive were other than a fervent desire to seek justice.48 A rape victim's testimony against her parent is entitled to great weight since Filipino children have a natural reverence and respect for their elders. These values are so deeply ingrained in Filipino families, and it is unthinkable for a daughter to brazenly concoct a story of rape if such were not true.49 Certainly, a rape victim or any other member of her family would not dare to publicly expose the dishonor of the family, more specifically, if such accusation is against a fellow member of the family, unless the crime was, in fact, committed.50 We sustain the trial court and the CA's rejection of appellant's defense founded on denial and alibi. Denial and alibi, being weak defenses, cannot overcome the positive testimonies of the offended parties and their witnesses. As this Court has reiterated often enough, denial and alibi cannot prevail over positive identification of the accused by the prosecution witnesses.51 The positive, consistent and straightforward testimonies of the victims and the other witnesses for the People sufficiently established appellant's culpability. In order to merit credibility, alibi must be buttressed by strong evidence of non-culpability. Verily, for the said defense to prosper, accused must prove not only that he was at some other place at the time of the commission of the crime, but also that it was physically impossible for him to be at the locus criminis or its immediate vicinity.52Appellant dismally failed to discharge this onus. The trial court and the CA, however, both blundered in convicting appellant of multiple rape of AAA and BBB, from January 1990 to December 1998 and from January 1992 up to December 6, 1998, respectively. The RTC and the CA convicted appellant of multiple rapes under two separate informations, Criminal Cases Nos. 2638 and 2650. However, both the trial and appellate courts erroneously sentenced him to a single death penalty for each information. We find that appellant is guilty of two qualified rapes, instead of multiple rapes under Criminal Case No. 2650, and only one qualified rape, not multiple, under Criminal Case No. 2638. The legal basis for conviction for as many offenses as are charged and proved is Section 3, Rule 120 of the 2000 Rules of Criminal Procedure.53 It is axiomatic that each and every charge of rape is a separate and distinct crime. Verily, each of the alleged incidents of rape charged should be proven beyond reasonable doubt.54 In People v. Matugas,55 the Court aptly ruled: This Court cannot thus sustain the conviction of accused-appellant for 29 counts of rape because only two incidents were sufficiently proven by the prosecution. While we do not doubt that she was raped on other dates, we cannot ascertain the exact number of times she was actually raped. It must be remembered that each and every charge of rape is a separate and distinct crime so that each of the 27 other alleged incidents of rape charged should be proven beyond reasonable doubt. If, as complainant claimed, the number could be more, the possibility that it could be much less than 27 cannot be discounted.56 In People v. De la Torre,57 the Court held that: Each and every charge of rape is a separate and distinct crime; hence, each of the eight other rape charges should be proven beyond reasonable doubt. The prosecution is required to establish, by the necessary quantum of proof, the elements of rape for each charge. Baby Jane's testimony on the first rape charge was explicit, detailing the participation of each appellant in the offense and clearly illustrating all the elements of the offense of rape.

However her simple assertion that the subsequent rapes occurred in exactly the same manner as in previous incidents is clearly inadequate and grossly insufficient to establish to a degree of moral certainty the guilt of the appellants insofar as the eight rape charges are concerned. Her testimony was too general as it failed to focus on material details as to how each of the subsequent acts was committed. Even her testimony on cross-examination did not add anything to support her accusations of subsequent rape. Thus, only the rape alleged to have been committed on September 1992 was proven beyond reasonable doubt and the appellants may be penalized only for this offense.58 In the case under review, the evidence bear out that what were proved by the People beyond reasonable doubt in Criminal Case No. 2650 were the rapes committed by appellant on AAA sometime in 1990 and then again on March 25, 1996. AAA was categorical that she was first raped by appellant sometime in 1990. Her account of the first rape was vivid, candid and straightforward. She further disclosed that appellant repeatedly abused her. However, when asked by the court to clarify her claim that the sexual abuses were repeated, AAA failed to supply the details. But she was able to recount the last incident of rape on March 25, 1996. According to her, that day was of significance to her since she graduated from primary school on that day.59 Applying De la Torre, We hold that AAA's assertion that the subsequent rapes occurred in exactly the same manner as in previous incidents is clearly inadequate and grossly insufficient to establish to a degree of moral certainty the guilt of appellant insofar as the other rape incidents are concerned. Her testimony was too general as it failed to focus on material details as to how each of the subsequent acts was committed. In fine, appellant should have been convicted, in Criminal Case No. 2650, only of the qualified rape of AAA sometime in 1990 and then again on March 25, 1996. With respect to private complainant BBB in Criminal Case No. 2638, what is extant from the records is that appellant succeeded in raping her in January 1992. BBB, like AAA, failed to give an account of the alleged rape subsequent to January 1992 when she testified in the court below.60 As with AAA, We hold that BBB's account of the rapes subsequent to January 1992 but before December 6, 1998 is too general and unconvincing. Likewise borne by the records is the insertion of appellant's finger into BBB's vagina on December 6, 1998. BBB testified that appellant raped her for the last time on December 6, 1998. When asked by the court to clarify what she meant, BBB disclosed that appellant inserted his finger into her vagina.61 What appellant did was rape by sexual assault, punishable under Article 266-A, paragraph 2 of the Revised Penal Code, as amended by Republic Act (R.A.) No. 8353. The said law provides: Art. 266-A. Rape; when and how committed. – Rape is committed – 1) By a man who shall have carnal knowledge of a woman under any of the following circumstances: a) Through force, threat or intimidation; b) When the offended party is deprived of reason or otherwise unconscious; c) By means of fraudulent machination or grave abuse of authority; and d) When the offended party is under twelve (12) years of age or is demented, even though none of the circumstances mentioned above be present.

2) By any person who, under any of the circumstances mentioned in paragraph 1 hereof, shall commit an act of sexual assault by inserting his penis into another person's mouth or anal orifice, or any instrument or object, into the genital or anal orifice of another person.62 (Underscoring supplied) Rape by sexual assault was introduced into our penal system via the amendatory Anti-Rape Law of 1997 (R.A. No. 8353), which took effect on October 22, 1997. With these amendments, rape was reclassified as a crime against person and not merely a crime against chastity.63 Considering that the law was already in force at the time of the insertion of appellant's finger into BBB's vagina on December 6, 1998, he should have been prosecuted and tried for rape by sexual assault and not under the traditional definition of rape. The People, however, failed in this regard. That is fatal. Sections 8 and 9 of the 2000 Rules of Criminal Procedure state: Sec. 8. Designation of the offense. – The complaint or information shall state the designation of the offense given by the statute, aver the acts or omissions constituting the offense, and specify its qualifying and aggravating circumstances. If there is no designation of the offense, reference shall be made to the section or subsection of the statute punishing it. Sec. 9. Cause of the accusation. – The acts or omissions complained of as constituting the offense and the qualifying and aggravating circumstances must be stated in ordinary and concise language and not necessarily in the language used in the statute but in terms sufficient to enable a person of common understanding to know what offense is being charged as well as its qualifying and aggravating circumstances for the court to pronounce judgment. Under the new rules, the information or complaint must state the designation of the offense given by the statute and specify its qualifying and generic aggravating circumstances. Otherwise stated, the accused will not be convicted for the offense proved during the trial if it was not properly alleged in the information. Although the rule took effect on December 1, 2000, the same may be applied retroactively because it is a cardinal rule that rules of criminal procedure are given retroactive application insofar as they benefit the accused.64 In sum, in Criminal Case No. 2638, appellant should have been convicted only of the qualified rape of BBB in January 1992. The rape by sexual assault committed on December 6, 1998, although proven, should not have been considered by the trial and appellate courts for lack of a proper allegation in the information. We go now to the penalty and the award of damages. Appellant is liable for the rape of AAA sometime in 1990 and on March 25, 1996. He is also guilty of raping BBB in January 1992. At that time, the law penalizing rape was still Article 335 of the Revised Penal Code, as amended by R.A. No. 7659. The said law provides: Art. 335. When and how rape is committed. xxxx

The death penalty shall also be imposed if the crime of rape is committed with any of the following attendant circumstances: 1. When the victim is under eighteen (18) years of age and the offender is a parent, ascendant, step-parent, guardian, relative by consanguinity or affinity within the third civil degree, or the common-law spouse of the parent of the victim. In view of the passage of R.A. No. 9346 entitled, "An Act Prohibiting the Imposition of Death Penalty in the Philippines," the death penalty should be downgraded. Pursuant to Section 2 of the said law, the penalty to be meted out to appellant shall be reclusion perpetua. Said section reads: Section 2. In lieu of the death penalty, the following shall be imposed: (a) the penalty of reclusion perpetua, when the law violated makes use of the nomenclature of the penalties of the Revised Penal Code; or (b) the penalty of life imprisonment, when the law violated does not make use of the nomenclature of the penalties of the Revised Penal Code. Notwithstanding the reduction of the penalty imposed on appellant, he is not eligible for parole following Section 3 of the said law, which provides: Section 3. Persons convicted of offenses punished with reclusion perpetua, or whose sentences will be reduced to reclusion perpetua, by reason of this Act, shall not be eligible for parole under Act No. 4103, otherwise known as the Indeterminate Sentence Law, as amended. With regard to the award of damages, the same must be modified. The CA correctly increased the amount of indemnity from P50,000.00 to P75,000.00 each for AAA and BBB. Civil indemnity of P75,000.00 is warranted if the crime is qualified by circumstances which warrant the imposition of the death penalty.65 The award of additionalP25,000.00 each by way of exemplary damages deserves affirmance due to the presence of the qualifying circumstances of minority and relationship.66 However, the CA erred in affirming the RTC award of moral damages of P50,000.00 which should be increased toP75,000.00 without need of pleading or proof of basis.67 WHEREFORE, the appealed judgment is AFFIRMED WITH MODIFICATION, as follows: (1) In Criminal Case No. 2650, appellant Jerry Nazareno is hereby found GUILTY of two counts of qualified rape and is sentenced to reclusion perpetua for each felony, without eligibility for parole. He is further ordered to indemnify the victim in the amount of P75,000.00, another P75,000.00 in moral damages and P25,000.00 in exemplary damages, for each count. (2) In Criminal Case No. 2638, appellant is found GUILTY of one count of qualified rape and is sentenced toreclusion perpetua without eligibility for parole. He is likewise ordered to pay the complainant P75,000.00 as civil indemnity, P75,000.00 as moral damages and P25,000.00 as exemplary damages. SO ORDERED.

Puno, C.J., Quisumbing, Ynares-Santiago, Carpio, Austria-Martinez, Corona, Carpio-Morales, Azcuna, Tinga, Chico-Nazario, Velasco, Jr., Nachura, Leonardo-de Castro, Brion, JJ., concur. Republic of the Philippines SUPREME COURT SECOND DIVISION G.R. No. 139736 October 17, 2005 BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. DECISION CHICO-NAZARIO, J.: This Petition for Review on Certiorari, under Rule 45 of the 1997 Rules of Civil Procedure, assails the Decision of the Court of Appeals in CA-G.R. SP No. 51271, dated 11 August 1999,1 which reversed and set aside the Decision of the Court of Tax Appeals (CTA), dated 02 February 1999,2 and which reinstated Assessment No. FAS-5-85-89-002054 requiring petitioner Bank of the Philippine Islands (BPI) to pay the amount of P28,020.00 as deficiency documentary stamp tax (DST) for the taxable year 1985, inclusive of the compromise penalty. There is hardly any controversy as to the factual antecedents of this Petition. Petitioner BPI is a commercial banking corporation organized and existing under the laws of the Philippines. On two separate occasions, particularly on 06 June 1985 and 14 June 1985, it sold United States (US) $500,000.00 to the Central Bank of the Philippines (Central Bank), for the total sales amount of US$1,000,000.00. On 10 October 1989, the Bureau of Internal Revenue (BIR) issued Assessment No. FAS-5-85-89002054,3 finding petitioner BPI liable for deficiency DST on its afore-mentioned sales of foreign bills of exchange to the Central Bank, computed as follows – 1985 Deficiency Documentary Stamp Tax Foreign Bills of Exchange………………………….. P 18,480,000.00 Tax Due Thereon: P18,480,000.00 x P0.30 (Sec. 182 NIRC). P200.00 Add: Suggested compromise penalty………….…… TOTAL AMOUNT DUE AND COLLECTIBLE….

27,720.00

300.00 P 28,020.00

Petitioner BPI received the Assessment, together with the attached Assessment Notice,4 on 20 October 1989.

