G.R. No. 168498 April 24, 2007 Petitioner’s arguments fail to persuade us.

RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, As correctly observed by the Court of Tax Appeals in its Decision dated June 7,
vs. 2005:
COMMISSIONER OF INTERNAL REVENUE, Respondent.
If indeed there was negligence, this is obviously on the part of petitioner’s own
RESOLUTION counsel whose prudence in handling the case fell short of that required under
the circumstances. He was well aware of the motion filed by the respondent for
the Court to resolve first the issue of this Court’s jurisdiction on July 15, 2003,
YNARES-SANTIAGO, J.: that a hearing was conducted thereon on August 15, 2003 where both counsels
were present and at said hearing the motion was submitted for resolution.
Petitioner reiterates its claim that its former counsel’s failure to file petition for Petitioner’s counsel apparently did not show enthusiasm in the case he was
review with the Court of Tax Appeals within the period set by Section 228 of handling as he should have been vigilant of the outcome of said motion and be
the National Internal Revenue Code of 1997 (NIRC) was excusable and raised prepared for the necessary action to take whatever the outcome may have been.
the following issues for resolution: Such kind of negligence cannot support petitioner’s claim for relief from
judgment.
A.
Besides, tax assessments by tax examiners are presumed correct and made in
good faith, and all presumptions are in favor of the correctness of a tax
THE DENIAL OF PETITIONER’S PETITION FOR RELIEF FROM assessment unless proven otherwise.4 Also, petitioner’s failure to file a petition
JUDGMENT WILL RESULT IN THE DENIAL OF SUBSTANTIVE for review with the Court of Tax Appeals within the statutory period rendered
JUSTICE TO PETITIONER, CONTRARY TO ESTABLISHED DECISIONS the disputed assessment final, executory and demandable, thereby precluding it
OF THIS HONORABLE COURT BECAUSE THE ASSESSMENT SOUGHT from interposing the defenses of legality or validity of the assessment and
TO BE CANCELLED HAS ALREADY PRESCRIBED – A FACT NOT prescription of the Government’s right to assess.5
DENIED BY THE RESPONDENT IN ITS ANSWER.

The Court of Tax Appeals is a court of special jurisdiction and can only take
B. cognizance of such matters as are clearly within its jurisdiction. Section 7 of
Republic Act (R.A.) No. 9282, amending R.A. No. 1125, otherwise known as
CONTRARY TO THIS HONORABLE COURT’S DECISION, AND the Law Creating the Court of Tax Appeals, provides:
FOLLOWING THE LASCONA DECISION, AS WELL AS THE 2005
REVISED RULES OF THE COURT OF TAX APPEALS, PETITIONER Sec. 7. Jurisdiction. — The CTA shall exercise:
TIMELY FILED ITS PETITION FOR REVIEW BEFORE THE COURT OF
TAX APPEALS; THUS, THE COURT OF TAX APPEALS HAD
JURISDICTION OVER THE CASE. (a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

C. (1) Decisions of the Commissioner of Internal Revenue in cases involving

disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties in relation thereto, or other matters arising under the National Internal
CONSIDERING THAT THE SUBJECT ASSESSMENT INVOLVES AN Revenue or other laws administered by the Bureau of Internal Revenue;
INDUSTRY ISSUE, THAT IS, A DEFICIENCY ASSESSMENT FOR
DOCUMENTARY STAMP TAX ON SPECIAL SAVINGS ACCOUNTS AND
GROSS ONSHORE TAX, PETITIONER IN THE INTEREST OF (2) Inaction by the Commissioner of Internal Revenue in cases involving
SUBSTANTIVE JUSTICE AND UNIFORMITY OF TAXATION, SHOULD disputed assessments, refunds of internal revenue taxes, fees or other charges,
BE ALLOWED TO FULLY LITIGATE THE ISSUE BEFORE THE COURT penalties in relation thereto, or other matters arising under the National Internal
OF TAX APPEALS.2 Revenue Code or other laws administered by the Bureau of Internal Revenue,
where the National Internal Revenue Code provides a specific period of action,
in which case the inaction shall be deemed a denial;
Petitioner’s motion for reconsideration is denied for lack of merit.

Also, Section 3, Rule 4 and Section 3(a), Rule 8 of the Revised Rules of the
Other than the issue of prescription, which is raised herein for the first time, the Court of Tax Appeals6 state:
issues presented are a mere rehash of petitioner’s previous arguments, all of
which have been considered and found without merit in our Decision dated
June 16, 2006. RULE 4
Jurisdiction of the Court
Petitioner maintains that its counsel’s neglect in not filing the petition for
review within the reglementary period was excusable. It alleges that the xxxx
counsel’s secretary misplaced the Resolution hence the counsel was not
aware of its issuance and that it had become final and executory. SECTION 3. Cases Within the Jurisdiction of the Court in Divisions. — The
Court in Divisions shall exercise:
COURT: We are not persuaded.
(a) Exclusive original or appellate jurisdiction to review by appeal the
In our Decision, we held that: following:

Relief cannot be granted on the flimsy excuse that the failure to appeal was due (1) Decisions of the Commissioner of Internal Revenue in cases involving
to the neglect of petitioner’s counsel. Otherwise, all that a losing party would disputed assessments, refunds of internal revenue taxes, fees or other charges,
do to salvage his case would be to invoke neglect or mistake of his counsel as a penalties in relation thereto, or other matters arising under the National Internal
ground for reversing or setting aside the adverse judgment, thereby putting no Revenue Code or other laws administered by the Bureau of Internal Revenue;
end to litigation.
(2) Inaction by the Commissioner of Internal Revenue in cases involving
Negligence to be "excusable" must be one which ordinary diligence and disputed assessments, refunds of internal revenue taxes, fees or other charges,
prudence could not have guarded against and by reason of which the rights of penalties in relation thereto, or other matters arising under the National Internal
an aggrieved party have probably been impaired. Petitioner’s former counsel’s Revenue Code or other laws administered by the Bureau of Internal Revenue,
omission could hardly be characterized as excusable, much less unavoidable. where the National Internal Revenue Code or other applicable law provides a
specific period for action: Provided, that in case of disputed assessments, the
inaction of the Commissioner of Internal Revenue within the one hundred
The Court has repeatedly admonished lawyers to adopt a system whereby they eighty day-period under Section 228 of the National Internal Revenue Code
can always receive promptly judicial notices and pleadings intended for them. shall be deemed a denial for purposes of allowing the taxpayer to appeal his
Apparently, petitioner’s counsel was not only remiss in complying with this case to the Court and does not necessarily constitute a formal decision of the
admonition but he also failed to check periodically, as an act of prudence and Commissioner of Internal Revenue on the tax case; Provided, further, that
diligence, the status of the pending case before the CTA Second Division. The should the taxpayer opt to await the final decision of the Commissioner of
fact that counsel allegedly had not renewed the employment of his secretary, Internal Revenue on the disputed assessments beyond the one hundred eighty
thereby making the latter no longer attentive or focused on her work, did not day-period abovementioned, the taxpayer may appeal such final decision to the
relieve him of his responsibilities to his client. It is a problem personal to him Court under Section 3(a), Rule 8 of these Rules; and Provided, still further, that
which should not in any manner interfere with his professional commitments.3 in the case of claims for refund of taxes erroneously or illegally collected, the
taxpayer must file a petition for review with the Court prior to the expiration of
Petitioner also argues that, in the interest of substantial justice, the instant the two-year period under Section 229 of the National Internal Revenue Code;
case should be re-opened considering that it was allegedly not accorded its
day in court when the Court of Tax Appeals dismissed its petition for xxxx
review for late filing. It claims that rules of procedure are intended to help
secure, not override, substantial justice.
 RULE 8 G.R. No. 171251 March 5, 2012
Procedure in Civil Cases
LASCONA LAND CO., INC., Petitioner,
xxxx vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
SECTION 3. Who May Appeal; Period to File Petition. — (a) A party adversely
affected by a decision, ruling or the inaction of the Commissioner of Internal DECISION
Revenue on disputed assessments or claims for refund of internal revenue taxes,
or by a decision or ruling of the Commissioner of Customs, the Secretary of
PERALTA, J.:
Finance, the Secretary of Trade and Industry, the Secretary of Agriculture, or a
Regional Trial Court in the exercise of its original jurisdiction may appeal to
the Court by petition for review filed within thirty days after receipt of a copy Before this Court is a Petition for Review on Certiorari under Rule 45 of the
of such decision or ruling, or expiration of the period fixed by law for the Rules of Court seeking the reversal of the Decision1 dated October 25, 2005 and
Commissioner of Internal Revenue to act on the disputed assessments. In case Resolution2 dated January 20, 2006 of the Court of Appeals (CA) in CA-G.R.
of inaction of the Commissioner of Internal Revenue on claims for refund of SP No. 58061 which set aside the Decision3 dated January 4, 2000 and
internal revenue taxes erroneously or illegally collected, the taxpayer must file Resolution4 dated March 3, 2000 of the Court of Tax Appeals (CTA) in C.T.A.
a petition for review within the two-year period prescribed by law from Case No. 5777 and declared Assessment Notice No. 0000047-93-407 dated
payment or collection of the taxes. (n) March 27, 1998 to be final, executory and demandable.