Petitioner BPI, through its counsel, protested the Assessment in a letter dated 16 November 1989, and filed with the BIR on 17 November 1989. The said protest letter is reproduced in full below – November 16, 1989 The Commissioner of Internal Revenue Quezon City Attention of: Mr. Pedro C. Aguillon Asst. Commissioner for Collection Sir: On behalf of our client, Bank of the Philippine Islands (BPI), we have the honor to protest your assessment against it for deficiency documentary stamp tax for the year 1985 in the amount of P28,020.00, arising from its sale to the Central Bank of U.S. $500,000.00 on June 6, 1985 and another U.S. $500,000.00 on June 14, 1985. 1. Under established market practice, the documentary stamp tax on telegraphic transfers or sales of foreign exchange is paid by the buyer. Thus, when BPI sells to any party, the cost of documentary stamp tax is added to the total price or charge to the buyer and the seller affixes the corresponding documentary stamp on the document. Similarly, when the Central Bank sells foreign exchange to BPI, it charges BPI for the cost of the documentary stamp on the transaction. 2. In the two transactions subject of your assessment, no documentary stamps were affixed because the buyer, Central Bank of the Philippines, was exempt from such tax. And while it is true that under P.D. 1994, a proviso was added to sec. 222 (now sec. 186) of the Tax Code "that whenever one party to a taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax," this proviso (and the other amendments of P.D. 1994) took effect only on January 1, 1986, according to sec. 49 of P.D. 1994. Hence, the liability for the documentary stamp tax could not be shifted to the seller. In view of the foregoing, we request that the assessment be revoked and cancelled. Very truly yours, PADILLA LAW OFFICE By: (signed) SABINO PADILLA, JR.5 Petitioner BPI did not receive any immediate reply to its protest letter. However, on 15 October 1992, the BIR issued a Warrant of Distraint and/or Levy6 against petitioner BPI for the assessed deficiency DST for taxable year 1985, in the amount of P27,720.00 (excluding the compromise penalty of P300.00). It served the Warrant on petitioner BPI only on 23 October 1992.7

Then again, petitioner BPI did not hear from the BIR until 11 September 1997, when its counsel received a letter, dated 13 August 1997, signed by then BIR Commissioner Liwayway VinzonsChato, denying its "request for reconsideration," and addressing the points raised by petitioner BPI in its protest letter, dated 16 November 1989, thus – In reply, please be informed that after a thorough and careful study of the facts of the case as well as the law and jurisprudence pertinent thereto, this Office finds the above argument to be legally untenable. It is admitted that while industry practice or market convention has the force of law between the members of a particular industry, it is not binding with the BIR since it is not a party thereto. The same should, therefore, not be allowed to prejudice the Bureau of its lawful task of collecting revenues necessary to defray the expenses of the government. (Art. 11 in relation to Art. 1306 of the New Civil Code.) Moreover, let it be stated that even before the amendment of Sec. 222 (now Sec. 173) of the Tax Code, as amended, the same was already interpreted to hold that the other party who is not exempt from the payment of documentary stamp tax liable from the tax. This interpretation was further strengthened by the following BIR Rulings which in substance state: 1. BIR Unnumbered Ruling dated May 30, 1977 – "x x x Documentary stamp taxes are payable by either person, signing, issuing, accepting, or transferring the instrument, document or paper. It is now settled that where one party to the instrument is exempt from said taxes, the other party who is not exempt should be liable." 2. BIR Ruling No. 144-84 dated September 3, 1984 – "x x x Thus, where one party to the contract is exempt from said tax, the other party, who is not exempt, shall be liable therefore. Accordingly, since A.J.L. Construction Corporation, the other party to the contract and the one assuming the payment of the expenses incidental to the registration in the vendee’s name of the property sold, is not exempt from said tax, then it is the one liable therefore, pursuant to Sec. 245 (now Sec. 196), in relation to Sec. 222 (now Sec. 173), both of the Tax Code of 1977, as amended." Premised on all the foregoing considerations, your request for reconsideration is hereby DENIED.8 Upon receipt of the above-cited letter from the BIR, petitioner BPI proceeded to file a Petition for Review with the CTA on 10 October 1997;9 to which respondent BIR Commissioner, represented by the Office of the Solicitor General, filed an Answer on 08 December 1997.10 Petitioner BPI raised in its Petition for Review before the CTA, in addition to the arguments presented in its protest letter, dated 16 November 1989, the defense of prescription of the right of respondent BIR Commissioner to enforce collection of the assessed amount. It alleged that respondent BIR Commissioner only had three years to collect on Assessment No. FAS-5-85-89002054, but she waited for seven years and nine months to deny the protest. In her Answer and subsequent Memorandum, respondent BIR Commissioner merely reiterated her position, as stated in her letter to petitioner BPI, dated 13 August 1997, which denied the latter’s protest; and remained silent as to the expiration of the prescriptive period for collection of the assessed deficiency DST. After due trial, the CTA rendered a Decision on 02 February 1999, in which it identified two primary issues in the controversy between petitioner BPI and respondent BIR Commissioner: (1) whether or not the right of respondent BIR Commissioner to collect from petitioner BPI the alleged deficiency

DST for taxable year 1985 had prescribed; and (2) whether or not the sales of US$1,000,000.00 on 06 June 1985 and 14 June 1985 by petitioner BPI to the Central Bank were subject to DST. The CTA answered the first issue in the negative and held that the statute of limitations for respondent BIR Commissioner to collect on the Assessment had not yet prescribed. In resolving the issue of prescription, the CTA reasoned that – In the case of Commissioner of Internal Revenue vs. Wyeth Suaco Laboratories, Inc., G.R. No. 76281, September 30, 1991, 202 SCRA 125, the Supreme Court laid to rest the first issue. It categorically ruled that a "protest" is to be treated as request for reinvestigation or reconsideration and a mere request for reexamination or reinvestigation tolls the prescriptive period of the Commissioner to collect on an assessment. . . ... In the case at bar, there being no dispute that petitioner filed its protest on the subject assessment on November 17, 1989, there can be no conclusion other than that said protest stopped the running of the prescriptive period of the Commissioner to collect. Section 320 (now 223) of the Tax Code, clearly states that a request for reinvestigation which is granted by the Commissioner, shall suspend the prescriptive period to collect. The underscored portion above does not mean that the Commissioner will cancel the subject assessment but should be construed as when the same was entertained by the Commissioner by not issuing any warrant of distraint or levy on the properties of the taxpayer or any action prejudicial to the latter unless and until the request for reinvestigation is finally given due course. Taking into consideration this provision of law and the aforementioned ruling of the Supreme Court in Wyeth Suaco which specifically and categorically states that a protest could be considered as a request for reinvestigation, We rule that prescription has not set in against the government.11 The CTA had likewise resolved the second issue in the negative. Referring to its own decision in an earlier case,Consolidated Bank & Trust Co. v. The Commissioner of Internal Revenue,12 the CTA reached the conclusion that the sales of foreign currency by petitioner BPI to the Central Bank in taxable year 1985 were not subject to DST – From the abovementioned decision of this Court, it can be gleaned that the Central Bank, during the period June 11, 1984 to March 9, 1987 enjoyed tax exemption privilege, including the payment of documentary stamp tax (DST) pursuant to Resolution No. 35-85 dated May 3, 1985 of the Fiscal Incentive Review Board. As such, the Central Bank, as buyer of the foreign currency, is exempt from paying the documentary stamp tax for the period above-mentioned. This Court further expounded that said tax exemption of the Central Bank was modified beginning January 1, 1986 when Presidential Decree (P.D.) 1994 took effect. Under this decree, the liability for DST on sales of foreign currency to the Central Bank is shifted to the seller. Applying the above decision to the case at bar, petitioner cannot be held liable for DST on its 1985 sales of foreign currencies to the Central Bank, as the latter who is the purchaser of the subject currencies is the one liable thereof. However, since the Central Bank is exempt from all taxes during 1985 by virtue of Resolution No. 35-85 of the Fiscal Incentive Review Board dated March 3, 1985, neither the petitioner nor the Central Bank is liable for the payment of the documentary stamp tax for the former’s 1985 sales of foreign currencies to the latter. This aforecited case of Consolidated Bank vs. Commissioner of Internal Revenue was affirmed by the Court of Appeals in its decision dated March 31, 1995, CA-GR Sp. No. 35930. Said decision was in turn affirmed by the Supreme Court in

its resolution denying the petition filed by Consolidated Bank dated November 20, 1995 with the Supreme Court under Entry of Judgment dated March 1, 1996.13 In sum, the CTA decided that the statute of limitations for respondent BIR Commissioner to collect on Assessment No. FAS-5-85-89-002054 had not yet prescribed; nonetheless, it still ordered the cancellation of the said Assessment because the sales of foreign currency by petitioner BPI to the Central Bank in taxable year 1985 were tax-exempt. Herein respondent BIR Commissioner appealed the Decision of the CTA to the Court of Appeals. In its Decision dated 11 August 1999,14 the Court of Appeals sustained the finding of the CTA on the first issue, that the running of the prescriptive period for collection on Assessment No. FAS-5-85-89002054 was suspended when herein petitioner BPI filed a protest on 17 November 1989 and, therefore, the prescriptive period for collection on the Assessment had not yet lapsed. In the same Decision, however, the Court of Appeals reversed the CTA on the second issue and basically adopted the position of the respondent BIR Commissioner that the sales of foreign currency by petitioner BPI to the Central Bank in taxable year 1985 were subject to DST. The Court of Appeals, thus, ordered the reinstatement of Assessment No. FAS-5-85-89-002054 which required petitioner BPI to pay the amount of P28,020.00 as deficiency DST for taxable year 1985, inclusive of the compromise penalty. Comes now petitioner BPI before this Court in this Petition for Review on Certiorari, seeking resolution of the same two legal issues raised and discussed in the courts below, to reiterate: (1) whether or not the right of respondent BIR Commissioner to collect from petitioner BPI the alleged deficiency DST for taxable year 1985 had prescribed; and (2) whether or not the sales of US$1,000,000.00 on 06 June 1985 and 14 June 1985 by petitioner BPI to the Central Bank were subject to DST. I The efforts of respondent Commissioner to collect on Assessment No. FAS-5-85-89-002054 were already barred by prescription. Anent the question of prescription, this Court disagrees in the Decisions of the CTA and the Court of Appeals, and herein determines the statute of limitations on collection of the deficiency DST in Assessment No. FAS-5-85-89-002054 had already prescribed. The period for the BIR to assess and collect an internal revenue tax is limited to three years by Section 203 of the Tax Code of 1977, as amended,15 which provides that – SEC. 203. 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: 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.16 The three-year period of limitations on the assessment and collection of national internal revenue taxes set by Section 203 of the Tax Code of 1977, as amended, can be affected, adjusted, or suspended, in accordance with the following provisions of the same Code –

SEC. 223. – Exceptions as to period of limitation of assessment and collection of taxes. – (a) In the case of a false or fraudulent return with 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 begun without assessment, at any time within ten years after the discovery of the falsity, fraud, or omission: Provided, That in a fraud assessment which has become final and 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 the preceding section 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 aboveprescribed may be collected by distraint or levy or by a proceeding in court within three 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 three-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 returns filed in accordance with the provisions of any tax amnesty law or decree.17 SEC. 224. Suspension of running of statute. – The running of the statute of limitation provided in Section[s] 203 and 223 on the making of assessment and the beginning of 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: Provided,That, if the taxpayer informs the Commissioner of any change in address, the running of the statute of limitations will not be suspended; when the warrant of distraint 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.18 As enunciated in these statutory provisions, the BIR has three years, counted from the date of actual filing of the return or from the last date prescribed by law for the filing of such return, whichever comes later, to assess a national internal revenue tax or to begin a court proceeding for the collection thereof without an assessment. In case of a false or fraudulent return with intent to evade tax or the failure to file any return at all, the prescriptive period for assessment of the tax due shall be 10 years from discovery by the BIR of the falsity, fraud, or omission. When the BIR validly issues an assessment, within either the three-year or ten-year period, whichever is appropriate, then the BIR has another three years19 after the assessment within which to collect the national internal revenue tax due thereon by distraint, levy, and/or court proceeding. The assessment of the tax is deemed made and the three-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent by the BIR to the taxpayer.20

In the present Petition, there is no controversy on the timeliness of the issuance of the Assessment, only on the prescription of the period to collect the deficiency DST following its Assessment. While Assessment No. FAS-5-85-89-002054 and its corresponding Assessment Notice were both dated 10 October 1989 and were received by petitioner BPI on 20 October 1989, there was no showing as to when the said Assessment and Assessment Notice were released, mailed or sent by the BIR. Still, it can be granted that the latest date the BIR could have released, mailed or sent the Assessment and Assessment Notice to petitioner BPI was on the same date they were received by the latter, on 20 October 1989. Counting the three-year prescriptive period, for a total of 1,095 days,21 from 20 October 1989, then the BIR only had until 19 October 1992 within which to collect the assessed deficiency DST. The earliest attempt of the BIR to collect on Assessment No. FAS-5-85-89-002054 was its issuance and service of a Warrant of Distraint and/or Levy on petitioner BPI. Although the Warrant was issued on 15 October 1992, previous to the expiration of the period for collection on 19 October 1992, the same was served on petitioner BPI only on 23 October 1992. Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the Warrant of Distraint and/or Levy be fully executed so that it can suspend the running of the statute of limitations on the collection of the tax. It is enough that the proceedings have validly began or commenced and that their execution has not been suspended by reason of the voluntary desistance of the respondent BIR Commissioner. Existing jurisprudence establishes that distraint and levy proceedings are validly begun or commenced by the issuance of the Warrantand service thereof on the taxpayer.22 It is only logical to require that the Warrant of Distraint and/or Levy be, at the very least, served upon the taxpayer in order to suspend the running of the prescriptive period for collection of an assessed tax, because it may only be upon the service of the Warrant that the taxpayer is informed of the denial by the BIR of any pending protest of the said taxpayer, and the resolute intention of the BIR to collect the tax assessed. If the service of the Warrant of Distraint and/or Levy on petitioner BPI on 23 October 1992 was already beyond the prescriptive period for collection of the deficiency DST, which had expired on 19 October 1992, then what more the letter of respondent BIR Commissioner, dated 13 August 1997 and received by the counsel of the petitioner BPI only on 11 September 1997, denying the protest of petitioner BPI and requesting payment of the deficiency DST? Even later and more unequivocally barred by prescription on collection was the demand made by respondent BIR Commissioner for payment of the deficiency DST in her Answer to the Petition for Review of petitioner BPI before the CTA, filed on 08 December 1997.23 II There is no valid ground for the suspension of the running of the prescriptive period for collection of the assessed DST under the Tax Code of 1977, as amended. In their Decisions, both the CTA and the Court of Appeals found that the filing by petitioner BPI of a protest letter suspended the running of the prescriptive period for collecting the assessed DST. This Court, however, takes the opposing view, and, based on the succeeding discussion, concludes that there is no valid ground for suspending the running of the prescriptive period for collection of the deficiency DST assessed against petitioner BPI. A. The statute of limitations on assessment and collection of taxes is for the protection of the taxpayer and, thus, shall be construed liberally in his favor.

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.24 As aptly explained in Republic of the Philippines v. Ablaza25 – 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 a legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law. In order to provide even better protection to the taxpayer against unreasonable investigation, the Tax Code of 1977, as amended, identifies specifically in Sections 223 and 22426 thereof the circumstances when the prescriptive periods for assessing and collecting taxes could be suspended or interrupted. To give effect to the legislative intent, these provisions on the statute of limitations on assessment and collection of taxes shall be construed and applied liberally in favor of the taxpayer and strictly against the Government. B. The statute of limitations on assessment and collection of national internal revenue taxes may be waived, subject to certain conditions, under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, respectively. Petitioner BPI, however, did not execute any such waiver in the case at bar. According to paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, the prescriptive periods for assessment and collection of national internal revenue taxes, respectively, could be waived by agreement, to wit – SEC. 223. – Exceptions as to period of limitation of assessment and collection of taxes. – ... (b) If before the expiration of the time prescribed in the preceding section 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. ... (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 three-year period. The period so

agreed upon may be extended by subsequent written agreements made before the expiration of the period previously agreed upon.27 The agreements so described in the afore-quoted provisions are often referred to as waivers of the statute of limitations. The waiver of the statute of limitations, whether on assessment or collection, should not be construed as a waiver of the right to invoke the defense of prescription but, rather, an agreement between the taxpayer and the BIR to extend the period to a date certain, within which the latter could still assess or collect taxes due. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally.28 A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, must be: (1) in writing; (2) agreed to by both the Commissioner and the taxpayer; (3) before the expiration of the ordinary prescriptive periods for assessment and collection; and (4) for a definite period beyond the ordinary prescriptive periods for assessment and collection. The period agreed upon can still be extended by subsequent written agreement, provided that it is executed prior to the expiration of the first period agreed upon. The BIR had issued Revenue Memorandum Order (RMO) No. 20-90 on 04 April 1990 to lay down an even more detailed procedure for the proper execution of such a waiver. RMO No. 20-90 mandates that the procedure for execution of the waiver shall be strictly followed, and any revenue official who fails to comply therewith resulting in the prescription of the right to assess and collect shall be administratively dealt with. This Court had consistently ruled in a number of cases that a request for reconsideration or reinvestigation by the taxpayer, without a valid waiver of the prescriptive periods for the assessment and collection of tax, as required by the Tax Code and implementing rules, will not suspend the running thereof.29 In the Petition at bar, petitioner BPI executed no such waiver of the statute of limitations on the collection of the deficiency DST per Assessment No. FAS-5-85-89-002054. In fact, an internal memorandum of the Chief of the Legislative, Ruling & Research Division of the BIR to her counterpart in the Collection Enforcement Division, dated 15 October 1992, expressly noted that, "The taxpayer fails to execute a Waiver of the Statute of Limitations extending the period of collection of the said tax up to December 31, 1993 pending reconsideration of its protest. . ."30 Without a valid waiver, the statute of limitations on collection by the BIR of the deficiency DST could not have been suspended under paragraph (d) of Section 223 of the Tax Code of 1977, as amended. C. The protest filed by petitioner BPI did not constitute a request for reinvestigation, granted by the respondent BIR Commissioner, which could have suspended the running of the statute of limitations on collection of the assessed deficiency DST under Section 224 of the Tax Code of 1977, as amended. The Tax Code of 1977, as amended, also recognizes 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 224 thereof, which reads – SEC. 224. Suspension of running of statute. – The running of the statute of limitation provided in Section[s] 203 and 223 on the making of assessment and the beginning of 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: Provided,That, if the taxpayer informs the Commissioner of any change in address, the running of the statute of limitations will not be suspended; when the warrant of distraint 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.31 Of particular importance to the present case is one of the circumstances enumerated in Section 224 of the Tax Code of 1977, as amended, wherein the running of the statute of limitations on assessment and collection of taxes is considered suspended "when the taxpayer requests for a reinvestigation which is granted by the Commissioner." This Court gives credence to the argument of petitioner BPI that there is a distinction between a request for reconsideration and a request for reinvestigation. Revenue Regulations (RR) No. 12-85, issued on 27 November 1985 by the Secretary of Finance, upon the recommendation of the BIR Commissioner, governs the procedure for protesting an assessment and distinguishes between the two types of protest, as follows – PROTEST TO ASSESSMENT SEC. 6. Protest. The taxpayer may protest administratively an assessment by filing a written request for reconsideration or reinvestigation. . . ... For the purpose of the 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 re-evaluation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation. It may also involve a question of fact or law or both. With the issuance of RR No. 12-85 on 27 November 1985 providing the above-quoted distinctions between a request for reconsideration and a request for reinvestigation, the two types of protest can no longer be used interchangeably and their differences so lightly brushed aside. It bears to emphasize that under Section 224 of the Tax Code of 1977, as amended, the running of the prescriptive period for collection of taxes can only be suspended by a request for reinvestigation, not a request for reconsideration. 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 the running of the statute of limitations on collection of the assessed tax, while the latter can not. The protest letter of petitioner BPI, dated 16 November 1989 and filed with the BIR the next day, on 17 November 1989, did not specifically request for either a reconsideration or reinvestigation. A close review of the contents thereof would reveal, however, that it protested Assessment No. FAS-585-89-002054 based on a question of law, in particular, whether or not petitioner BPI was liable for DST on its sales of foreign currency to the Central Bank in taxable year 1985. The same protest letter did not raise any question of fact; neither did it offer to present any new evidence. In its own letter to petitioner BPI, dated 10 September 1992, the BIR itself referred to the protest of petitioner

BPI as a request for reconsideration.32 These considerations would lead this Court to deduce that the protest letter of petitioner BPI was in the nature of a request for reconsideration, rather than a request for reinvestigation and, consequently, Section 224 of the Tax Code of 1977, as amended, on the suspension of the running of the statute of limitations should not apply. Even if, for the sake of argument, this Court glosses over the distinction between a request for reconsideration and a request for reinvestigation, and considers the protest of petitioner BPI as a request for reinvestigation, the filing thereof could not have suspended at once the running of the statute of limitations. Article 224 of the Tax Code of 1977, as amended, very plainly requires that the request for reinvestigation had been granted by the BIR Commissioner to suspend the running of the prescriptive periods for assessment and collection. That the BIR Commissioner must first grant the request for reinvestigation as a requirement for suspension of the statute of limitations is even supported by existing jurisprudence. In the case of Republic of the Philippines v. Gancayco,33 taxpayer Gancayco requested for a thorough reinvestigation of the assessment against him and placed at the disposal of the Collector of Internal Revenue all the evidences he had for such purpose; yet, the Collector ignored the request, and the records and documents were not at all examined. Considering the given facts, this Court pronounced that – . . .The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in order to effect suspension. (Collector vs. Suyoc Consolidated, supra; also Republic vs. Ablaza, supra). Moreover, the Collector gave appellee until April 1, 1949, within which to submit his evidence, which the latter did one day before. There were no impediments on the part of the Collector to file the collection case from April 1, 1949. . . .34 In Republic of the Philippines v. Acebedo,35 this Court similarly found that – . . . [T]he 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. Consequently, the request for reinvestigation did not suspend the running of the period for filing an action for collection. The burden of proof that the taxpayer’s request for reinvestigation had been actually granted shall be on respondent BIR Commissioner. The grant may be expressed in communications with the taxpayer or implied from the actions of the respondent BIR Commissioner or his authorized BIR representatives in response to the request for reinvestigation. In Querol v. Collector of Internal Revenue,36 the BIR, after receiving the protest letters of taxpayer Querol, sent a tax examiner to San Fernando, Pampanga, to conduct the reinvestigation; as a result of which, the original assessment against taxpayer Querol was revised by permitting him to deduct reasonable depreciation. In another case, Republic of the Philippines v. Lopez,37 taxpayer Lopez filed a total of four petitions for reconsideration and reinvestigation. The first petition was denied by the BIR. The second and third petitions were granted by the BIR and after each reinvestigation, the assessed amount was reduced. The fourth petition was again denied and, thereafter, the BIR filed a collection suit against taxpayer Lopez. When the taxpayers spouses Sison, inCommissioner of Internal Revenue v. Sison,38 contested the assessment against them and asked for a reinvestigation, the BIR ordered the reinvestigation resulting in the issuance of an amended assessment. Lastly, inRepublic of the Philippines v. Oquias,39 the BIR granted taxpayer Oquias’s request for

reinvestigation and duly notified him of the date when such reinvestigation would be held; only, neither taxpayer Oquias nor his counsel appeared on the given date. In all these cases, the request for reinvestigation of the assessment filed by the taxpayer was evidently granted and actual reinvestigation was conducted by the BIR, which eventually resulted in the issuance of an amended assessment. On the basis of these facts, this Court ruled in the same cases that the period between the request for reinvestigation and the revised assessment should be subtracted from the total prescriptive period for the assessment of the tax; and, once the assessment had been reconsidered at the taxpayer’s instance, the period for collection should begin to run from the date of the reconsidered or modified assessment.40 The rulings of the foregoing cases do not apply to the present Petition because: (1) the protest filed by petitioner BPI was a request for reconsideration, not a reinvestigation, of the assessment against it; and (2) even granting that the protest of petitioner BPI was a request for reinvestigation, there was no showing that it was granted by respondent BIR Commissioner and that actual reinvestigation had been conducted. Going back to the administrative records of the present case, it would seem that the BIR, after receiving a copy of the protest letter of petitioner BPI on 17 November 1989, did not attempt to communicate at all with the latter until 10 September 1992, less than a month before the prescriptive period for collection on Assessment No. FAS-5-85-89-002054 was due to expire. There were internal communications, mostly indorsements of the docket of the case from one BIR division to another; but these hardly fall within the same sort of acts in the previously discussed cases that satisfactorily demonstrated the grant of the taxpayer’s request for reinvestigation. Petitioner BPI, in the meantime, was left in the dark as to the status of its protest in the absence of any word from the BIR. Besides, in its letter to petitioner BPI, dated 10 September 1992, the BIR unwittingly admitted that it had not yet acted on the protest of the former – This refers to your protest against and/or request for reconsideration of the assessment/s of this Office against you involving the amount of P28,020.00 under FAS-5-85-89-002054 dated October 23, 1989 as deficiency documentary stamp tax inclusive of compromise penalty for the year 1985. In this connection, it is requested that the enclosed waiver of the statute of limitations extending the period of collection of the said tax/es to December 31, 1993 be executed by you as a condition precedent of our giving due course to your protest…41 When the BIR stated in its letter, dated 10 September 1992, that the waiver of the statute of limitations on collection was a condition precedent to its giving due course to the request for reconsideration of petitioner BPI, then it was understood that the grant of such request for reconsideration was being held off until compliance with the given condition. When petitioner BPI failed to comply with the condition precedent, which was the execution of the waiver, the logical inference would be that the request was not granted and was not given due course at all. III The suspension of the statute of limitations on collection of the assessed deficiency DST from petitioner BPI does not find support in jurisprudence. It is the position of respondent BIR Commissioner, affirmed by the CTA and the Court of Appeals, that the three-year prescriptive period for collecting on Assessment No. FAS-5-85-89-002054 had not yet prescribed, because the said prescriptive period was suspended, invoking the case of Commissioner of Internal Revenue v. Wyeth Suaco Laboratories, Inc.42 It was in this case in which