From the foregoing, it is clear that the jurisdiction of the Court of Tax The facts, as culled from the records, are as follows:
Appeals has been expanded to include not only decisions or rulings but
inaction as well of the Commissioner of Internal Revenue. The decisions,
rulings or inaction of the Commissioner are necessary in order to vest the On March 27, 1998, the Commissioner of Internal Revenue (CIR) issued
Court of Tax Appeals with jurisdiction to entertain the appeal, provided it Assessment Notice No. 0000047-93-4075 against Lascona Land Co., Inc.
is filed within 30 days after the receipt of such decision or ruling, or within (Lascona) informing the latter of its alleged deficiency income tax for the year
30 days after the expiration of the 180-day period fixed by law for the 1993 in the amount of ₱753,266.56.
Commissioner to act on the disputed assessments. This 30-day period
within which to file an appeal is jurisdictional and failure to comply Consequently, on April 20, 1998, Lascona filed a letter protest, but was denied
therewith would bar the appeal and deprive the Court of Tax Appeals of its by Norberto R. Odulio, Officer-in-Charge (OIC), Regional Director, Bureau of
jurisdiction to entertain and determine the correctness of the assessments. Internal Revenue, Revenue Region No. 8, Makati City, in his Letter6 dated
Such period is not merely directory but mandatory and it is beyond the March 3, 1999, which reads, thus:
power of the courts to extend the same.7

xxxx
In case the Commissioner failed to act on the disputed assessment within
the 180-day period from date of submission of documents, a taxpayer can
either: 1) file a petition for review with the Court of Tax Appeals within 30 Subject: LASCONA LAND CO., INC.
days after the expiration of the 180-day period; or 2) await the final
decision of the Commissioner on the disputed assessments and appeal such 1993 Deficiency Income Tax
final decision to the Court of Tax Appeals within 30 days after receipt of a
copy of such decision. However, these options are mutually exclusive, and
resort to one bars the application of the other. Madam,

In the instant case, the Commissioner failed to act on the disputed assessment Anent the 1993 tax case of subject taxpayer, please be informed that while we
within 180 days from date of submission of documents. Thus, petitioner opted agree with the arguments advanced in your letter protest, we regret, however,
to file a petition for review before the Court of Tax Appeals. Unfortunately, the that we cannot give due course to your request to cancel or set aside the
petition for review was filed out of time, i.e., it was filed more than 30 days assessment notice issued to your client for the reason that the case was not
after the lapse of the 180-day period. Consequently, it was dismissed by the elevated to the Court of Tax Appeals as mandated by the provisions of the last
Court of Tax Appeals for late filing. Petitioner did not file a motion for paragraph of Section 228 of the Tax Code. By virtue thereof, the said
reconsideration or make an appeal; hence, the disputed assessment became assessment notice has become final, executory and demandable.
final, demandable and executory.
In view of the foregoing, please advise your client to pay its 1993 deficiency
Based on the foregoing, petitioner can not now claim that the disputed income tax liability in the amount of ₱753,266.56.
assessment is not yet final as it remained unacted upon by the Commissioner;
that it can still await the final decision of the Commissioner and thereafter x x x x (Emphasis ours)
appeal the same to the Court of Tax Appeals. This legal maneuver cannot be
countenanced. After availing the first option, i.e., filing a petition for review
which was however filed out of time, petitioner can not successfully resort to On April 12, 1999, Lascona appealed the decision before the CTA and was
the second option, i.e., awaiting the final decision of the Commissioner and docketed as C.T.A. Case No. 5777. Lascona alleged that the Regional
appealing the same to the Court of Tax Appeals, on the pretext that there is yet Director erred in ruling that the failure to appeal to the CTA within thirty
no final decision on the disputed assessment because of the Commissioner’s (30) days from the lapse of the 180-day period rendered the assessment
inaction. final and executory.

Lastly, we note that petitioner is raising the issue of prescription for the first The CIR, however, maintained that Lascona's failure to timely file an appeal
time in the instant motion for reconsideration. Although the same was raised in with the CTA after the lapse of the 180-day reglementary period provided under
the petition for review, it was dismissed for late filing. No motion for Section 228 of the National Internal Revenue Code (NIRC) resulted to the
reconsideration was filed hence the disputed assessment became final, finality of the assessment.
demandable and executory. Thereafter, petitioner filed with the Court of Tax
Appeals a petition for relief from judgment. However, it failed to raise the issue
On January 4, 2000, the CTA, in its Decision,7 nullified the subject assessment.
of prescription therein. After its petition for relief from judgment was denied by
It held that in cases of inaction by the CIR on the protested assessment, Section
the Court of Tax Appeals for lack of merit, petitioner filed a petition for review
228 of the NIRC provided two options for the taxpayer: (1) appeal to the CTA
before this Court without raising the issue of prescription. It is only in the
within thirty (30) days from the lapse of the one hundred eighty (180)-day
instant motion for reconsideration that petitioner raised the issue of prescription
period, or (2) wait until the Commissioner decides on his protest before he
which is not allowed. The rule is well-settled that points of law, theories, issues
elevates the case.
and arguments not adequately brought to the attention of the lower court need
not be considered by the reviewing court as they cannot be raised for the first
time on appeal,8 much more in a motion for reconsideration as in this case, The CIR moved for reconsideration. It argued that in declaring the subject
because this would be offensive to the basic rules of fair play, justice and due assessment as final, executory and demandable, it did so pursuant to Section 3
process.9 This last ditch effort to shift to a new theory and raise a new matter in (3.1.5) of Revenue Regulations No. 12-99 dated September 6, 1999 which
the hope of a favorable result is a pernicious practice that has consistently been reads, thus:
rejected.
If the Commissioner or his duly authorized representative fails to act on the
WHEREFORE, in view of the foregoing, petitioner’s motion for taxpayer's protest within one hundred eighty (180) days from date of
reconsideration is DENIED. submission, by the taxpayer, of the required documents in support of his
protest, the taxpayer may appeal to the Court of Tax Appeals within thirty (30)
days from the lapse of the said 180-day period; otherwise, the assessment shall
SO ORDERED.
become final, executory and demandable.

On March 3, 2000, the CTA denied the CIR's motion for reconsideration for
lack of merit.8 The CTA held that Revenue Regulations No. 12-99 must
conform to Section 228 of the NIRC. It pointed out that the former spoke of an
assessment becoming final, executory and demandable by reason of the Respondent, however, insists that in case of the inaction by the Commissioner
inaction by the Commissioner, while the latter referred to decisions becoming on the protested assessment within the 180-day reglementary period, petitioner
final, executory and demandable should the taxpayer adversely affected by the should have appealed the inaction to the CTA. Respondent maintains that due to
decision fail to appeal before the CTA within the prescribed period. Finally, it Lascona's failure to file an appeal with the CTA after the lapse of the 180-day
emphasized that in cases of discrepancy, Section 228 of the NIRC must prevail period, the assessment became final and executory.
over the revenue regulations.
We do not agree.
Dissatisfied, the CIR filed an appeal before the CA.9
In RCBC v. CIR,12 the Court has held that in case the Commissioner failed to act
In the disputed Decision dated October 25, 2005, the Court of Appeals granted on the disputed assessment within the 180-day period from date of submission
the CIR's petition and set aside the Decision dated January 4, 2000 of the CTA of documents, a taxpayer can either: (1) file a petition for review with the Court
and its Resolution dated March 3, 2000. It further declared that the subject of Tax Appeals within 30 days after the expiration of the 180-day period; or (2)
Assessment Notice No. 0000047-93-407 dated March 27, 1998 as final, await the final decision of the Commissioner on the disputed assessments and
executory and demandable. appeal such final decision to the Court of Tax Appeals within 30 days after
receipt of a copy of such decision.13
Lascona moved for reconsideration, but was denied for lack of merit.
This is consistent with Section 3 A (2), Rule 4 of the Revised Rules of the Court
of Tax Appeals,14 to wit:
Thus, the instant petition, raising the following issues:

SEC. 3. Cases within the jurisdiction of the Court in Divisions. – The Court in
I Divisions shall exercise:

THE HONORABLE COURT HAS, IN THE REVISED RULES OF COURT (a) Exclusive original or appellate jurisdiction to review by appeal the
OF TAX APPEALS WHICH IT RECENTLY PROMULGATED, RULED following:
THAT AN APPEAL FROM THE INACTION OF RESPONDENT
COMMISSIONER IS NOT MANDATORY.
(1) Decisions of the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other charges,
II penalties in relation thereto, or other matters arising under the National Internal
Revenue Code or other laws administered by the Bureau of Internal Revenue;
THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT
THE ASSESSMENT HAS BECOME FINAL AND DEMANDABLE (2) Inaction by the Commissioner of Internal Revenue in cases involving
BECAUSE, ALLEGEDLY, THE WORD "DECISION" IN THE LAST disputed assessments, refunds of internal revenue taxes, fees or other charges,
PARAGRAPH OF SECTION 228 CANNOT BE STRICTLY CONSTRUED penalties in relation thereto, or other matters arising under the National Internal
AS REFERRING ONLY TO THE DECISION PER SE OF THE Revenue Code or other laws administered by the Bureau of Internal Revenue,
COMMISSIONER, BUT SHOULD ALSO BE CONSIDERED where the National Internal Revenue Code or other applicable law provides a
SYNONYMOUS WITH AN ASSESSMENT WHICH HAS BEEN specific period for action: Provided, that in case of disputed assessments, the
PROTESTED, BUT THE PROTEST ON WHICH HAS NOT BEEN ACTED inaction of the Commissioner of Internal Revenue within the one hundred
UPON BY THE COMMISSIONER.10 eighty day-period under Section 228 of the National Internal revenue Code
shall be deemed a denial for purposes of allowing the taxpayer to appeal his
ISSUE: Whether the subject assessment has become final, executory and case to the Court and does not necessarily constitute a formal decision of the
demandable due to the failure of petitioner to file an appeal before the CTA Commissioner of Internal Revenue on the tax case; Provided, further, that
within thirty (30) days from the lapse of the One Hundred Eighty (180)-day should the taxpayer opt to await the final decision of the Commissioner of
period pursuant to Section 228 of the NIRC? NO. Internal Revenue on the disputed assessments beyond the one hundred eighty
day-period abovementioned, the taxpayer may appeal such final decision to the
Court under Section 3(a), Rule 8 of these Rules; and Provided, still further, that
PETITIONER’S CONTENTION: in the case of claims for refund of taxes erroneously or illegally collected, the
taxpayer must file a petition for review with the Court prior to the expiration of
Petitioner Lascona, invoking Section 3,11 Rule 4 of the Revised Rules of the the two-year period under Section 229 of the National Internal Revenue Code;
Court of Tax Appeals, maintains that in case of inaction by the CIR on the
protested assessment, it has the option to either: (1) appeal to the CTA within 30 (Emphasis ours)
days from the lapse of the 180-day period; or (2) await the final decision of the
Commissioner on the disputed assessment even beyond the 180-day period − in
which case, the taxpayer may appeal such final decision within 30 days from In arguing that the assessment became final and executory by the sole
the receipt of the said decision. Corollarily, petitioner posits that when the reason that petitioner failed to appeal the inaction of the Commissioner
Commissioner failed to act on its protest within the 180-day period, it had the within 30 days after the 180-day reglementary period, respondent, in
option to await for the final decision of the Commissioner on the protest, which effect, limited the remedy of Lascona, as a taxpayer, under Section 228 of
it did. the NIRC to just one, that is - to appeal the inaction of the Commissioner
on its protested assessment after the lapse of the 180-day period. This is
incorrect.
COURT: The petition is meritorious.

As early as the case of CIR v. Villa,15 it was already established that the word
Section 228 of the NIRC is instructional as to the remedies of a taxpayer in case "decisions" in paragraph 1, Section 7 of Republic Act No. 1125, quoted above,
of the inaction of the Commissioner on the protested assessment, to wit: has been interpreted to mean the decisions of the Commissioner of Internal
Revenue on the protest of the taxpayer against the assessments. Definitely, said
SEC. 228. Protesting of Assessment. − x x x word does not signify the assessment itself. We quote what this Court said aptly
in a previous case:

xxxx
In the first place, we believe the respondent court erred in holding that the
assessment in question is the respondent Collector's decision or ruling
Within a period to be prescribed by implementing rules and regulations, the appealable to it, and that consequently, the period of thirty days prescribed by
taxpayer shall be required to respond to said notice. If the taxpayer fails to section 11 of Republic Act No. 1125 within which petitioner should have
respond, the Commissioner or his duly authorized representative shall issue an appealed to the respondent court must be counted from its receipt of said
assessment based on his findings. assessment. Where a taxpayer questions an assessment and asks the Collector to
reconsider or cancel the same because he (the taxpayer) believes he is not liable
Such assessment may be protested administratively by filing a request for therefor, the assessment becomes a "disputed assessment" that the Collector
reconsideration or reinvestigation within thirty (30) days from receipt of the must decide, and the taxpayer can appeal to the Court of Tax Appeals only upon
assessment in such form and manner as may be prescribed by implementing receipt of the decision of the Collector on the disputed assessment, . . . 16
rules and regulations.
Therefore, as in Section 228, when the law provided for the remedy to
Within sixty (60) days from filing of the protest, all relevant supporting appeal the inaction of the CIR, it did not intend to limit it to a single
documents shall have been submitted; otherwise, the assessment shall become remedy of filing of an appeal after the lapse of the 180-day prescribed
final. period. Precisely, when a taxpayer protested an assessment, he naturally
expects the CIR to decide either positively or negatively. A taxpayer cannot
be prejudiced if he chooses to wait for the final decision of the CIR on the
If the protest is denied in whole or in part, or is not acted upon within one protested assessment. More so, because the law and jurisprudence have
hundred eighty (180) days from submission of documents, the taxpayer always contemplated a scenario where the CIR will decide on the protested
adversely affected by the decision or inaction may appeal to the Court of Tax assessment.
Appeals within (30) days from receipt of the said decision, or from the lapse of
the one hundred eighty (180)-day period; otherwise the decision shall become
final, executory and demandable. (Emphasis supplied).
It must be emphasized, however, that in case of the inaction of the CIR on G.R. No. 178087 May 5, 2010
the protested assessment, while we reiterate − the taxpayer has two
options, either: (1) file a petition for review with the CTA within 30 days
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
after the expiration of the 180-day period; or (2) await the final decision of
vs.
the Commissioner on the disputed assessment and appeal such final
KUDOS METAL CORPORATION, Respondent.
decision to the CTA within 30 days after the receipt of a copy of such
decision, these options are mutually exclusive and resort to one bars the
application of the other. DECISION

Accordingly, considering that Lascona opted to await the final decision of the DEL CASTILLO, J.:
Commissioner on the protested assessment, it then has the right to appeal such
final decision to the Court by filing a petition for review within thirty days after
receipt of a copy of such decision or ruling, even after the expiration of the 180- The prescriptive period on when to assess taxes benefits both the
day period fixed by law for the Commissioner of Internal Revenue to act on the government and the taxpayer.1 Exceptions extending the period to assess
disputed assessments.17 Thus, Lascona, when it filed an appeal on April 12, must, therefore, be strictly construed.
1999 before the CTA, after its receipt of the Letter18 dated March 3, 1999 on
March 12, 1999, the appeal was timely made as it was filed within 30 days after This Petition for Review on Certiorari seeks to set aside the Decision2 dated
receipt of the copy of the decision.1âwphi1 March 30, 2007 of the Court of Tax Appeals (CTA) affirming the cancellation
of the assessment notices for having been issued beyond the prescriptive period
Finally, the CIR should be reminded that taxpayers cannot be left in and the Resolution3 dated May 18, 2007 denying the motion for
quandary by its inaction on the protested assessment. It is imperative that reconsideration.
the taxpayers are informed of its action in order that the taxpayer should
then at least be able to take recourse to the tax court at the opportune time. Factual Antecedents
As correctly pointed out by the tax court:

On April 15, 1999, respondent Kudos Metal Corporation filed its Annual
x x x to adopt the interpretation of the respondent will not only sanction Income Tax Return (ITR) for the taxable year 1998.
inefficiency, but will likewise condone the Bureau's inaction. This is
especially true in the instant case when despite the fact that respondent found
petitioner's arguments to be in order, the assessment will become final, Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of
executory and demandable for petitioner's failure to appeal before us within the Internal Revenue (BIR) served upon respondent three Notices of Presentation
thirty (30) day period.19 of Records. Respondent failed to comply with these notices, hence, the BIR
issued a Subpeona Duces Tecum dated September 21, 2006, receipt of which
was acknowledged by respondent’s President, Mr. Chan Ching Bio, in a letter
Taxes are the lifeblood of the government and so should be collected without dated October 20, 2000.
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 A review and audit of respondent’s records then ensued.
conflicting interests of the authorities and the taxpayers so that the real purpose
of taxation, which is the promotion of the common good, may be On December 10, 2001, Nelia Pasco (Pasco), respondent’s accountant, executed
achieved.20 Thus, even as we concede the inevitability and indispensability of a Waiver of the Defense of Prescription,4 which was notarized on January 22,
taxation, it is a requirement in all democratic regimes that it be exercised 2002, received by the BIR Enforcement Service on January 31, 2002 and by the
reasonably and in accordance with the prescribed procedure.21 BIR Tax Fraud Division on February 4, 2002, and accepted by the Assistant
Commissioner of the Enforcement Service, Percival T. Salazar (Salazar).
WHEREFORE, the petition is GRANTED. The Decision dated October 25,
2005 and the Resolution dated January 20, 2006 of the Court of Appeals in CA- This was followed by a second Waiver of Defense of Prescription5 executed by
G.R. SP No. 58061 are REVERSED and SET ASIDE. Accordingly, the Pasco on February 18, 2003, notarized on February 19, 2003, received by the
Decision dated January 4, 2000 of the Court of Tax Appeals in C.T.A. Case No. BIR Tax Fraud Division on February 28, 2003 and accepted by Assistant
5777 and its Resolution dated March 3, 2000 are REINSTATED. Commissioner Salazar.

SO ORDERED. On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the
taxable year 1998 against the respondent. This was followed by a Formal Letter
of Demand with Assessment Notices for taxable year 1998, dated September
26, 2003 which was received by respondent on November 12, 2003.

Respondent challenged the assessments by filing its "Protest on Various Tax

Assessments" on December 3, 2003 and its "Legal Arguments and Documents
in Support of Protests against Various Assessments" on February 2, 2004.