this Court ruled that the prescriptive period provided by law to make a collection is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment. Petitioner BPI, on the other hand, is requesting this Court to revisit the Wyeth Suaco case contending that it had unjustifiably expanded the grounds for suspending the prescriptive period for collection of national internal revenue taxes. This Court finds that although there is no compelling reason to abandon its decision in the Wyeth Suaco case, the said case cannot be applied to the particular facts of the Petition at bar. A. The only exception to the statute of limitations on collection of taxes, other than those already provided in the Tax Code, was recognized in the Suyoc case. As had been previously discussed herein, the statute of limitations on assessment and collection of national internal revenue taxes may be suspended if the taxpayer executes a valid waiver thereof, as provided in paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended; and in specific instances enumerated in Section 224 of the same Code, which include a request for reinvestigation granted by the BIR Commissioner. Outside of these statutory provisions, however, this Court also recognized one other exception to the statute of limitations on collection of taxes in the case of Collector of Internal Revenue v. Suyoc Consolidated Mining Co.43 In the said case, the Collector of Internal Revenue issued an assessment against taxpayer Suyoc Consolidated Mining Co. on 11 February 1947 for deficiency income tax for the taxable year 1941. Taxpayer Suyoc requested for at least a year within which to pay the amount assessed, but at the same time, reserving its right to question the correctness of the assessment before actual payment. The Collector granted taxpayer Suyoc an extension of only three months to pay the assessed tax. When taxpayer Suyoc failed to pay the assessed tax within the extended period, the Collector sent it a demand letter, dated 28 November 1950. Upon receipt of the demand letter, taxpayer Suyoc asked for a reinvestigation and reconsideration of the assessment, but the Collector denied the request. Taxpayer Suyoc reiterated its request for reconsideration on 25 April 1952, which was denied again by the Collector on 06 May 1953. Taxpayer Suyoc then appealed the denial to the Conference Staff. The Conference Staff heard the appeal from 02 September 1952 to 16 July 1955, and the negotiations resulted in the reduction of the assessment on 26 July 1955. It was the collection of the reduced assessment that was questioned before this Court for being enforced beyond the prescriptive period.44 In resolving the issue on prescription, this Court ratiocinated thus – 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 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 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. 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.45 By the principle of estoppel, taxpayer Suyoc was not allowed to raise the defense of prescription against the efforts of the Government to collect the tax assessed against it. This Court adopted the following principle from American jurisprudence: "He who prevents a thing from being done may not 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.’"46 In the Suyoc case, this Court expressly conceded that a mere request for reconsideration or reinvestigation of an assessment may not suspend the running of the statute of limitations. It affirmed the need for a waiver of the prescriptive period in order to effect suspension thereof. However, even without such waiver, the taxpayer may be estopped from raising the defense of prescription because by his repeated requests or positive acts, he had induced Government authorities to delay collection of the assessed tax. Based on the foregoing, petitioner BPI contends that the declaration made in the later case of Wyeth Suaco, that the statute of limitations on collection is suspended once the taxpayer files a request for reconsideration or reinvestigation, runs counter to the ruling made by this Court in the Suyoc case. B. Although this Court is not compelled to abandon its decision in the Wyeth Suaco case, it finds that Wyeth Suaco is not applicable to the Petition at bar because of the distinct facts involved herein. In the case of Wyeth Suaco, taxpayer Wyeth Suaco was assessed for failing to remit withholding taxes on royalties and dividend declarations, as well as, for deficiency sales tax. The BIR issued two assessments, dated 16 December 1974 and 17 December 1974, both received by taxpayer Wyeth Suaco on 19 December 1974. Taxpayer Wyeth Suaco, through its tax consultant, SGV & Co., sent to the BIR two letters, dated 17 January 1975 and 08 February 1975, protesting the assessments and requesting their cancellation or withdrawal on the ground that said assessments lacked factual or legal basis. On 12 September 1975, the BIR Commissioner advised taxpayer Wyeth Suaco to avail itself of the compromise settlement being offered under Letter of Instruction No. 308. Taxpayer Wyeth Suaco manifested its conformity to paying a compromise amount, but subject to certain conditions; though, apparently, the said compromise amount was never paid. On 10 December 1979, the BIR Commissioner rendered a decision reducing the assessment for deficiency withholding tax against taxpayer Wyeth Suaco, but maintaining the assessment for deficiency sales tax. It was at this point when taxpayer Wyeth Suaco brought its case before the CTA to enjoin the BIR from enforcing the assessments by reason of prescription. Although the CTA decided in favor of taxpayer Wyeth Suaco, it was reversed by this Court when the case was brought before it on appeal. According to the decision of this Court – 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. . . ...

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… 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… It was only upon receipt by Wyeth Suaco of this final assessment that the five-year prescriptive period started to run again.47 The foremost criticism of petitioner BPI of the Wyeth Suaco decision is directed at the statement made therein that, "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."48 It would seem that both petitioner BPI and respondent BIR Commissioner, as well as, the CTA and Court of Appeals, take the statement to mean that the filing alone of the request for reconsideration or reinvestigation can already interrupt or suspend the running of the prescriptive period on collection. This Court therefore takes this opportunity to clarify and qualify this statement made in the Wyeth Suaco case. While it is true that, by itself, such statement would appear to be a generalization of the exceptions to the statute of limitations on collection, it is best interpreted in consideration of the particular facts of the Wyeth Suaco case and previous jurisprudence. The Wyeth Suaco case cannot be in conflict with the Suyoc case because there are substantial differences in the factual backgrounds of the two cases. The Suyoc case refers to a situation where there were repeated requests or positive acts performed by the taxpayer that convinced the BIR to delay collection of the assessed tax. This Court pronounced therein that the repeated requests or positive acts of the taxpayer prevented or estopped it from setting up the defense of prescription against the Government when the latter attempted to collect the assessed tax. In the Wyeth Suaco case, taxpayer Wyeth Suaco filed a request for reinvestigation, which was apparently granted by the BIR and, consequently, the prescriptive period was indeed suspended as provided under Section 224 of the Tax Code of 1977, as amended.49 To reiterate, Section 224 of the Tax Code of 1977, as amended, identifies specific circumstances when the statute of limitations on assessment and collection may be interrupted or suspended, among which is a request for reinvestigation that is granted by the BIR Commissioner. The act of filing a request for reinvestigation alone does not suspend the period; such request must be granted.50 The grant need not be express, but may be implied from the acts of the BIR Commissioner or authorized BIR officials in response to the request for reinvestigation.51 This Court found in the Wyeth Suaco case that the BIR actually conducted a reinvestigation, in accordance with the request of the taxpayer Wyeth Suaco, which resulted in the reduction of the assessment originally issued against it. Taxpayer Wyeth Suaco was also aware that its request for reinvestigation was granted, as written by its Finance Manager in a letter dated 01 July 1975, addressed to the Chief of the Tax Accounts Division, wherein he admitted that, "[a]s we understand, the matter is now undergoing review and consideration by your Manufacturing Audit Division…" The statute of limitations on collection, then, started to run only upon the issuance and release of the reduced assessment. The Wyeth Suaco case, therefore, is correct in declaring that the prescriptive period for collection is interrupted or suspended when the taxpayer files a request for reinvestigation, provided that, as clarified and qualified herein, such request is granted by the BIR Commissioner.

Thus, this Court finds no compelling reason to abandon its decision in the Wyeth Suaco case. It also now rules that the said case is not applicable to the Petition at bar because of the distinct facts involved herein. As already heretofore determined by this Court, the protest filed by petitioner BPI was a request for reconsideration, which merely required a review of existing evidence and the legal basis for the assessment. Respondent BIR Commissioner did not require, neither did petitioner BPI offer, additional evidence on the matter. After petitioner BPI filed its request for reconsideration, there was no other communication between it and respondent BIR Commissioner or any of the authorized representatives of the latter. There was no showing that petitioner BPI was informed or aware that its request for reconsideration was granted or acted upon by the BIR. IV Conclusion To summarize all the foregoing discussion, this Court lays down the following rules on the exceptions to the statute of limitations on collection. The statute of limitations on collection may only be interrupted or suspended by a valid waiver executed in accordance with paragraph (d) of Section 223 of the Tax Code of 1977, as amended, and the existence of the circumstances enumerated in Section 224 of the same Code, which include a request for reinvestigation granted by the BIR Commissioner. Even when the request for reconsideration or reinvestigation is not accompanied by a valid waiver or there is no request for reinvestigation that had been granted by the BIR Commissioner, the taxpayer may still be held in estoppel and be prevented from setting up the defense of prescription of the statute of limitations on collection when, by his own repeated requests or positive acts, the Government had been, for good reasons, persuaded to postpone collection to make the taxpayer feel that the demand is not unreasonable or that no harassment or injustice is meant by the Government, as laid down by this Court in the Suyoc case. Applying the given rules to the present Petition, this Court finds that – (a) The statute of limitations for collection of the deficiency DST in Assessment No. FAS-5-85-89002054, issued against petitioner BPI, had already expired; and (b) None of the conditions and requirements for exception from the statute of limitations on collection exists herein: Petitioner BPI did not execute any waiver of the prescriptive period on collection as mandated by paragraph (d) of Section 223 of the Tax Code of 1977, as amended; the protest filed by petitioner BPI was a request for reconsideration, not a request for reinvestigation that was granted by respondent BIR Commissioner which could have suspended the prescriptive period for collection under Section 224 of the Tax Code of 1977, as amended; and, petitioner BPI, other than filing a request for reconsideration of Assessment No. FAS-5-85-89-002054, did not make repeated requests or performed positive acts that could have persuaded the respondent BIR Commissioner to delay collection, and that would have prevented or estopped petitioner BPI from setting up the defense of prescription against collection of the tax assessed, as required in the Suyoc case. This is a simple case wherein respondent BIR Commissioner and other BIR officials failed to act promptly in resolving and denying the request for reconsideration filed by petitioner BPI and in enforcing collection on the assessment. They presented no reason or explanation as to why it took them almost eight years to address the protest of petitioner BPI. The statute on limitations imposed by the Tax Code precisely intends to protect the taxpayer from such prolonged and unreasonable assessment and investigation by the BIR.

Considering that the right of the respondent BIR Commissioner to collect from petitioner BPI the deficiency DST in Assessment No. FAS-5-85-89-002054 had already prescribed, then, there is no more need for this Court to make a determination on the validity and correctness of the said Assessment for the latter would only be unenforceable. Wherefore, based on the foregoing, the instant Petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. SP No. 51271, dated 11 August 1999, which reinstated Assessment No. FAS-585-89-002054 requiring petitioner BPI to pay the amount of P28,020.00 as deficiency documentary stamp tax for the taxable year 1985, inclusive of the compromise penalty, is REVERSED and SET ASIDE. Assessment No. FAS-5-85-89-002054 is hereby ordered CANCELED. SO ORDERED. MINITA V. CHICO-NAZARIO Associate Justice WE CONCUR: REYNATO S. PUNO Associate Justice Chairman MA. ALICIA AUSTRIA-MARTINEZ Associate Justice ROMEO J. CALLEJO, SR. Associate Justice

DANTE O. TINGA Associate Justice ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division. REYNATO S. PUNO Associate Justice Chairman, Second Division CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairman’s Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division. HILARIO G. DAVIDE, JR. Chief Justice

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-21609 September 29, 1966

REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, vs. KER & COMPANY, LTD., defendant-appellant. Office of the Solicitor General for plaintiff-appellant. Leido, Andrada, Perez and Associates for defendant-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 1947 1948 1949 1950 Date Filed April 12, 1948 April 30, 1949 May 15, 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 1947 1948 1949 1950 Amount P42,342.30 18,651.87 139.67 12,813.00 Date Assessed July 25, 1953 Feb. 16, 1953 Feb. 16, 1953 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 & 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 of 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 pay, instead in its letters dated March 28, 1962 and April 10, 1962 it set up the defense of prescription of the Commissioner's right to collect the tax. Subsequently, the Republic of the Philippines filed on March 27, 1962 a complaint 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 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. 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 Codes 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. Did the Court of First Instance acquire jurisdiction over the person of defendant Ker & Co., Ltd.? . 2. Did the right of the Commissioner of Internal Revenue to assess deficiency income tax for the year 1947 prescribe? . 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. 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 summons was not served upon it but upon Messrs. Leido and Associates who do not come under any of the class of persons upon whom summons should be served as enumerated in Section 13, Rule 7 of the Rules of Court, 2which reads: 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 jurisdiction 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 acquire jurisdiction upon the latter's person, who, 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.3 Voluntary appearance cures defects of summons, if any.4 Such defect, if any, was further cured when defendant filed its answer to the complaint.5 A defendant can not be permitted to speculate upon the judgment of the court by objecting to the court's jurisdiction over its 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 & 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, confining 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 "Internal Revenue taxes shall be assessed within 5 years after the return was filed, and no proceedings in court without assessment, for the collection of such taxes, shallbe 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 aforequoted explicit and mandatory limitations of statutory law. Settled in our system is the rule that acts committed against the provisions of mandatory or prohibitory laws shall be void (Art. 5, New Civil Code). . . . 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 fact6 which must be alleged and proved.7Fraud is a serious charge and, to 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 final 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.9 In this case however, 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 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. the running of the prescriptive period to collect the tax shall be suspended for the period during which the Commissioner of Internal Revenue is prohibited from beginning a distraint 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, 10 from filing an ordinary action in the 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 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. 12 However, as stated, an independent 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.
1awphîl.nèt

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

SEC. 51(e). Surcharge and interest in case of delinquency.—To any sum or sums due and unpaid after the dates prescribed in subsections (b), (c) and (d) for the payment of the same, there shall be added the sum of five per centum on the amount of tax unpaid and interest at the rate of one per centum a month upon said tax from the time the same became due, except from the estates of insane, deceased, or insolvent persons. (emphasis supplied) Exhibit "F" — the letter of assessment — shows that the deficiency income tax for 1948 and 1949 became due on March 15, 1953 and that for 1950 accrued on February 15, 1954 in accordance with Section 51(d) of the Tax Code. Since the tax in question remained unpaid, delinquency interest accrued and became due starting from said due dates. The decision appealed from should therefore be modified accordingly. WHEREFORE, the decision appealed from is affirmed with the modification that the delinquency interest at the rate of 1% per month shall be computed from March 15, 1953 for the deficiency income tax for 1948 and 1949 and from February 15, 1954 for the deficiency income tax for 1950. With costs against Ker & Co., Ltd. So ordered. Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Zaldivar, Sanchez and Castro, JJ., concur.

Footnotes
1

Ker & Company, Ltd. v. The Court of Tax Appeals and The Collector of Internal Revenue, promulgated on January 31, 1962.
2

Now Section 13, Rule 14. Flores v. Zurbito, 37 Phil. 746; Menghra vs. Tarachand and Rewachand, 67 Phil. 286. Infante v. Toledo and Santiong, 44 Phil. 834, 840. Ramos v. Mañalac, et al., 89 Phil. 270. Gutierrez v. Court of Tax Appeals, L-9738, L-9771, May 31, 1957. Section 12, Rule 15 (now Section 5, Rule 8), Rules of Court. Collector of Internal Revenue v. Benipayo, L-13656, January 31, 1962.

3

4

5

6

7

8

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.
10

L-11343, January 29, 1958. Par. (d), Section 1, Rule 8, now Par. (g), Section 1, Rule 16, Rules of Court. See Sec. 316, Tax Code.

11

12

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-20477 March 29, 1968

REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, vs. FELIX B. ACEBEDO, defendant-appellee. Office of the 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 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. — xxx xxx xxx xxx xxx xxx

(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 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 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 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. 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: ... 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. (Emphasis supplied.) Likewise, when a taxpayer asks for 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 with which an action for collection may be commenced should be counted from this last assessment. (Republic vs. Lopez, L-18007, March 30, 1963; Commissioner v. Sison, et al., L13739, 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 at (Exh. D), but there was no follow up of this warrant. 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 reinvestigation sought, and required that the defendants specify 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 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.
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Reyes, J.B.L., Dizon, Bengzon, J.P., Zaldivar, Sanchez, Angeles and Fernando, JJ., concur. Castro, J., took no part.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-14421 April 29, 1961

THE GUAGUA ELECTRIC LIGHT PLANT COMPANY, INC., petitioner, vs. THE COLLECTOR OF INTERNAL REVENUE and THE HON. COURT OF TAX APPEALS, respondents. Eligio G. Lagman for petitioner. Office of the Solicitor General for respondents. CONCEPCION, J.: Appeal from a resolution of the Court of Tax Appeals granting a motion to dismiss of respondent Collector of Internal Revenue. On February 28, 1958, the Guagua Electric Light Plant Co., Inc., a domestic corporation engaged in supplying electricity, filed with the Court of Tax Appeals a petition for review of a decision of the Collector of Internal Revenue (now Commissioner of Internal Revenue) denying the claim for refund of the following sums of money allegedly overpaid as franchise tax for the periods stated before each item: 1st quarter, 1947 — 3rd quarter, 1951 Jan. 1, 1954 — June 15, 1954 June 15, 1954 — Dec. 31, 1954 TOTAL P13,616.95 2,948.94 2,404.04 P18,969.93

Petitioner alleged that on December 13, 1927, it obtained from the municipality of Guagua a franchise to furnish electric light in said municipality; that petitioner's records, including copy of said franchise, were destroyed in consequence of the last world war; that, sometime in December 1956, petitioner found a copy of said franchise among the salvaged records of the Provincial Board of Pampanga; that said franchise prescribes a franchise tax of 1% of the gross earnings for the first twenty (20) years of the existence of the corporation and 2% of said earnings for the remaining fifteen (15) years of its existence; that it paid the amounts above mentioned in excess of said rates, upon demand by the Collector of Internal Revenue, who misrepresented that the franchise tax due was 5% of the gross income, as provided in section 259 of the Internal Revenue Code; that on March 27, 1957, it filed with the Collector of Internal Revenue a claim for refund; that the same was denied in a decision of said officer, dated August 27, 1957, which came to petitioner's knowledge on December 16, 1957; that on December 17, 1957, petitioner moved for a reconsideration of said decision; and that said reconsideration was denied on February 3, 1958. Respondent moved to dismiss said petition for review upon the ground that it had been filed beyond the period prescribed in section 306 of the Revised Internal Revenue Code, reading:

No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Collector of Internal Revenue; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any event, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty. (Emphasis supplied.) The Court of Tax Appeals, by the vote of its Presiding Judge, concurred in by an Associate Judge, granted the motion and dismissed the petition for review, upon the ground that it had been filed beyond the period of two (2) years fixed in said section 306. The other Associate Judge of said court concurred in the result, the claim for refund having been filed beyond said period. Hence, the petition for review filed with this Court. It is not denied that petitioner's claim for refund, as well as its petition for review in the Court of Tax Appeals, were filed beyond the period stated in said section 306 of the Tax Code. This not withstanding, petitioner maintains that the motion to dismiss filed by respondent with the Court of Tax Appeals should have been denied, (1) because the amounts sought to be recovered by petitioner were paid by the same through misrepresentation by respondent, which misrepresentation was discovered by petitioner sometime in December 1956, and (2) upon the authority ofPanay Electric Co. vs. Collector of Internal Revenue, G.R. No. L-10574 (May 28, 1958). The first argument is based upon a letter of the Deputy Collector of Internal Revenue, reading: January 29, 1954 The Guagua Electric Light Plant Co., Inc., Guagua, Pampanga GENTLEMEN: With reference to your letter dated December 4, 1953, I have the honor to inform you that, according to our records, you were authorized on April 17, 1953, a tax credit of P4,958.42 against your franchise tax beginning the first quarter of 1953. Said amount represents the 2% difference between the 7% franchise tax collected by the Deputy Provincial Treasurer of that Municipality and 5610 franchise tax provided for in section 259 of the Tax Code, as amended, during the period from the 4th quarter of 1950 to the 3rd quarter of 1952. As your franchise (Resolution No. 39, series of 1928 of the Municipal Council of that Municipality) does not fix the rate of franchise tax to be paid by you, you are subject to the 5% franchise tax provided for in said section of the Tax Code. In view thereof, your request for refund of alleged overpayment of P7,501.02 is hereby denied. Very respectfully, (Sgd). SILVERIO BLAQUERA Deputy Collector of Internal Revenue

It appears, however, that in a communication to the Collector of Internal Revenue dated January 2, 1953, petitioner stated: . . . As of and beginning the fourth quarter of 1950 the Bureau of Internal Revenue thru the Treasurer's Office of Guagua, Pampanga, charged and collected from the corresponding gross earnings of the GUAGUA ELECTRIC LIGHT PLANT CO., INC. a tax on the latter's franchise at the rate of SEVEN (7%) PERCENTUM every quarter, until the third quarter of 1952. We have, however, recently discovered that under Republic Act 418 the tax collectible on the corporate franchise as an electric utility is only FIVE (5%) PERCENTUM for every quarter and this is in fact the rate being paid by other utilities in the province. . . .(Exhibit 4, p. 95 BIR rec.) (Emphasis supplied.) Thus, the Collector of Internal Revenue was the one induced by petitioner to believe that it was subject to a franchise tax of 5% of its gross income, as provided in Republic Act No. 418, amending section 259 of the Tax Code. Indeed, said officer had no reason to believe otherwise, for such is the rate fixed by the Tax Code (as amended) for franchises in general, and he seemed to be under the impression (deductible from the above mentioned communication of the petitioner to the Collector of Internal Revenue, dated March 27, 1957), that said provision of the Tax Code amended all previous special laws on the same subject. Moreover, it is not claimed that the Collector of Internal Revenue was aware of the pertinent provisions of petitioner's municipal franchise, the contents of which were allegedly unknown to the very petitioner herein. Hence, the claim of misrepresentation is devoid of factual foundation. In any event, pursuant to section 306 of the Tax Code, no suit or proceeding for refund or credit of any national internal revenue tax erroneously or illegally assessed or collected shall be begun after the expiration of two (2) years from the date of payment. This provision, which is mandatory, is not subject to any qualification, and, hence, it applies regardless of the conditions under which the payment has been made. With respect to the second argument, the Court of Tax Appeals had the following to say, with which we are fully in agreement: While petitioner cited the case of Panay Electric Co. vs. Collector of Internal Revenue, G.R. No. L-10574 (May 28, 1958), as authority in support of its case, we find the circumstances in that case entirely different from the case at bar. In that case the Supreme Court took into account the special circumstances of the case in which, first: there was a pending litigation between the two parties as to the proper tax to be paid and of the proper interpretation of the taxpayer's charter in relation to Section 259 of the Tax Code; andsecond: the Collector of Internal Revenue in that case agreed to abide by the decision of the Supreme Court as to the collection of taxes relative thereto, so that the Supreme Court considered that the period under said section 306 had been suspended insofar as it referred to the payments of franchise taxes made subsequent to the institution of the suit and while the same was pending. Consequently, under these special circumstances, the Supreme Court in that case allowed the taxpayer, Panay Electric Co. to claim the alleged overpayment of the tax in the sense that the institution of the suit which was then pending in the Supreme Court had the effect of suspending or waiving the prescriptive period provided for under Section 306 of the Tax Code, as regards the payment made of the franchise taxes subsequent to the institution of the suit. Consequently, the filing of the suit for the recovery of the tax by the Panay Electric Co. against respondent Collector was not yet deemed barred by Section 306 of the Tax Code.

We find the aforesaid circumstances absent in the instant case. There has been no pending case between the two parties and neither has respondent Collector of Internal Revenue manifested that he would be bound by any particular decision such as was cited in the said Panay Electric Case. Under the herein set of facts, therefore, the right of petitioner to claim for refund or tax credit for the amounts in controversy can no longer be made by judicial action as the two-year period under Section 306 of the Revenue Code has barred the same. WHEREFORE, the resolution appealed from is hereby affirmed, with costs against petitioner, Guagua Electric Light Plant Company, Inc. Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Paredes and Dizon, JJ., concur. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 76281 September 30, 1991 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. WYETH SUACO LABORATORIES, INC. and THE COURT OF TAX APPEALS, respondents.

FERNAN, C.J.:p 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 nutritional 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. 1 On October 15, 1974, he submitted a report 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 P3,178,994.15. 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 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 Intemal Revenue two (2) letters dated 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 up-to-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 the advancesales 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 the ground that it involves purely a legal question and some of the amounts included in the assessment have already bee 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 Court of Tax Appeals on January 18, 1980, praying that lpeti tioner 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 distrain of personal property and warrant of levy of real property again private respondent to enforce collection of the deficiency taxes. These were served on private respondent on March 12, 1980. 8 However, collection of the deficiency taxes by virtue of 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 payment thereof pursuant to Section 183 (now Section 193) of the Tax Code, and the amount of P1,973,112.86 as deficie withholding tax at source for the 4th quarter of 1973 plus 5% surcharge and 14% per annum interest thereon from December 16, 1974 to December 16, 1977, pursuant to Section 51 (e) of the Tax Code of 1977, as amended. 10 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 assessment of the tax. 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. ... SEC. 319. Exceptions as to period of limitations of assessment and collection of taxes. — xxx xxx xxx

(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 by a proceeding in court, but only if begun (1) within five years after the assessment of the tax, or (2) prior 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. (emphasis supplied) The main thrust of petitioner for the allowance of this petition is that the five-year prescriptive period provided by law to mak a collection by distraint or levy 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 fiveyear prescriptive period. Wyeth Suaco, on the other hand, maintains the position that it never asked for a reinvestigation nor reconsideration of th assessments. What it requested was the cancellation and with drawal 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., 12 this Court held: The period of prescription of action to collect a taxpayer's deficiency income tax assessment is interrupted when the taxpayer request 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 or that no harassment or injustice is meant by the Goverrument. 13 Also in the case of Cordero vs. Gonda, 14 we held: 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)". ... (emphasis 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 P3,178,994.15 and on percentage tax of P60,855.21, including interest and surcharges, on which we are seeking reconsideration. 15 (emphasis supplied)

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. xxx xxx xxx 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, 1975. xxx xxx xxx
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. ... 16 (Emphasis supplied)

Although the protest letters prepared by SGV & Co. in behalf of private respondent did not categorically state or use th 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 assessment 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 record of Wyeth Suaco, in accordance with its request for reinvestigation, rendered a final assessment. This final assessment issue by then Acting Commissioner Ruben B. Ancheta was date 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 Wyeth 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 Intemal 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 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. ... It is the lifeblood of the government and so should be collected without unnecessary hindrance ... 17 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. 685 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. 18 Thus, private respondent recorded accrued 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.19 The case of Commissioner of Internal Revenue vs. Construction Resources of Asia, Inc., 20 where this Court cited 51 Am. Jur. pp. 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.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

G.R. No. L-66160 May 21, 1990 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. UNION SHIPPING CORPORATION and THE COURT OF TAX APPEALS, respondents. Artemio M. Lobrin for private respondent.

PARAS, J.: This is a petition for review on certiorari of the December 9, 1983 decision * of the Court of Tax Appeals in CTA Case No. 2989 reversing the Commissioner of Internal Revenue. In a letter dated December 27, 1974 (Exhibit "A") herein petitioner Commissioner of Internal Revenue assessed against Yee Fong Hong, Ltd. and/or herein private respondent Union Shipping Corporation, the total sum of P583,155.22 as deficiency income taxes due for the years 1971 and 1972. Said letter was received on January 4, 1975, and in a letter dated January 10, 1975 (Exhibit "B"), received by petitioner on January 13, 1975, private respondent protested the assessment. Petitioner, without ruling on the protest, issued a Warrant of Distraint and Levy (Exhibit "C"), which was served on private respondent's counsel, Clemente Celso, on November 25, 1976.