On June 22, 2004, the BIR rendered a final Decision6 on the matter, requesting
the immediate payment of the following tax liabilities:

Kind of Tax Amount

Income Tax ₱9,693,897.85

VAT 13,962,460.90

EWT 1,712,336.76

Withholding Tax-Compensation 247,353.24

Penalties 8,000.00

Total ₱25,624,048.76

Ruling of the Court of Tax Appeals, Second Division

Believing that the government’s right to assess taxes had prescribed, respondent
filed on August 27, 2004 a Petition for Review7 with the CTA. Petitioner in turn
filed his Answer.8

On April 11, 2005, respondent filed an "Urgent Motion for Preferential

Resolution of the Issue on Prescription."9

On October 4, 2005, the CTA Second Division issued a Resolution10 canceling

the assessment notices issued against respondent for having been issued beyond
the prescriptive period. It found the first Waiver of the Statute of Limitations THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT THE
incomplete and defective for failure to comply with the provisions of Revenue GOVERNMENT’S RIGHT TO ASSESS UNPAID TAXES OF RESPONDENT
Memorandum Order (RMO) No. 20-90. Thus: PRESCRIBED.14

First, the Assistant Commissioner is not the revenue official authorized to sign Petitioner’s Arguments:
the waiver, as the tax case involves more than ₱1,000,000.00. In this regard,
only the Commissioner is authorized to enter into agreement with the petitioner
Petitioner argues that the government’s right to assess taxes is not barred by
in extending the period of assessment;
prescription as the two waivers executed by respondent, through its accountant,
effectively tolled or extended the period within which the assessment can be
Secondly, the waiver failed to indicate the date of acceptance. Such date of made. In disputing the conclusion of the CTA that the waivers are invalid,
acceptance is necessary to determine whether the acceptance was made within petitioner claims that respondent is estopped from adopting a position contrary
the prescriptive period; to what it has previously taken. Petitioner insists that by acquiescing to the
audit during the period specified in the waivers, respondent led the government
to believe that the "delay" in the process would not be utilized against it. Thus,
Third, the fact of receipt by the taxpayer of his file copy was not indicated on respondent may no longer repudiate the validity of the waivers and raise the
the original copy. The requirement to furnish the taxpayer with a copy of the issue of prescription.
waiver is not only to give notice of the existence of the document but also of
the acceptance by the BIR and the perfection of the agreement.1avvphi1
Respondent’s Arguments:
The subject waiver is therefore incomplete and defective. As such, the three-
year prescriptive period was not tolled or extended and continued to run. x x x11 Respondent maintains that prescription had set in due to the invalidity of the
waivers executed by Pasco, who executed the same without any written
authority from it, in clear violation of RDAO No. 5-01. As to the doctrine of
Petitioner moved for reconsideration but the CTA Second Division denied the estoppel by acquiescence relied upon by petitioner, respondent counters that the
motion in a Resolution12 dated April 18, 2006. principle of equity comes into play only when the law is doubtful, which is not
present in the instant case.
Ruling of the Court of Tax Appeals, En Banc
Our Ruling
On appeal, the CTA En Banc affirmed the cancellation of the assessment
notices. Although it ruled that the Assistant Commissioner was authorized to The petition is bereft of merit.
sign the waiver pursuant to Revenue Delegation Authority Order (RDAO) No.
05-01, it found that the first waiver was still invalid based on the second and
third grounds stated by the CTA Second Division. Pertinent portions of the Section 20315 of the National Internal Revenue Code of 1997 (NIRC)
Decision read as follows: mandates the government to assess internal revenue taxes within three
years from the last day prescribed by law for the filing of the tax return or
the actual date of filing of such return, whichever comes later. Hence, an
While the Court En Banc agrees with the second and third grounds for assessment notice issued after the three-year prescriptive period is no
invalidating the first waiver, it finds that the Assistant Commissioner of the longer valid and effective. Exceptions however are provided under Section
Enforcement Service is authorized to sign the waiver pursuant to RDAO No. 22216 of the NIRC.
05-01, which provides in part as follows:

The waivers executed by respondent’s accountant did not extend the period
A. For National Office cases within which the assessment can be made

Designated Revenue Official Petitioner does not deny that the assessment notices were issued beyond the
three-year prescriptive period, but claims that the period was extended by the
1. Assistant Commissioner (ACIR), For tax fraud and policy Enforcement two waivers executed by respondent’s accountant.
Service cases
We do not agree.
2. ACIR, Large Taxpayers Service For large taxpayers cases other than those
cases falling under Subsection B hereof Section 222 (b) of the NIRC provides that the period to assess and collect
taxes may only be extended upon a written agreement between the CIR
3. ACIR, Legal Service For cases pending verification and awaiting resolution and the taxpayer executed before the expiration of the three-year period.
of certain legal issues prior to prescription and for issuance/compliance of RMO 20-9017 issued on April 4, 1990 and RDAO 05-0118 issued on August
Subpoena Duces Tecum 2, 2001 lay down the procedure for the proper execution of the waiver, to
wit:
4. ACIR, Assessment Service (AS) For cases which are pending in or subject to
review or approval by the ACIR, AS 1. The waiver must be in the proper form prescribed by RMO 20-90. The
phrase "but not after ______ 19 ___", which indicates the expiry date of
the period agreed upon to assess/collect the tax after the regular three-year
Based on the foregoing, the Assistant Commissioner, Enforcement Service is period of prescription, should be filled up.
authorized to sign waivers in tax fraud cases. A perusal of the records reveals
that the investigation of the subject deficiency taxes in this case was conducted
by the National Investigation Division of the BIR, which was formerly named 2. The waiver must be signed by the taxpayer himself or his duly
the Tax Fraud Division. Thus, the subject assessment is a tax fraud case. authorized representative. In the case of a corporation, the waiver must be
signed by any of its responsible officials. In case the authority is delegated
by the taxpayer to a representative, such delegation should be in writing
Nevertheless, the first waiver is still invalid based on the second and third and duly notarized.
grounds stated by the Court in Division. Hence, it did not extend the
prescriptive period to assess.
3. The waiver should be duly notarized.
Moreover, assuming arguendo that the first waiver is valid, the second waiver is
invalid for violating Section 222(b) of the 1997 Tax Code which mandates that 4. The CIR or the revenue official authorized by him must sign the waiver
the period agreed upon in a waiver of the statute can still be extended by indicating that the BIR has accepted and agreed to the waiver. The date of
subsequent written agreement, provided that it is executed prior to the such acceptance by the BIR should be indicated. However, before signing
expiration of the first period agreed upon. As previously discussed, the the waiver, the CIR or the revenue official authorized by him must make
exceptions to the law on prescription must be strictly construed. sure that the waiver is in the prescribed form, duly notarized, and executed
by the taxpayer or his duly authorized representative.
In the case at bar, the period agreed upon in the subject first waiver expired on
December 31, 2002. The second waiver in the instant case which was supposed 5. Both the date of execution by the taxpayer and date of acceptance by the
to extend the period to assess to December 31, 2003 was executed on February Bureau should be before the expiration of the period of prescription or
18, 2003 and was notarized on February 19, 2003. Clearly, the second waiver before the lapse of the period agreed upon in case a subsequent agreement
was executed after the expiration of the first period agreed upon. Consequently, is executed.
the same could not have tolled the 3-year prescriptive period to assess.13
6. The waiver must be executed in three copies, the original copy to be
Petitioner sought reconsideration but the same was unavailing. attached to the docket of the case, the second copy for the taxpayer and the
third copy for the Office accepting the waiver. The fact of receipt by the
taxpayer of his/her file copy must be indicated in the original copy to show
Issue that the taxpayer was notified of the acceptance of the BIR and the
perfection of the agreement.19
Hence, the present recourse where petitioner interposes that:
A perusal of the waivers executed by respondent’s accountant reveals the The doctrine of estoppel cannot be applied in this case as an exception to the
following infirmities: statute of limitations on the assessment of taxes considering that there is a
detailed procedure for the proper execution of the waiver, which the BIR must
strictly follow. As we have often said, the doctrine of estoppel is predicated on,
1. The waivers were executed without the notarized written authority of and has its origin in, equity which, broadly defined, is justice according to
Pasco to sign the waiver in behalf of respondent. natural law and right.22 As such, the doctrine of estoppel cannot give validity
to an act that is prohibited by law or one that is against public policy.23 It
2. The waivers failed to indicate the date of acceptance. should be resorted to solely as a means of preventing injustice and should not
be permitted to defeat the administration of the law, or to accomplish a wrong
or secure an undue advantage, or to extend beyond them requirements of the
3. The fact of receipt by the respondent of its file copy was not indicated in transactions in which they originate.24 Simply put, the doctrine of estoppel must
the original copies of the waivers. be sparingly applied.

Due to the defects in the waivers, the period to assess or collect taxes was Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its
not extended. Consequently, the assessments were issued by the BIR failure to comply with RMO 20-90 and RDAO 05-01, which the BIR itself
beyond the three-year period and are void. issued. As stated earlier, the BIR failed to verify whether a notarized written
authority was given by the respondent to its accountant, and to indicate the
Estoppel does not apply in this case date of acceptance and the receipt by the respondent of the waivers.
Having caused the defects in the waivers, the BIR must bear the
consequence. It cannot shift the blame to the taxpayer. To stress, a waiver of
We find no merit in petitioner’s claim that respondent is now estopped the statute of limitations, being a derogation of the taxpayer’s right to security
from claiming prescription since by executing the waivers, it was the one against prolonged and unscrupulous investigations, must be carefully and
which asked for additional time to submit the required documents. strictly construed.25

In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,20 the As to the alleged delay of the respondent to furnish the BIR of the required
doctrine of estoppel prevented the taxpayer from raising the defense of documents, this cannot be taken against respondent. Neither can the BIR use
prescription against the efforts of the government to collect the assessed tax. this as an excuse for issuing the assessments beyond the three-year period
However, it must be stressed that in the said case, estoppel was applied as an because with or without the required documents, the CIR has the power to
exception to the statute of limitations on collection of taxes and not on make assessments based on the best evidence obtainable.26
the assessment of taxes, as the BIR was able to make an assessment within the
prescribed period. More important, there was a finding that the taxpayer made
several requests or positive acts to convince the government to postpone the WHEREFORE, the petition is DENIED. The assailed Decision dated March
collection of taxes, viz: 30, 2007 and Resolution dated May 18, 2007 of the Court of Tax Appeals are
hereby AFFIRMED.

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 SO ORDERED.
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].21

Conversely, in this case, the assessments were issued beyond the prescribed
period. Also, there is no showing that respondent made any request to persuade
the BIR to postpone the issuance of the assessments.
G.R. No. 179343 January 21, 2010 In the case at bar, petitioner’s administrative protest was denied by Final
Decision on Disputed Assessment dated August 2, 2005 issued by
respondent and which petitioner received on August 4, 2005. Under the
FISHWEALTH CANNING CORPORATION, Petitioner, above-quoted Section 228 of the 1997 Tax Code, petitioner had 30 days to
vs. appeal respondent’s denial of its protest to the CTA.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

Since petitioner received the denial of its administrative protest on August

DECISION 4, 2005, it had until September 3, 2005 to file a petition for review before
the CTA Division. It filed one, however, on October 20, 2005, hence, it was
CARPIO MORALES, J.: filed out of time. For a motion for reconsideration of the denial of the
administrative protest does not toll the 30-day period to appeal to the CTA.
The Commissioner of Internal Revenue (respondent), by Letter of Authority
dated May 16, 2000,1 ordered the examination of the internal revenue taxes for On petitioner’s final contention that it has a meritorious case in view of the
the taxable year 1999 of Fishwealth Canning Corp. (petitioner). The dismissal of the above-mentioned criminal case filed against it for violation
investigation disclosed that petitioner was liable in the amount of of the 1997 Internal Revenue Code,19 the same fails. For the criminal
₱2,395,826.88 representing income tax, value added tax (VAT), withholding tax complaint was instituted not to demand payment, but to penalize the
deficiencies and other miscellaneous deficiencies. Petitioner eventually settled taxpayer for violation of the Tax Code.20
these obligations on August 30, 2000.2
WHEREFORE, the petition is DISMISSED.
On August 25, 2000, respondent reinvestigated petitioner’s books of accounts
and other records of internal revenue taxes covering the same period for the Costs against petitioner.
purpose of which it issued a subpoena duces tecum requiring petitioner to
submit its records and books of accounts. Petitioner requested the cancellation
of the subpoena on the ground that the same set of documents had previously SO ORDERED.
been examined.

As petitioner did not heed the subpoena, respondent thereafter filed a criminal
complaint against petitioner for violation of Sections 5 (c) and 266 of the 1997
Internal Revenue Code, which complaint was dismissed for insufficiency of
evidence.3

Respondent sent, on August 6, 2003, petitioner a Final Assessment Notice

of income tax and VAT deficiencies totaling ₱67,597,336.75 for the taxable
year 1999,4 which assessment petitioner contested by letter of September 23,
2003.5

Respondent thereafter issued a Final Decision on Disputed Assessment dated

August 2, 2005, which petitioner received on August 4, 2005, denying its letter
of protest, apprising it of its income tax and VAT liabilities in the amounts of
"₱15,396,905.24 and ₱63,688,434.40 [sic], respectively, for the taxable year
1999,"6 and requesting the immediate payment thereof, "inclusive of penalties
incident to delinquency." Respondent added that if petitioner disagreed, it may
appeal to the Court of Tax Appeals (CTA) "within thirty (30) days from date of
receipt hereof, otherwise our said deficiency income and value-added taxes
assessments shall become final, executory, and demandable."7

Instead of appealing to the CTA, petitioner filed, on September 1, 2005, a

Letter of Reconsideration dated August 31, 2005.8

By a Preliminary Collection Letter dated September 6, 2005, respondent

demanded payment of petitioner’s tax liabilities,9 drawing petitioner to file
on October 20, 2005 a Petition for Review10 before the CTA.

In his Answer,11 respondent argued, among other things, that the petition was
filed out of time which argument the First Division of the CTA upheld and
accordingly dismissed the petition.12

Petitioner filed a Motion for Reconsideration13 which was denied.14 The

Resolution denying its motion for reconsideration was received by petitioner on
October 31, 2006.15

On November 21, 2006, petitioner filed a petition for review before the CTA En
Banc16 which, by Decision17 of July 5, 2007, held that the petition before the
First Division, as well as that before it, was filed out of time.

Hence, the present petition,18 petitioner arguing that the CTA En Banc erred in
holding that the petition it filed before the CTA First Division as well as that
filed before it (CTA En Banc) was filed out of time.

COURT: The petition is bereft of merit.

Section 228 of the 1997 Tax Code provides that an assessment

x x x may be protested administratively by filing a request for reconsideration

or reinvestigation within thirty (30) days from receipt of the assessment in such
form and manner as may be prescribed by implementing rules and regulations.
Within sixty (60) days from filing of the protest, all relevant supporting
documents shall have been submitted; otherwise, the assessment shall become
final.

If the protest is denied in whole or in part, or is not acted upon within one
hundred eighty (180) days from submission of documents, the taxpayer
adversely affected by the decision or inaction may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the said decision, or from the
lapse of the one hundred eighty (180)-day period; otherwise, the decision shall
become final, executory and demandable. (underscoring supplied)1avvphi1
G.R. No. 76281 September 30, 1991 it involves purely a legal question and some of the amounts included in the
assessment have already bee paid.
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs. On December 10, 1979, petitioner, thru then acting Commissioner of
WYETH SUACO LABORATORIES, INC. and THE COURT OF TAX Internal Revenue Ruben B. Ancheta, rendered a decision reducing the
APPEALS, respondents. 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
FERNAN, C.J.:
Thereafter, Wyeth Suaco filed a petition for review in Court of Tax Appeals
on January 18, 1980, praying that petitioner be enjoined from enforcing
The sole issue in this petition for review on certiorari is whether or not the assessments by reason of prescription and that the assessments be
petitioner's right to collect deficiency withholding tax at source and sales tax declared null and void for lack of legal and factual basis.7
liabilities from private respondent is barred by prescription.