In a letter dated November 27, 1976 (Exhibit "D"), received by petitioner on November 29, 1976 (Exhibit "D-1") private respondent reiterated its request for reinvestigation of the assessment and for the reconsideration of the summary collection thru the Warrant of Distraint and Levy. Petitioner, again, without acting on the request for reinvestigation and reconsideration of the Warrant of Distraint and Levy, filed a collection suit before Branch XXI of the then Court of First Instance of Manila and docketed as Civil Case No. 120459 against private respondent. Summons (Exhibit "E") in the said collection case was issued to private respondent on December 28, 1978. On January 10, 1979, private respondent filed with respondent court its Petition for Review of the petitioner's assessment of its deficiency income taxes in a letter dated December 27, 1974, docketed therein as CTA Case No. 2989 (Rollo, pp. 44-49), wherein it prays that after hearing, judgment be rendered holding that it is not liable for the payment of the income tax herein involved, or which may be due from foreign shipowner Yee Fong Hong, Ltd.; to which petitioner filed his answer on March 29, 1979 (Rollo, pp. 50-53). Respondent Tax Court, in a decision dated December 9, 1983, ruled in favor of private respondent — WHEREFORE, the decision of the Commissioner of Internal Revenue appealed from, assessing against and demanding from petitioner the payment of deficiency income tax, inclusive of 50% surcharge, interest and compromise penalties, in the amounts of P73,958.76 and P583,155.22 for the years 1971 and 1972, respectively, is reversed. Hence, the instant petition. The Second Division of this Court, after the filing of the required pleadings, in a resolution dated January 28, 1985, resolved to give due course to the petition, and directed petitioner therein, to file his brief (Rollo, p. 145). In compliance, petitioner filed his brief on May 10, 1985 (Rollo, p. 151). Respondents, on the other hand, filed their brief on June 6, 1985 (Rollo, p. 156). The main issues in this case are: (a) on the procedural aspect, whether or not the Court of Tax Appeals has jurisdiction over this case and (b) on the merits, whether or not Union Shipping Corporation acting as a mere "husbanding agent" of Yee Fong Hong Ltd. is liable for payment of taxes on the gross receipts or earnings of the latter. The main thrust of this petition is that the issuance of a warrant of distraint and levy is proof of the finality of an assessment because it is the most drastic action of all media of enforcing the collection of tax, and is tantamount to an outright denial of a motion for reconsideration of an assessment. Among others, petitioner contends that the warrant of distraint and levy was issued after respondent corporation filed a request for reconsideration of subject assessment, thus constituting petitioner's final decision in the disputed assessments (Brief for petitioner, pp. 9 and 12). Petitioner argues therefore that the period to appeal to the Court of Tax Appeals commenced to run from receipt of said warrant on November 25, 1976, so that on January 10, 1979 when respondent corporation sought redress from the Tax Court, petitioner's decision has long become final and executory. On this issue, this Court had already laid down the dictum that the Commissioner should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment.

Specifically, this Court ruled: . . . we deem it appropriate to state that the Commissioner of Internal Revenue should always indicate to the taxpayer in clear and unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final determination on the disputed assessment, as contemplated by sections 7 and 11 of Republic Act 1125, as amended. On the basis of this statement indubitably showing that the Commissioner's communicated action is his final decision on the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer would be able to determine when his right to appeal to the tax court accrues. This rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to continually delay the finality of the assessment — and, consequently, the collection of the amount demanded as taxes — by repeated requests for recomputation and reconsideration. On the part of the Commissioner, this would encourage his office to conduct a careful and thorough study of every questioned assessment and render a correct and definite decision thereon in the first instance. This would also deter the Commissioner from unfairly making the taxpayer grope in the dark and speculate as to which action constitutes the decision appealable to the tax court. Of greater import, this rule of conduct would meet a pressing need for fair play, regularity, and orderliness in administrative action. (Surigao Electric Co., Inc. v. C.T.A., 57 SCRA 523, 528, [1974]). There appears to be no dispute that petitioner did not rule on private respondent's motion for reconsideration but contrary to the above ruling of this Court, left private respondent in the dark as to which action of the Commissioner is the decision appealable to the Court of Tax Appeals. Had he categorically stated that he denies private respondent's motion for reconsideration and that his action constitutes his final determination on the disputed assessment, private respondent without needless difficulty would have been able to determine when his right to appeal accrues and the resulting confusion would have been avoided. Much later, this Court reiterated the above-mentioned dictum in a ruling applicable on all fours to the issue in the case at bar, that the reviewable decision of the Bureau of Internal Revenue is that contained in the letter of its Commissioner, that such constitutes the final decision on the matter which may be appealed to the Court of Tax Appeals and not the warrants of distraint (Advertising Associates, Inc. v. Court of Appeals, 133 SCRA 769 [1984] emphasis supplied). It was likewise stressed that the procedure enunciated is demanded by the pressing need for fair play, regularity and orderliness in administrative action. Under the circumstances, the Commissioner of Internal Revenue, not having clearly signified his final action on the disputed assessment, legally the period to appeal has not commenced to run. Thus, it was only when private respondent received the summons on the civil suit for collection of deficiency income on December 28, 1978 that the period to appeal commenced to run. The request for reinvestigation and reconsideration was in effect considered denied by petitioner when the latter filed a civil suit for collection of deficiency income. So. that on January 10, 1979 when private respondent filed the appeal with the Court of Tax Appeals, it consumed a total of only thirteen (13) days well within the thirty day period to appeal pursuant to Section 11 of R.A. 1125. On the merits, it was found fully substantiated by the Court of Tax Appeals that, respondent corporation is the husbanding agent of the vessel Yee Fong Hong, Ltd. as follows:

Coming to the second issue, petitioner contended and was substantiated by satisfactory uncontradicted testimonies of Clemente Celso, Certified Public Accountant, and Rodolfo C. Cabalquinto, President and General Manager, of petitioner that it is actually and legally the husbanding agent of the vessel of Yee Fong Hong, Ltd. as (1) it neither performed nor transacted any shipping business, for and in representation, of Yee Fong Hong, Ltd. or its vessels or otherwise negotiated or procured cargo to be loaded in the vessels of Yee Fong Hong, Ltd. (p. 21, t.s.n., July 16, 1980); (2) it never solicited or procured cargo or freight in the Philippines or elsewhere for loading in said vessels of Yee Fong Hong, Ltd. (pp. 21 & 38, ibid.); (3) it had not collected any freight income or receipts for the said Yee Fong Hong, Ltd. (pp. 22 & 38, ibid; pp. 46 & 48, t.s.n., Nov. 14, 1980.); (4) it never had possession or control, actual or constructive, over the funds representing payment by Philippine shippers for cargo loaded on said vessels (pp. 21 & 38, ibid; p. 48, ibid); petitioner never remitted to Yee Fong Hong, Ltd. any sum of money representing freight incomes of Yee Fong Hong, Ltd. (p. 21, ibid.; p. 48, ibid); and (5) that the freight payments made for cargo loaded in the Philippines for foreign destination were actually paid directly by the shippers to the said Yee Fong Hong, Ltd. upon arrival of the goods in the foreign ports. (Rollo, pp. 58-59). On the same issue, the Commissioner of Internal Revenue Misael P. Vera, on query of respondent's counsel, opined that respondent corporation being merely a husbanding agent is not liable for the payment of the income taxes due from the foreign ship owners loading cargoes in the Philippines (Rollo, p. 63; Exhibit "I", Rollo, pp. 64-66). Neither can private respondent be liable for withholding tax under Section 53 of the Internal Revenue Code since it is not in possession, custody or control of the funds received by and remitted to Yee Fong Hong, Ltd., a non-resident taxpayer. As correctly ruled by the Court of Tax Appeals, "if an individual or corporation like the petitioner in this case, is not in the actual possession, custody, or control of the funds, it can neither be physically nor legally liable or obligated to pay the so-called withholding tax on income claimed by Yee Fong Hong, Ltd." (Rollo, p. 67). Finally, it must be stated that factual findings of the Court of Tax Appeals are binding on this Court (Industrial Textiles Manufacturing Company of the Phil., Inc. (ITEMCOP) v. Commissioner of Internal Revenue, et al. (136 SCRA 549 [1985]). It is well-settled that in passing upon petitions for review of the decisions of the Court of Tax Appeals, this Court is generally confined to questions of law. The findings of fact of said Court are not to be disturbed unless clearly shown to be unsupported by substantial evidence (Commissioner of Internal Revenue v. Manila Machinery & Supply Company, 135 SCRA 8 [1985]). A careful scrutiny of the records reveals no cogent reason to disturb the findings of the Court of Tax Appeals. PREMISES CONSIDERED, the instant petition is hereby DISMISSED and the assailed decision of the Court of Tax Appeals is hereby AFFIRMED. SO ORDERED. Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ., concur.

Footnotes

* Penned by Associate Judge Constante C. Roaquin and concurred in by Presiding Judge Amante Filler. Associate Judge Alex Z. Reyes dissented in a separate opinion. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. Nos. L-48134-37 October 18, 1990 EMILIO E. LIM, SR. and ANTONIA SUN LIM, petitioners, vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents. Santiago, Fornier,Tinga & Associates for petitioners.

FERNAN, C.J.: The instant petition for review on certiorari seeks the reversal of the Court of Appeals decision dated September 1, 1977 which affirmed in toto the judgments of the then Court of First Instance of Manila, Branch VI in four (4) Criminal cases constituted by the Bureau of Internal Revenue against petitioners. 1 The facts as found by the trial court and affirmed by the Appellate Court are substantially as follows: Petitioner spouses Emilio E. Lim, Sr. and Antonia Sun Lim, with business address at No. 336 Nueva Street, Manila, were engaged in the dealership of various household appliances They filed income tax returns for the years 1958 and 1959. On October 5, 1959, a raid was conducted at their business address by the National Bureau of Investigation by virtue of a search warrant issued by Judge Wenceslao L. Cornejo of the City Court of Manila. A similar raid was made on petitioners' premises at 111 12th Street, Quezon City. Seized from the Lim couple were business and accounting records which served as bases for an investigation undertaken by the Bureau of Internal Revenue (BIR). On October 14, 1960, the Chief of the Investigation Division of the BIR informed petitioners that revenue examiners had been authorized to examine their books of account. On September 30, 1964 Senior Revenue Examiner Raphael S. Daet submitted a memorandum with the findings that the income tax returns filed by petitioners for the years 1958 and 1959 were false or fraudulent. Daet recommended that an assessment of P835,127.00 be made against the petitioners. Accordingly, on April 7, 1965, then Acting Commissioner of the BIR, Benjamin M. Tabios informed petitioners that there was due from them the amount of P922,913.04 as deficiency income taxes for 1958 and 1959, giving them until May 7, 1965 to pay the amount.

On April 10, 1965, petitioner Emilio E. Lim, Sr., requested for a reinvestigation. The BIR expressed willingness to grant such request but on condition that within ten days from notice, Lim would accomplish a waiver of defense of prescription under the Statute of Limitations and that one half of the deficiency income tax would be deposited with the BIR and the other half secured by a surety bond. If within the ten-day period the BIR did not hear from petitioners, then it would be presumed that the request for reinvestigation had been abandoned. Petitioner Emilio E. Lim, Sr. refused to comply with the above conditions and reiterated his request for another investigation. On January 31, 1967, the BIR Commissioner informed petitioners that their deficiency income tax liabilities for 1958 and 1959 had been assessed at P934,000.54 including interest and compromise penalty for late payment. Petitioners were given until March 7, 1967 to submit their objections with the admonition that if they failed to do so, it would be assumed that they were agreeable to the assessment and a formal demand would issue. On March 15, 1967, petitioners wrote the BIR to protest the latest assessment and repeated their request for a reinvestigation. On October 10, 1967, the BIR rendered a final decision holding that there was no cause for reversal of the assessment against the Lim couple. Petitioners were required to pay deficiency income taxes for 1958 and 1959 amounting to P1,237,190.55 inclusive of interest, surcharges and compromise penalty for late payment. The final notice and demand for payment was served on petitioners through their daughter-in-law on July 3, 1968. Still, no payment was forthcoming from the delinquent taxpayers. Accordingly on September 1, 1969, the matter was referred by the BIR to the Manila Fiscal's Office for investigation and prosecution. On June 23, 1970, four (4) separate criminal informations were filed against petitioners in the then Court of First Instance of Manila, Branch VI for violation of Sections 45 and 51 in relation to Section 73 of the National Internal Revenue Code. 2 Trial ensued. On August 19, 1975, the trial court rendered two (2) joint decisions finding petitioners guilty as charged. The dispositive portions read: In Criminal Cases Nos. 1789 and 1788:
WHEREFORE, in view of the foregoing considerations, the Court finds the accused Emilio E. Lim, Sr. and Antonia Sun Lim guilty of a violation of Section 51 penalized under Section 73 of the National Internal Revenue Code and each is hereby sentenced in each case to pay a fine of P2,000.00 and to pay the government pursuant to Presidential No. 69 the amounts of P580,588.75 and P656,601.80 as deficiency income taxes for the years 1958 and 1959, respectively, and the costs of the proceedings. 3

In Criminal Cases Nos. 1790 and 1791:
WHEREFORE, in view of the foregoing considerations, the Court finds the accused Emilio E. Lim, Sr. and Antonia Sun Lim guilty of a violation of Section 45 in relation to Section 332 of the National Internal Revenue Code as amended, penalized under Section 73 of the same Code and hereby sentences each to pay a fine of P4,000.00 in each case and the costs of the proceedings. 4