On February 7, 1980, petitioner issued a warrant of distrain of personal

The antecedent facts are as follows: property and warrant of levy of real property again private respondent to
enforce collection of the deficiency taxes. These were served on private
Private respondent Wyeth Suaco Laboratories, Inc. (Wyeth Suaco for brevity) is respondent on March 12, 1980.8 However, collection of the deficiency taxes by
a domestic corporation engaged in the manufacture and sale of assorted virtue of warrants of distraint and levy was enjoined by respondent court upon
pharmaceutical and nutritional products. Its accounting period is on a fiscal motion of Wyeth Suaco in a resolution dated May 22, 1980.9
year basis ending October 31 of every year.
On May 30, 1980, petitioner filed his answer to Wyeth Suaco's petition for
By virtue of Letter of Authority No. 52415 dated June 17, 1974 issued by then review praying, among others, that private respondent be declared liable to pay
Commissioner of Internal Revenue Misael P. Vera, Revenue Examiner Dante the amount of P61,155.21 as deficiency sales tax for the periods November 1,
Kabigting conducted an investigation and examination of the books of accounts 1972 to December 31, 1972 and January 1, 1973 to October 31, 1973, plus 14%
of Wyeth Suaco.1 On October 15, 1974, he submitted a report containing the annual interest thereon from December 17, 1974 until payment thereof pursuant
result of his investigation. The report disclosed that Wyeth Suaco was paying to Section 183 (now Section 193) of the Tax Code, and the amount of
royalties to its foreign licensors as well as remuneration for technical services P1,973,112.86 as deficie withholding tax at source for the 4th quarter of 1973
to Wyeth International Laboratories of London. Wyeth Suaco was also found to plus 5% surcharge and 14% per annum interest thereon from December 16,
have declared cash dividends on September 27, 1973 and these were paid on 1974 to December 16, 1977, pursuant to Section 51 (e) of the Tax Code of
October 31, 1973. However, it allegedly failed to remit withholding tax at 1977, as amended.10
source for the fourth (4th) quarter of 1973 on accrued royalties, remuneration
for technical services and cash dividends, resulting in a deficiency withholding On August 29, 1986, the Court of Tax Appeals rendered a decision enjoining
tax at source in the aggregate amount of P3,178,994.15.2 the Commissioner of Internal Revenue from collecting the deficiency taxes, the
dispositive portion of which reads as follows:
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 WHEREFORE, the decision appealed from is hereby reversed and respondent
deducted the cost of non-deductible raw materials, resulting in its alleged Commissioner of Internal Revenue is hereby enjoined from collecting the
failure to pay the correct amount of advance sales tax. There was reportedly deficiency withholding tax at source for the fourth quarter of 1973 as well as
also a short payment of advance sales tax in its importation of "Mega
the deficiency sales tax assessed against petitioner (Wyeth Suaco). Without
Polymycin D" on October 3, 1972. All these resulted in a deficiency sales tax in pronouncement as to costs.11
the amount of P60,855.21 and compromise penalty in the amount of P300.00 or
a total amount of P61,155.21.3
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
Consequently, the Bureau of Internal Revenue assessed Wyeth Suaco on period of limitation, the right of petitioner to collect the same has already
the aforesaid tax liabilities in two (2) notices dated December 16, 1974 and prescribed, in accordance with Section 319 (c) of the Tax Code of 1977. The
December 17, 1974. These assessment notices were both received by Wyeth said law provides that an assessment of any internal revenue tax within the five-
Suaco on December 19, 1974.4 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
Thereafter, Wyeth Suaco through its tax consultant SGV &Co., sent the of the tax.
Bureau of Intemal Revenue two (2) letters dated January 17, 1975 and
February 8, 1975, protesting the assessments and requesting their Hence, this recourse by petitioner.
cancellation or withdrawal on the ground that said assessments lacked
factual or legal basis.
COURT:
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 The applicable laws in the instant case are Sections 318 and 319 (c) of the
abroad. It claimed that it was not able to remit the balance of fifty percent National Internal Revenue Code of 1977 (now Sections 203 and 224 of the
(50%) of the accrued royalties to its foreign licensors because of Central Bank National Internal Revenue Code of 1986), to wit:
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
SEC. 318. Period of limitation upon assessment and collection — Except as
amount of P2,952,391.00 forming part of the cash dividends declared in 1973,
provided in the succeeding section, internal revenue taxes shall be assessed
Wyeth Suaco alleged that the same was due its foreign stockholders. Again,
within five years after the return was filed, and no proceeding in court without
Wyeth Suaco was not able to remit these dividends because of the restriction of
assessment for the collection of such taxes shall be begun after the expiration of
the Central Bank in a memorandum implementing CB Circular No. 289 dated
such period. ...
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. SEC. 319. Exceptions as to period of limitations of assessment and collection of
taxes. —
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 xxx xxx xxx
corresponding withholding tax on this income to the Bureau of Internal
Revenue.
(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
As to the assessed deficiency sales tax, Wyeth Suaco maintained that the levy by a proceeding in court, but only if begun (1) within five years after the
difference between its landed cost figure (which is the basis for computing the assessment of the tax, or (2) prior the expiration of any period for collection
advancesales tax) and that of the revenue examiner, was due to the use of agreed upon in writing by the Commissioner and the taxpayer before the
estimated amounts by the Bureau of Customs and to foreign exchange expiration of such five-year period. The period so agreed upon may be extended
differential. by subsequent agreements in writing made before the expiration of the period
previously agreed upon. (emphasis supplied)
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 The main thrust of petitioner for the allowance of this petition is that the five-
Polymycin D."5 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
On September 12, 1975, the Commissioner of Internal Revenue asked Wyeth
notices were received by private respondent on December 19, 1974 up to the
Suaco to avail itself of the compromise settlement under LOI 308. In its answer,
time the warrants of distraint and levy were served on March 12, 1980, he avers
Wyeth Suaco manifested its conformity to a 10% compromise provided it be
that the running of the prescriptive period was stayed or interrupted when
applied only to the basic sales tax, excluding surcharge and interest. As to the
Wyeth Suaco protested the assessments. Petitioner argues that the protest
deficiency withholding tax at source, Wyeth took exception on the ground that
letters sent by SGV & Co. in behalf of Wyeth Suaco dated January 17, 1975 assessment issue by then Acting Commissioner Ruben B. Ancheta was date
and February 8, 1975, requesting for withdrawal and cancellation of the December 10, 1979 and received by private respondent on January 2, 1980,
assessments were actually requests for reinvestigation or reconsideration, which fixed its tax liability at P1,973,112.86 as deficiency withholding tax at source
could interrupt the running of the five-year prescriptive period. 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.
Wyeth Suaco, on the other hand, maintains the position that it never asked
for a reinvestigation nor reconsideration of the assessments. What it
requested was the cancellation and withdrawal of the assessments for lack Verily, the original assessments dated December 16 and 17, 1974 were both
of legal and factual basis. Thus, its protest letters dated January 17, 1975 received by Wyeth Suaco on December 19, 1974. However, when Wyeth Suaco
and February 8, 1975 did not suspend or interrupt the running of the five- protested the assessments and sought its reconsideration in two (2) letters
year prescriptive period. 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
Settled is the rule that the prescriptive period provided by law to make a Suaco on January 2, 1980. Since the warrants of distraint and levy were served
collection by distraint or levy or by a proceeding in court is interrupted on Wyeth Suaco on March 12, 1980, then, only about four (4) months of the
once a taxpayer requests for reinvestigation or reconsideration of the five-year prescriptive period was used.
assessment. In the case of Commissioner of Internal Revenue vs. Capitol
Subdivision, Inc.,12 this Court held:
Having resolved the issue of prescription, we now come to the merits of the
case.
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 Wyeth Suaco questions the legality of the regulation imposed by the Bureau of
denied. 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
In another case, this Court stated that the statutory period of limitation for the Bureau of Internal Revenue once the incomes subject to withholding tax at
collection may be interrupted if by the taxpayer's repeated requests or positive source have actually been paid. Thus, private respondent avers that it was not
acts the Government has been, for good reasons, persuaded to postpone liable to remit the taxes withheld at source on royalties and dividends unless
collection to make him feel that the demand was not unreasonable or that no these incomes have been actually paid to its foreign licensors and stockholders.
harassment or injustice is meant by the Goverrument.13 Also in the case
of Cordero vs. Gonda,14 we held:
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
Partial payment would not prevent the government from suing the taxpayer. operate it. ... It is the lifeblood of the government and so should be collected
Because, by such act of payment, the government is not thereby "persuaded to without unnecessary hindrance ...17
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- In line with this principle, the Tax Code, particularly Section 54 (a) [now
examination or reinvestigation — even if he "has not previously waived it Section 51 (a)] provides that "the Commissioner of Internal Revenue may, with
(prescription in writing)". ... (emphasis supplied) 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
ISSUE: WON Wyeth Suaco sought reinvestigation or reconsideration of the the payment made within 25 days from the close of each calendar quarter".
deficiency tax assessments issued by the Bureau of Internal Revenue. Presently, Revenue Regulation No. 6-85 effective July 1, 1985, requires the
filing of monthly return and payment of taxes withheld at source within (10)
After carefully examining the records of the case, we find that Wyeth days after the end of each month.
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, Moreover, the records show that Wyeth Suaco adopted the accrual method of
dated April 28, 1975, the relevant portion of which is quoted hereunder, to wit: 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
We submit this letter as a follow-up to our protest filed with your office, rather than only when cash is received or paid. The "Report of Investigation"
through our tax advisers, Sycip, Gorres, Velayo & Co., on January 20 and submitted by the tax examiner indicated that accrual was the basis of the
February 10, 1975 regarding alleged deficiency on withholding tax at source of taxpayer's return.18 Thus, private respondent recorded accrued royalties and
P3,178,994.15 and on percentage tax of P60,855.21, including interest and dividends payable as well as the withholding tax at source payable on these
surcharges, on which we are seeking reconsideration.15 (emphasis supplied) 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.
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 With regard to the accuracy of the assessment on deficiency sales tax, we rule
the assessments. This fact was admitted by Wyeth Suaco thru its Finance that the examiner's assessment should be given full weight and credit, in the
Manager in a letter dated July 1, 1975 addressed to the Chief, Tax absence of proof submitted by Wyeth Suaco to the contrary. This is in line with
Accounts Division. The pertinent portion of said letter reads as follows: 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
This will acknowledge receipt of your letter dated May 22, 1975 regarding our performance of duties, an assessment duly made by a Bureau of Internal
alleged income and business tax deficiencies for fiscal year 1972/73. 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
xxx xxx xxx 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:
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. 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
xxx xxx xxx 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
As we understand, the matter is now undergoing review and consideration by of property for taxation will knowingly violate the duties imposed upon them
your Manufacturing Audit Division. Pending the outcome of their decision, we by law.
regret our inability to make settlement. ...16 (Emphasis supplied)
The final assessment issued by the Bureau of Internal Revenue declared the
Although the protest letters prepared by SGV & Co. in behalf of private issuance of deficiency sales tax assessments to be legal and valid. It was
respondent did not categorically state or use th words "reinvestigation" ascertained that during the investigation, Wyeth Suaco deducted non-deductible
and "reconsideration," the same are to be treated as letters of raw materials which were not subjected to advance sales tax thereby resulting
reinvestigation and reconsideration. By virtue of these letters, the Bureau in its failure to pay the correct amount of sales tax under Section 183, in
of Internal Revenue ordered its Manufacturing Audit Division to review relation to Section 186 and 186-B of the Tax Code, prior to and after
the assessment made. Furthermore, private respondent's claim that it did not amendment by Presidential Decree No. 69. Wyeth Suaco was not able to refute
seek reinvestigation or reconsideration of the assessments is belied by the this by submitting supporting documents.21
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
G.R. No. 83736 January 15, 1992 the date when all the tax was paid, not when a portion was paid (Braun v. U.S.,
8 F supp. 860, 863; Collector of Internal Revenue v. Prieto, 2 SCRA 1007;
Commissioner of Internal Revenue v. Palanca, 18 SCRA 496).
COMMISSIONER OF INTERNAL REVENUE, petitioner,

Petitioner Commissioner of Internal Revenue is now before this Court

vs. seeking a reversal of the above decision. Thru the Solicitor General, he
contends that the basis in computing the two-year period of prescription
TMX SALES, INC. and THE COURT OF TAX APPEALS, respondents.. provided for in Section 292 (now Section 230) of the Tax Code, should be
May 15, 1981, the date when the quarterly income tax was paid and not
April 15, 1982, when the Final Adjustment Return for the year ended
December 31, 1981 was filed.
GUTIERREZ, JR., J.:

He cites the case of Pacific Procon Limited v. Commissioner of Internal

In a case involving corporate quarterly income tax, does the two-year Revenue (G.R. No. 68013, November 12, 1984) involving a similar set of facts,
prescriptive period to claim a refund of erroneously collected tax provided for wherein this Court in a minute resolution affirmed the Court of Appeals'
in Section 292 (now Section 230) of the National Internal Revenue Code decision denying the claim for refund of the petitioner therein for being barred
commence to run from the date the quarterly income tax was paid, as contended by prescription.
by the petitioner, or from the date of filing of the Final Adjustment Return (final
payment), as claimed by the private respondent?
COURT:
Section 292 (now Section 230) of the National Internal Revenue Code
provides: A re-examination of the aforesaid minute resolution of the Court in the Pacific
Procon case is warranted under the circumstances to lay down a categorical
pronouncement on the question as to when the two-year prescriptive period in
Sec. 292. Recovery of tax erroneously or illegally collected. — No suit or cases of quarterly corporate income tax commences to run. A full-blown
proceeding shall be maintained in any court for the recovery of any national decision in this regard is rendered more imperative in the light of the reversal
internal revenue tax hereafter alleged to have been erroneously or illegally by the Court of Tax Appeals in the instant case of its previous ruling in
assessed or collected, or of any penalty claimed to have been collected without the Pacific Procon case.
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 Commissioner of Internal Revenue; but such suit or proceeding may be Section 292 (now Section 230) of the National Internal Revenue Code should
maintained, whether or not such tax, penalty, or sum has been paid under be interpreted in relation to the other provisions of the Tax Code in order to
protest or duress. give effect to legislative intent and to avoid an application of the law which
may lead to inconvenience and absurdity. In the case of People vs. Rivera (59
Phil 236 [1933]), this Court stated that statutes should receive a sensible
In any case no such suit or proceeding shall be begun after the expiration of construction, such as will give effect to the legislative intention and so as to
two years from the date of payment of that tax or penalty regardless of any avoid an unjust or an absurd conclusion. INTERPRETATIO TALIS IN
supervening cause that may arise after payment: . . . (Emphasis supplied) AMBIGUIS SEMPER FRIENDA EST, UT EVITATUR INCONVENIENS ET
ABSURDUM. Where there is ambiguity, such interpretation as will avoid
The facts of this case are uncontroverted. inconvenience and absurdity is to be adopted. Furthermore, courts must give
effect to the general legislative intent that can be discovered from or is
unraveled by the four corners of the statute, and in order to discover said intent,
Private respondent TMX Sales, Inc., a domestic corporation, filed its the whole statute, and not only a particular provision thereof, should be
quarterly income tax return for the first quarter of 1981, declaring an considered. (Manila Lodge No. 761, et al. v. Court of Appeals, et al., 73 SCRA
income of P571,174.31, and consequently paying an income tax thereon of 162 [1976]) Every section, provision or clause of the statute must be expounded
P247,010.00 on May 15, 1981. During the subsequent quarters, however, TMX by reference to each other in order to arrive at the effect contemplated by the
Sales, Inc. suffered losses so that when it filed on April 15, 1982 its Annual legislature. The intention of the legislator must be ascertained from the whole
Income Tax Return for the year ended December 31, 1981, it declared a gross text of the law and every part of the act is to be taken into view. (Chartered
income of P904,122.00 and total deductions of P7,060,647.00, or a net loss of Bank v. Imperial, 48 Phil. 931 [1921]; Lopez v. El Hogar Filipino, 47 Phil. 249,
P6,156,525.00 (CTA Decision, pp. 1-2; Rollo, pp. 45-46). cited in Aboitiz Shipping Corporation v. City of Cebu, 13 SCRA 449 [1965]).

Thereafter, on July 9, 1982, TMX Sales, Inc. thru its external auditor, SGV Thus, in resolving the instant case, it is necessary that we consider not only
& Co. filed with the Appellate Division of the Bureau of Internal Revenue a Section 292 (now Section 230) of the National Internal Revenue Code but also
claim for refund in the amount of P247,010.00 representing overpaid the other provisions of the Tax Code, particularly Sections 84, 85 (now both
income tax. incorporated as Section 68), Section 86 (now Section 70) and Section 87 (now
Section 69) on Quarterly Corporate Income Tax Payment and Section 321 (now
This claim was not acted upon by the Commissioner of Internal Revenue. On Section 232) on keeping of books of accounts. All these provisions of the Tax
March 14, 1984, TMX Sales, Inc. filed a petition for review before the Court of Code should be harmonized with each other.
Tax Appeals against the Commissioner of Internal Revenue, praying that the
petitioner, as private respondent therein, be ordered to refund to TMX Sales, Section 292 (now Section 230) provides a two-year prescriptive period to
Inc. the amount of P247,010.00, representing overpaid income tax for the file a suit for a refund of a tax erroneously or illegally paid, counted from
taxable year ended December 31, 1981. the time the tax was paid. But a literal application of this provision in the
case at bar which involves quarterly income tax payments may lead to
In his answer, the Commissioner of Internal Revenue averred that "granting, absurdity and inconvenience.
without admitting, the amount in question is refundable, the petitioner (TMX
Sales, Inc.) is already barred from claiming the same considering that more Section 85 (now Section 68) provides for the method of computing corporate
than two (2) years had already elapsed between the payment (May 15, quarterly income tax which is on a cumulative basis, to wit:
1981) and the filing of the claim in Court (March 14, 1984). (Sections 292
and 295 of the Tax Code of 1977, as amended)."
Sec. 85. Method of computing corporate quarterly income tax. — Every
corporation shall file in duplicate a quarterly summary declaration of its gross
On April 29, 1988, the Court of Tax Appeals rendered a decision granting income and deductions on a cumulative basis for the preceding quarter or
the petition of TMX Sales, Inc. and ordering the Commissioner of Internal quarters upon which the income tax, as provided in Title II of this Code shall
Revenue to refund the amount claimed. be levied, collected and paid. The tax so computed shall be decreased by the
amount of tax previously paid or assessed during the preceding quarters and
The Tax Court, in granting the petition, viewed the quarterly income tax paid as shall be paid not later than sixty (60) days from the close of each of the first
a portion or installment of the total annual income tax due. Said the Tax Court three (3) quarters of the taxable year, whether calendar or fiscal year. (Emphasis
in its assailed decision: supplied)

xxx xxx xxx while Section 87 (now Section 69) requires the filing of an adjustment returns
and final payment of income tax, thus:

When a tax is paid in installments, the prescriptive period of two years provided
in Section 306 (now Section 292) of the Revenue Code should be counted from Sec. 87. Filing of adjustment returns final payment of income tax. — On or
the date of the final payment or last installment. . . . This rule proceeds from the before the fifteenth day of April or on or before the fifteenth day of the fourth
theory that in contemplation of tax laws, there is no payment until the whole or month following the close of the fiscal year, every taxpayer covered by this
entire tax liability is completely paid. Thus, a payment of a part or portion Chapter shall file an Adjustment Return covering the total net taxable income
thereof, cannot operate to start the commencement of the statute of limitations. of the preceding calendar or fiscal year and if the sum of the quarterly tax
In this regard the word "tax" or words "the tax" in statutory provisions payments made during that year is not equal to the tax due on the entire net
comparable to section 306 of our Revenue Code have been uniformly held to taxable income of that year the corporation shall either (a) pay the excess tax
refer to the entire tax and not a portion thereof (Clark v. U.S., 69 F. 2d 748; A.S. still due or (b) be refunded the excess amount paid as the case may be. . . .
Kriedner Co. v. U.S., 30 F Supp. 274; Hills v. U.S., 50 F 2d 302, 55 F 2d 1001), (Emphasis supplied)
and the vocable "payment of tax" within statutes requiring refund claim, refer to
In the case at bar, the amount of P247,010.00 claimed by private respondent Tax Due Thereon 25,000.00
TMX Sales, Inc. based on its Adjustment Return required in Section 87 (now
Section 69), is equivalent to the tax paid during the first quarter. A literal
Less: Tax Paid 1st Quarter 12,500.00
application of Section 292 (now Section 230) would thus pose no problem as
the two-year prescriptive period reckoned from the time the quarterly income
tax was paid can be easily determined. However, if the quarter in which the 2nd Quarter — 12,500.00
overpayment is made, cannot be ascertained, then a literal application of
Section 292 (Section 230) would lead to absurdity and inconvenience.
————— =========

The following application of Section 85 (now Section 68) clearly illustrates this
point: FOURTH QUARTER: (Adjustment Return required in Sec. 87)

FIRST QUARTER: Gross Income 1st Quarter 100,000.00

Gross Income 100,000.00 2nd Quarter 50,000.00

Less: Deductions 50,000.00 3rd Quarter 100,000.00

————— 4th Quarter 75,000.00 325,000.00

Net Taxable Income 50,000.00 ————— —————

========= Less: Deductions 1st Quarter 50,000.00

Tax Due & Paid [Sec. 24 NIRC (25%)] 12,500.00 2nd Quarter 75,000.00

========= 3rd Quarter 25,000.00

SECOND QUARTER: 4th Quarter 100,000.00 250,000.00

Gross Income 1st Quarter 100,000.00 ————— —————

2nd Quarter 50,000.00 150,000.00 Net Taxable Income 75,000.00

————— =========

Less: Deductions 1st Quarter 50,000.00 Tax Due Thereon 18,750.00

2nd Quarter 75,000.00 125,000.00 Less: Tax Paid 1st Quarter 12,500.00

————— 2nd Quarter —

Net Taxable Income 25,000.00 3rd Quarter 12,500.00 25,000.00

========= ————— —————

Tax Due Thereon 6,250.00 Creditable Income Tax (to be REFUNDED) (6,250.00)