Petitioners appealed the foregoing decisions to the Court of Appeals. 5 In its judgment dated September 1, 1977, the Court of Appeals affirmed in toto the twin decisions of the lower court. Twenty-three days (23) later or on September 24, 1977, petitioner Emilio E. Lim, Sr. died. On September 26, 1977, petitioners moved for a reconsideration of the decision dated September 1, 1977. On April 4, 1978, the Court of Appeals promulgated a resolution as follows:
WHEREFORE, pursuant to Article 89 of the Revised Penal Code, by the death of appellant Emilio E. Lim, Sr. his criminal liability is totally extinguished but his counsel is hereby required to inform the Court as to who are the heirs of the deceased following which the caption should be modified so as to reflect the civil aspect and substitution of the heirs, as defendants. In all other respects, the decision of this Court promulgated September 1, 1977, stands. 6

Hence the present petition for review by certiorari. In their Brief, petitioners contend that the Appellate Court erred in holding that the offenses charged in Criminal Case Nos. 1790 and 1791 prescribed in ten (10) years, instead of five (5) years; that the prescriptive period in Criminal Cases Nos. 1788 and 1789 commenced to run only from July 3, 1968, the date of the final assessment; that Section 316 of the Tax Code as amended by Presidential Decree No. 69 was applicable to the case at bar; and that the civil obligation of petitioner Emilio E. Lim, Sr. arising from the crimes charged was not extinguished by his death. 7 Preliminarily, it must be made clear that what we are dealing here are criminal prosecutions for filing fraudulent income tax returns and for refusing to pay deficiency taxes. The governing penal provision of the National Internal Revenue Codes 8 is Section 73 in conjunction with Section 354. The dispute centers on the interpretation of Section 354 because in an effort to exculpate themselves, petitioners have raised the defense of prescription. On the five-year prescriptive period, both parties are in agreement. They differ however in the manner of computation, specifically as to when the period should commence. Thus: Section 73. Penalty for failure to file return or to pay tax. — Anyone liable to pay the tax, to make a return or to supply information required under this Code, who refuses or neglects to pay such tax, to make such return or to supply such information at the time or times herein specified in each year, shall be punished by a fine of not more than two thousand pesos or by imprisonment for not more than six months, or both. Any individual or any officer of any corporation, or general co-partnership ..., required by law to make, render, sign or verify any return or to supply any information, who makes any false or fraudulent return or statement with intent to defeat or evade the assessment required by this Code to be made, shall be punished by a fine of not exceeding four thousand pesos or by imprisonment for not exceeding one year, or both. Section 354. Prescription for violations of any provisions of this Code. — All violations of any provision of this Code shall prescribe after five years. Prescription shall been to run from the day of the commission of the violation of the law, and if the same be not known at the time, from the discovery thereof and the institution of judicial proceeding for its investigation and punishment.

The presumption shall be interrupted when proceedings are instituted against the guilty persons and sham begin to run again if the proceedings are dismissed for reasons not constituting jeopardy. The term of prescription shall not run when the offender is absent from the Philippines. (Emphasis supplied) Indubitably, petitioners had filed false and fraudulent income tax returns for the years 1958 and 1959 by nondisclosure of sales in the aggregate amount of P2,197,742.92, thereby depriving the Government in the amount of P1,237,190.55, representing deficiency income taxes inclusive of interest, surcharges and compromise penalty for late payment. Considering that this occurred in the late 1950's, the defraudation was on a massive scale. Relative to Criminal Cases Nos. 1788 and 1789 which involved petitioners' refusal to pay the deficiency income taxes due, again both parties are in accord that by their nature, the violations as charged could only be committed after service of notice and demand for payment of the deficiency taxes upon the taxpayers. Petitioners maintain that the five-year period of limitation under Section 354 should be reckoned from April 7, 1965, the date of the original assessment while the Government insists that it should be counted from July 3, 1968 when the final notice and demand was served on petitioners' daughter-in-law. We hold for the Government. Section 51 (b) of the Tax Code provides: (b) Assessment and payment of deficiency tax. — After the return is filed, the Commissioner of internal Revenue shall examine it and assess the correct amount of the tax. The tax or deficiency in tax so discovered shall be paid upon notice and demand from the Commissioner of Internal Revenue. (Emphasis supplied) Inasmuch as the final notice and demand for payment of the deficiency taxes was served on petitioners on July 3, 1968, it was only then that the cause of action on the part of the BIR accrued. This is so because prior to the receipt of the letter-assessment, no violation has yet been committed by the taxpayers. The offense was committed only after receipt was coupled with the wilful refusal to pay the taxes due within the alloted period. The two criminal informations, having been filed on June 23, 1970, are well-within the five-year prescriptive period and are not time-barred. With regard to Criminal Cases Nos. 1790 and 1791 which dealt with petitioners' filing of fraudulent consolidated income tax returns with intent to evade the assessment decreed by law, petitioners contend that the said crimes have likewise prescribed. They advance the view that the five-year period should be counted from the date ofdiscovery of the alleged fraud which, at the latest, should have been October 15, 1964, the date stated by the Appellate Court in its resolution of April 4, 1978 as the date the fraudulent nature of the returns was unearthed. 9 On behalf of the Government, the Solicitor General counters that the crime of filing false returns can be considered "discovered" only after the manner of commission, and the nature and extent of the fraud have been definitely ascertained. It was only on October 10, 1967 when the BIR rendered its final decision holding that there was no ground for the reversal of the assessment and therefore required the petitioners to pay P1,237,190.55 in deficiency taxes that the tax infractions were discovered. Not only that. The Solicitor General stresses that Section 354 speaks not only of discovery of the fraud but also institution of judicial proceedings. Note the conjunctive word "and" between the phrases "the discovery thereof" and "the institution of judicial proceedings for its investigation and

proceedings." In other words, in addition to the fact of discovery, there must be a judicial proceeding for the investigation and punishment of the tax offense before the five-year limiting period begins to run. It was on September 1, 1969 that the offenses subject of Criminal Cases Nos. 1790 and 1791 were indorsed to the Fiscal's Office for preliminary investigation. Inasmuch as a preliminary investigation is a proceeding for investigation and punishment of a crime, it was only on September 1, 1969 that the prescriptive period commenced. But according to the Lim spouses, that argument had precisely been raised, considered and found without merit in the case of People vs. Ching Lak 10 which had perfunctorily dismissed the Government's position in this wise: Anent the theory that in the present case the period of prescription should commence from the time the case was referred to the Fiscal's Office, suffice it to state that the theory is not supported by any provision of law and we need not elucidate thereon. (Emphasis supplied). The Court is inclined to adopt the view of the Solicitor General. For while that particular point might have been raised in the Ching Lak case, the Court, at that time, did not give a definitive ruling which would have settled the question once and for all. As Section 354 stands in the statute book (and to this day it has remained unchanged) it would indeed seem that tax cases, such as the present ones, are practically imprescriptible for as long as the period from the discovery and institution of judicial proceedings for its investigation and punishment, up to the filing of the information in court does not exceed five (5) years. In the case of People vs. Tierra, 11 the same argument came up before the Court but its conclusions on the issue of prescription did not bring us any closer to a categorical ruling. It opined: Evidence was adduced to show, and the trial court so found, that the falsity of the returns filed by the appellant and his failure to preserve his books of accounts for at least five years from the date of the last entry in each book were all discovered only on December 16, 1950. Since the informations were filed on December 12, 1955, the trial court correctly ruled that the actions were all within the five-year period of limitation.
Appellant argues, however, that since the informations make no allegation that the offenses were not known at the time of the commission as to bring them within the exception to the statute of limitations, then the informations were necessarily defective for that reason, and this fatal defect cannot be cured by the introduction of evidence. Prescription is a matter of defense and the information does not need to anticipate and meet it. The defendant could, at most, object to the introduction of evidence to defeat his claim of prescription; but he did not. Anyway, the law says that prescription begins to run from ... "the institution of judicial proceedings for its ... punishment." 12 (Emphasis supplied).

Unless amended by the legislature, Section 354 stays in the Tax Code as it was written during the days of the Commonwealth. And as it is, must be applied regardless of its apparent one-sidedness in favor of the Government. In criminal cases, statutes of limitations are acts of grace, a surrendering by the sovereign of its right to prosecute. They receive a strict construction in favor of the Government and limitations in such cases will not be presumed in the absence of clear legislation. 13 The petition, however, is impressed with merit insofar as it assails the inclusion in the judgment of the payment of deficiency taxes in Criminal Cases Nos. 1788-1789. The trial court had absolutely no

jurisdiction in sentencing the Lim couple to indemnify the Government for the taxes unpaid. The lower court erred in applying Presidential Decree No. 69, particularly Section 316 thereof, which provides that "judgment in the criminal case shall not only impose the penalty but shall order payment of the taxes subject of the criminal case", because that decree took effect only on January 1, 1973 whereas the criminal cases subject of this appeal were instituted on June 23, 1970. Save in the two specific instances, Presidential Decree No. 69 has no retroactive application. In the case of People vs. Tierra, 14 we reiterated the ruling in People vs. Arnault, 15 that there is no legal sanction for the imposition of payment of the civil indemnity to the Government in a criminal proceeding for violation of income tax laws. Thus: ... While Section 73 of the National Internal Revenue Code provides for the imposition of the penalty for refusal or neglect to pay income tax or to make a return thereof, by imprisonment or fine, or both, it fails to provide for the collection of said tax in criminal proceedings. As well contended by counsel for appellant, Chapters I and II of Title IX of the National Internal Revenue Code provides only for civil remedies for the collection of the income tax, and under Section 316, the civil remedy is either by distraint of goods, chattels, etc., or by judicial action. It is a commonly accepted principle of law that the method prescribed by statute for the collection of taxes is generally exclusive, and unless a contrary intent be gathered from the statute, it should be followed strictly. (3 Cooley, Law on Taxation, Section 1326, pp. 621-623). Under the cited Tierra and Arnault cases, it is clear that criminal conviction for a violation of any penal provision in the Tax Code does not amount at the same time to a decision for the payment of the unpaid taxes inasmuch as there is no specific provision in the Tax Code to that effect. 16 Considering that under Section 316 of the Tax Code prior to its amendment the trial could not order the payment of the unpaid taxes as part of the sentence, the question of whether or not the supervening death of petitioner Emilio E. Lim, Sr. has extinguished his tax liability need not concern us. However, with regard to the pecuniary penalty of fine imposed on the deceased Lim, this is necessarily extinguished by his death in accordance with Section 89 of the Revised Penal Code. In resume we therefore rule: 1. Criminal Cases Nos. 1788-1789 and 1790-1791, having been instituted by the Government on June 23, 1970, are not time-barred pursuant to Section 354 of the National Internal Revenue Code; 2. The then Court of First Instance of Manila, Branch 6 is devoid of jurisdiction to direct the collection and payment of the unpaid deficiency taxes in Criminal Case Nos. 1788-1789 because prior to the amendment introduced by Presidential Decree No. 69, such imposition was not sanctioned under Section 316; 3. The fine imposed in the four (4) aforementioned criminal cases is hereby affirmed in the case of petitioner Antonia Sun Lim in accordance with the provision of Section 73 of the Tax Code. The fine is deemed extinguished in the ease of the deceased petitioner Emilio E. Lim, Sr. pursuant to Section 89 of the Revised Penal Code. WHEREFORE, conformably with the abovestated ruling, the decision of the Court of Appeals under review is deemed MODIFIED. No costs. SO ORDERED.

Bidin and Cortes, JJ., concur. Feliciano, J., is on leave. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 174942 March 7, 2008

BANK OF THE PHILIPPINE ISLANDS (Formerly: Far East Bank and Trust Company), petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent. DECISION TINGA, J.: The Bank of the Philippine Islands (BPI) seeks a review of the Decision1dated 15 August 2006 and the Resolution2dated 5 October 2006, both of the Court of Tax Appeals (CTA or tax court), which ruled that BPI is liable for the deficiency documentary stamp tax (DST) on its cabled instructions to its foreign correspondent bank and that prescription had not yet set in against the government. The following undisputed facts are culled from the CTA decision: Petitioner, the surviving bank after its merger with Far East Bank and Trust Company, is a corporation duly created and existing under the laws of the Republic of the Philippines with principal office at Ayala Avenue corner Paseo de Roxas Ave., Makati City. Respondent thru then Revenue Service Chief Cesar M. Valdez, issued to the petitioner a pre-assessment notice (PAN) dated November 26, 1986. Petitioner, in a letter dated November 29, 1986, requested for the details of the amounts alleged as 1982-1986 deficiency taxes mentioned in the November 26, 1986 PAN. On April 7, 1989, respondent issued to the petitioner, assessment/demand notices FAS-1-82 to 86/89-000 and FAS 5-82 to 86/89-000 for deficiency withholding tax at source (Swap Transactions) and DST involving the amounts of P190,752,860.82 and P24,587,174.63, respectively, for the years 1982 to 1986. On April 20, 1989, petitioner filed a protest on the demand/assessment notices. On May 8, 1989, petitioner filed a supplemental protest. On March 12, 1993, petitioner requested for an opportunity to present or submit additional documentation on the Swap Transactions with the then Central Bank (page 240, BIR Records). Attached to the letter dated June 17, 1994, in connection with the reinvestigation of the abovementioned assessment, petitioner submitted to the BIR, Swap Contracts with the Central Bank.

Petitioner executed several Waivers of the Statutes of Limitations, the last of which was effective until December 31, 1994. On August 9, 2002, respondent issued a final decision on petitioner’s protest ordering the withdrawal and cancellation of the deficiency withholding tax assessment in the amount of P190,752,860.82 and considered the same as closed and terminated. On the other hand, the deficiency DST assessment in the amount ofP24,587,174.63 was reiterated and the petitioner was ordered to pay the said amount within thirty (30) days from receipt of such order. Petitioner received a copy of the said decision on January 15, 2003. Thereafter, on January 24, 2003, petitioner filed a Petition for Review before the Court. On August 31, 2004, the Court rendered a Decision denying the petitioner’s Petition for Review, the dispositive portion of which is quoted hereunder: IN VIEW OF ALL THE FOREGOING, the petition is hereby DENIED for lack of merit. Accordingly, petitioner is ORDERED to PAY the respondent the amount of P24,587,174.63 representing deficiency documentary stamp tax for the period 1982-1986, plus 20% interest starting February 14, 2003 until the amount is fully paid pursuant to Section 249 of the Tax Code. SO ORDERED. On September 21, 2004, petitioner filed a Motion for Reconsideration of the abovementioned Decision which was denied for lack of merit in a Resolution dated February 14, 2005. On March 9, 2005, petitioner filed with the Court En Banc a Motion for Extension of Time to File Petition for Review praying for an extension of fifteen (15) days from March 10, 2005 or until March 25, 2005. Petitioner’s motion was granted in a Resolution dated March 16, 2005. On March 28, 2005, (March 25 was Good Friday), petitioner filed the instant Petition for Review, advancing the following assignment of errors. I. THIS HONORABLE COURT OVERLOOKED THE SIGNIFICANCE OF THE WAIVER DULY AND VALIDLY AGREED UPON BY THE PARTIES AND EFFECTIVE UNTIL DECEMBER 31, 1994; II. THIS TAX COURT ERRED IN HOLDING THAT THE COLLECTION OF ALLEGED DEFICIENCY TAXHAS NOT PRESCRIBED. III. THIS HONORABLE COURT ERRED IN HOLDING THAT RESPONDENT DID NOT VIOLATE PROCEDURAL DUE PROCESS IN THE ISSUANCE OF ASSESSMENT NOTICE RELATIVE TO DOCUMENTARY STAMP DEFICIENCY. IV. THIS HONORABLE COURT ERRED IN HOLDING THAT THE 4 MARCH 1987 MEMORANDUM OF THE LEGAL SERVICE CHIEF DULY APPROVED BY THE BIR COMMISISONER VESTS NO RIGHTS TO PETITIONER. V. THIS HONORABLE COURT ERRED IN HOLDING THAT PETITIONER IS LIABLE FOR DOCUMENTARY STAMP TAX ON SWAP LOANS TRANSACTIONS FROM 1982 TO 1986.3

The CTA synthesized the foregoing issues into whether the collection of the deficiency DST is barred by prescription and whether BPI is liable for DST on its SWAP loan transactions. On the first issue, the tax court, applying the case of Commissioner of Internal Revenue v. Wyeth Suaco Laboratories, Inc.,4(Wyeth Suaco case), ruled that BPI’s protest and supplemental protest should be considered requests for reinvestigation which tolled the prescriptive period provided by law to collect a tax deficiency by distraint, levy, or court proceeding. It further held, as regards the second issue, that BPI’s cabled instructions to its foreign correspondent bank to remit a specific sum in dollars to the Federal Reserve Bank, the same to be credited to the account of the Central Bank, are in the nature of a telegraphic transfer subject to DST under Section 195 of the Tax Code. In its Petition for Review5 dated 24 November 2006, BPI argues that the government’s right to collect the DST had already prescribed because the Commissioner of Internal Revenue (CIR) failed to issue any reply granting BPI’s request for reinvestigation manifested in the protest letters dated 20 April and 8 May 1989. It was only through the 9 August 2002 Decision ordering BPI to pay deficiency DST, or after the lapse of more than thirteen (13) years, that the CIR acted on the request for reinvestigation, warranting the conclusion that prescription had already set in. It further claims that the CIR was not precluded from collecting the deficiency within three (3) years from the time the notice of assessment was issued on 7 April 1989, or even until the expiration on 31 December 1994 of the last waiver of the statute of limitations signed by BPI. Moreover, BPI avers that the cabled instructions to its correspondent bank are not subject to DST because the National Internal Revenue Code of 1977 (Tax Code of 1977) does not contain a specific provision that cabled instructions on SWAP transactions are subject to DST. The Office of the Solicitor General (OSG) filed a Comment6 dated 1 June 2007, on behalf of the CIR, asserting that the prescriptive period was tolled by the protest letters filed by BPI which were granted and acted upon by the CIR. Such action was allegedly communicated to BPI as, in fact, the latter submitted additional documents pertaining to its SWAP transactions in support of its request for reinvestigation. Thus, it was only upon BPI’s receipt on 13 January 2003 of the 9 August 2002 Decision that the period to collect commenced to run again. The OSG cites the case of Collector of Internal Revenue v. Suyoc Consolidated Mining Company, et al.7(Suyoccase) in support of its argument that BPI is already estopped from raising the defense of prescription in view of its repeated requests for reinvestigation which allegedly induced the CIR to delay the collection of the assessed tax. In its Reply8dated 30 August 2007, BPI argues against the application of the Suyoc case on two points: first, it never induced the CIR to postpone tax collection; second, its request for reinvestigation was not categorically acted upon by the CIR within the three-year collection period after assessment. BPI maintains that it did not receive any communication from the CIR in reply to its protest letters. We grant the petition. Section 3189 of the Tax Code of 1977 provides: 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. 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 statute of limitations on assessment and collection of national internal revenue taxes was shortened from five (5) years to three (3) years by Batas Pambansa Blg. 700.10 Thus, the CIR has three (3) years from the date of actual filing of the tax return to assess a national internal revenue tax or to commence court proceedings for the collection thereof without an assessment. When it validly issues an assessment within the three (3)-year period, it has another three (3) years within which to collect the tax due by distraint, levy, or court proceeding. The assessment of the tax is deemed made and the three (3)-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent to the taxpayer.11 As applied to the present case, the CIR had three (3) years from the time he issued assessment notices to BPI on 7 April 1989 or until 6 April 1992 within which to collect the deficiency DST. However, it was only on 9 August 2002 that the CIR ordered BPI to pay the deficiency. In order to determine whether the prescriptive period for collecting the tax deficiency was effectively tolled by BPI’s filing of the protest letters dated 20 April and 8 May 1989 as claimed by the CIR, we need to examine Section 32012 of the Tax Code of 1977, which states: Sec. 320. Suspension of running of statute.—The running of the statute of limitations provided in Sections 318 or 319 on the making of assessment 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 re-investigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected: Provided, That if the taxpayer informs the Commissioner of any change in address, the running of the statute of limitations will not be suspended; when the warrant of distraint 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 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. In BPI v. Commissioner of Internal Revenue,13the Court emphasized the rule that the CIR must first grant the request for reinvestigation as a requirement for the suspension of the statute of limitations. The Court said: In the case of Republic of the Philippines v. Gancayco, taxpayer Gancayco requested for a thorough reinvestigation of the assessment against him and placed at the disposal of the Collector of Internal Revenue all the evidences he had for such purpose; yet, the Collector ignored the request, and the records and documents were not at all examined. Considering the given facts, this Court pronounced that— x x x The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in order to effect suspension. (Collector v. Suyoc Consolidated, supra; also Republic v. Ablaza, supra). Moreover, the Collector gave appellee until April 1, 1949, within which to submit his evidence, which the latter did one day before.

There were no impediments on the part of the Collector to file the collection case from April 1, 1949… In Republic of the Philippines v. Acebedo, this Court similarly found that— x x x T]he 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 follow-up of this warrant. Consequently, the request for reinvestigation did not suspend the running of the period for filing an action for collection. [Emphasis in the original]14 The Court went on to declare that the burden of proof that the request for reinvestigation had been actually granted shall be on the CIR. Such grant may be expressed in its communications with the taxpayer or implied from the action of the CIR or his authorized representative in response to the request for reinvestigation. There is nothing in the records of this case which indicates, expressly or impliedly, that the CIR had granted the request for reinvestigation filed by BPI. What is reflected in the records is the piercing silence and inaction of the CIR on the request for reinvestigation, as he considered BPI’s letters of protest to be. In fact, it was only in his comment to the present petition that the CIR, through the OSG, argued for the first time that he had granted the request for reinvestigation. His consistent stance invoking the Wyeth Suaco case, as reflected in the records, is that the prescriptive period was tolled by BPI’s request for reinvestigation, without any assertion that the same had been granted or at least acted upon.15 In the Wyeth Suaco case, private respondent Wyeth Suaco Laboratories, Inc. sent letters seeking the reinvestigation or reconsideration of the deficiency tax assessments issued by the BIR. The records of the case showed that as a result of these protest letters, the BIR Manufacturing Audit Division conducted a review and reinvestigation of the assessments. The records further showed that the company, thru its finance manager, communicated its inability to settle the tax deficiency assessment and admitted that it knew of the ongoing review and consideration of its protest. As differentiated from the Wyeth Suaco case, however, there is no evidence in this case that the CIR actually conducted a reinvestigation upon the request of BPI or that the latter was made aware of the action taken on its request. Hence, there is no basis for the tax court’s ruling that the filing of the request for reinvestigation tolled the running of the prescriptive period for collecting the tax deficiency. Neither did the waiver of the statute of limitations signed by BPI supposedly effective until 31 December 1994 suspend the prescriptive period. The CIR himself contends that the waiver is void as it shows no date of acceptance in violation of RMO No. 20-90.16 At any rate, the records of this case do not disclose any effort on the part of the Bureau of Internal Revenue to collect the deficiency tax after the expiration of the waiver until eight (8) years thereafter when it finally issued a decision on the protest. We also find the Suyoc case inapplicable. In that case, several requests for reinvestigation and reconsideration were filed by Suyoc Consolidated Mining Company purporting to question the correctness of tax assessments against it. As a result, the Collector of Internal Revenue refrained

from collecting the tax by distraint, levy or court proceeding in order to give the company every opportunity to prove its claim. The Collector also conducted several reinvestigations which eventually led to a reduced assessment. The company, however, filed a petition with the CTA claiming that the right of the government to collect the tax had already prescribed. When the case reached this Court, we ruled that Suyoc could not set up the defense of prescription since, by its own action, the government was induced to delay the collection of taxes to make the company feel that the demand was not unreasonable or that no harassment or injustice was meant by the government. In this case, BPI’s letters of protest and submission of additional documents pertaining to its SWAP transactions, which were never even acted upon, much less granted, cannot be said to have persuaded the CIR to postpone the collection of the deficiency DST. The inordinate delay of the CIR in acting upon and resolving the request for reinvestigation filed by BPI and in collecting the DST allegedly due from the latter had resulted in the prescription of the government’s right to collect the deficiency. As this Court declared in Republic of the Philippines v. Ablaza:17 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, lawabiding citizens. Without such a legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law.18 Given the prescription of the government’s claim, we no longer deem it necessary to pass upon the validity of the assessment. WHEREFORE, the petition is GRANTED. The Decisionof the Court of Tax Appeals dated 15 August 2006 and its Resolution dated 5 October 2006, are hereby REVERSED and SET ASIDE. No pronouncement as to costs. SO ORDERED. Carpio, Acting Chairperson, Carpio-Morales, Azcuna*, Velasco, Jr., JJ., concur. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 167146 October 31, 2006

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. PHILIPPINE GLOBAL COMMUNICATION, INC., respondent.

DECISION

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 bancDecision of the Court of Tax Appeals (CTA) in CTA EB No. 37 dated 22 February 2005,1 ordering the petitioner to 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 20042 and its 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 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 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. 000688-80-7333. 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. 000688-807333, 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 2004.6 The CTA ruled on the primary issue of 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 reinvestigation, hence, they cannot toll the running of the prescriptive period

to collect the assessed deficiency income tax.7 Thus, since more than three years had 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 19778(Tax Code of 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 2004.10 Thereafter, 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 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: 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 INTERUPTED 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. –xxx xxxx c. Any internal revenue tax which has been assessed within the period of limitation aboveprescribed 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.13 However, 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.14 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. 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 process of distraint and/or levy or through judicial proceedings.15 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.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 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,18 Justice Montemayor, in his dissenting opinion, identified the 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 . In Republic of the Philippines v. Ablaza,19 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: 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, lawabiding 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 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,20 this Court, in confirming these earlier rulings, 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,21 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. 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. (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. 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: 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 re-evaluation 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 Revenue22 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 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 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 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. 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,25 it took into account the reinvestigation conducted soon 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 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,26 even gave a detailed accounting of the 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 taxpayer demands a reinvestigation, the time employed in reinvestigating should be 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,27"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,28 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." 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.29 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. 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 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 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. Conda,31 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. 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 him feel that the demand was not unreasonable or that no harassment or injustice is 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 reinvestigation – 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., 32 of the need to balance the conflicting interests of the 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. 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. 000688-807333 issued against Philippine Global 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.

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