Less: Tax Paid 1st Quarter 12,500.00 =========

————— Based on the above hypothetical data appearing in the Final Adjustment Return,
the taxpayer is entitled under Section 87 (now Section 69) of the Tax Code to a
refund of P6,250.00. If Section 292 (now Section 230) is literally applied, what
Creditable Income Tax (6,250.00) then is the reckoning date in computing the two-year prescriptive period? Will
it be the 1st quarter when the taxpayer paid P12,500.00 or the 3rd quarter when
the taxpayer also paid P12,500.00? Obviously, the most reasonable and
—————
logical application of the law would be to compute the two-year
prescriptive period at the time of filing the Final Adjustment Return or the
THIRD QUARTER: Annual Income Tax Return, when it can be finally ascertained if the
taxpayer has still to pay additional income tax or if he is entitled to a
refund of overpaid income tax.
Gross Income 1st Quarter 100,000.00

Furthermore, Section 321 (now Section 232) of the National Internal Revenue
2nd Quarter 50,000.00 Code requires that the books of accounts of companies or persons with gross
quarterly sales or earnings exceeding Twenty Five Thousand Pesos
3rd Quarter 100,000.00 250,000.00 (P25,000.00) be audited and examined yearly by an independent Certified
Public Accountant and their income tax returns be accompanied by certified
balance sheets, profit and loss statements, schedules listing income producing
————— properties and the corresponding incomes therefrom and other related
statements.
Less: Deductions 1st Quarter 50,000.00
It is generally recognized that before an accountant can make a certification on
2nd Quarter 75,000.00 the financial statements or render an auditor's opinion, an audit of the books of
accounts has to be conducted in accordance with generally accepted auditing
standards.
3rd Quarter 25,000.00 150,000.00

Since the audit, as required by Section 321 (now Section 232) of the Tax
————— ————— Code is to be conducted yearly, then it is the Final Adjustment Return,
where the figures of the gross receipts and deductions have been audited
100,000.00 and adjusted, that is truly reflective of the results of the operations of a
business enterprise. Thus, it is only when the Adjustment Return covering

=========
the whole year is filed that the taxpayer would know whether a tax is still G.R. No. 105208 May 29, 1995
due or a refund can be claimed based on the adjusted and audited figures.
COMMISSIONER OF INTERNAL REVENUE, petitioner,
Therefore, the filing of quarterly income tax returns required in Section 85 vs.
(now Section 68) and implemented per BIR Form 1702-Q and payment of THE PHILIPPINE AMERICAN LIFE INSURANCE CO., THE COURT
quarterly income tax should only be considered mere installments of the OF TAX APPEALS and THE COURT OF APPEALS, respondents.
annual tax due. These quarterly tax payments which are computed based
on the cumulative figures of gross receipts and deductions in order to
ROMERO, J.:
arrive at a net taxable income, should be treated as advances or portions of
the annual income tax due, to be adjusted at the end of the calendar or
fiscal year. This is reinforced by Section 87 (now Section 69) which This is a petition for review on certiorari filed by petitioner, Commissioner of
provides for the filing of adjustment returns and final payment of income Internal Revenue, of the Decision1 dated March 26, 1992 of the Court of
tax. Consequently, the two-year prescriptive period provided in Section Appeals in CA-GR No. 26598, entitled "Commissioner of Internal Revenue v.
292 (now Section 230) of the Tax Code should be computed from the time The Philippine American Life Insurance Co. & the Court of Tax Appeals"
of filing the Adjustment Return or Annual Income Tax Return and final affirming the decision of respondent Court of Tax Appeals which ordered the
payment of income tax. refund to the Philippine American Life Insurance Co. (Philamlife) of the
amount of P3,643,015.00 representing excess corporate income taxes for the
first and second quarters of 1983.
In the case of Collector of Internal Revenue v. Antonio Prieto (2 SCRA 1007
[1961]), this Court held that when a tax is paid in installments, the prescriptive
period of two years provided in Section 306 (Section 292) of the National Private respondent filed a case before the Court of Tax Appeals (CTA)
internal Revenue Code should be counted from the date of the final payment. docketed as CTA Case No. 4018 entitled "The Philippine American Life
This ruling is reiterated in Commission of Internal Revenue v. Carlos Insurance Company versus Commissioner of Internal Revenue."
Palanca (18 SCRA 496 [1966]), wherein this Court stated that where the tax
account was paid on installment, the computation of the two-year prescriptive
period under Section 306 (Section 292) of the Tax Code, should be from the On September 16, 1991, the CTA rendered a decision in the above-entitled case,
date of the last installment. the dispositive portion of which states:

In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. WHEREFORE, petitioner's claim for refund for P3,246,141.00 and
Since the two-year prescriptive period should be counted from the filing of the P396,874.00 representing excess corporated income tax payments for the
Adjustment Return on April 15, 1982, TMX Sales, Inc. is not yet barred by first and second quarters of 1983, respectively, or a total of P3,643,015.00 is
prescription. hereby GRANTED. Accordingly, respondent Commissioner of Internal
Revenue, is hereby ordered to refund to petitioner Philippine American Life
Insurance Company the total amount of P3,643,015.00.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby
DENIED. The decision of the Court of Tax Appeals dated April 29, 1988 is
AFFIRMED. No costs. With respect to petitioner's claim for refund of P215,742.00 representing
1983 withholding taxes on rental income the same is hereby DENIED for
failure to present proof of actual-withholding and payment with the Bureau of
SO ORDERED. Internal Revenue. No costs.

The facts, uncontroverted by petitioner, are:

On May 30, 1983, private respondent Philamlife paid to the Bureau of Internal
Revenue (BIR) its first quarterly corporate income tax for Calendar Year (CY)
1983 amounting to P3,246,141.00.

On August 29, 1983, it paid P396,874.00 for the Second Quarter of 1983.

For the Third Quarter of 1983, private respondent declared a net taxable income
of P2,515,671.00 and a tax due of P708,464.00. After crediting the amount of
P3,899,525.00 it declared a refundable amount of P3,158,061.00.

For its Fourth and final quarter ending December 31, private respondent
suffered a loss and thereby had no income tax liability. In the return for that
quarter, it declared a refund of P3,991,841.00 representing the first and
second quarterly payments: P215,742.00 as withholding taxes on rental
income for 1983 and P133,084.00 representing 1982 income tax refund applied
as 1983 tax credit.

In 1984, private respondent again suffered a loss and declared no income tax
liability. However, it applied as tax credit for 1984, the amount of
P3,991,841.00 representing its 1982 and 1983 overpaid income taxes and the
amount of P250,867.00 as withholding tax on rental income for 1984.

On September 26, 1984, private respondent filed a claim for its 1982 income
tax refund of P133,084.00. On November 22, 1984, it filed a petition for review
with the Court of Tax Appeals (C.T.A. Case No. 3868) with respect to its 1982
claim for refund of P133,084.00.

On December 16, 1985, it filed another claim for refund with petitioners
appellate division in the aggregate amount of P4,109,624.00, computed as
follows:

1982 income tax refundable

applied as tax credit P 133,084

1983 income tax refundable

applied as tax credit P 3,858,757

1984 tax credit on rental P 250,867

T o t a l P 4,242,708
 Under Section 292 (formerly Section 306) of the National Internal Revenue
Code, a claim for refund of a tax alleged to have been erroneously or illegally
collected shall be filed with the Commissioner of Internal Revenue within two
Less: 1983 claim for
years from the date of payment of the tax, and that no suit or proceeding for
refund shall be begun after the expiration of the said two-year period (Citation
refund already omitted). As a matter of fact, the said section further provides that: . . . In any
case, no such suit or proceeding shall be begun after the expiration of two years
filed with the from the date of payment of the tax or the date of payment of the tax or penalty
regardless of any supervening cause that may arise after payment.
BIR and the
CTA Petitioner states that the phrase "regardless of supervening cause that may arise
(Case No. 3868) P 133,084 after payment" is an amendatory phrase under the said Section 292 which did
not appear in Section 306 of the old Tax Code before it was amended by
—————— Presidential Decree No. 69, which became effective January 1, 1973. Petitioner
argues that the incorporation of the said phrase did away with any other
interpretation and, therefore, the reckoning period of prescription under Section
Net Amount Refundable — P 4,109,624
292 (now section 230) is from the date of payment of tax regardless of financial
loss (the "supervening cause"). Thus, the claim for refund of the amounts of
P3,246,141.00 and P396,874.00 paid on May 30, 1983 and August 29, 1983,
respectively, has prescribed.

On January 2, 1986, private respondent filed a petition for review with the COURT: We find petitioner's contentions to be unmeritorious.
CTA, docketed as CTA Case No. 4018 regarding its 1983 and 1984 claims for
refund in the above-stated amount.
It is true that in the Pacific Procon case, we held that the right to bring an
action for refund had prescribed, the tax having been found to have been paid at
Later, it amended its petition by limiting its claim for refund to only the end of the first quarter when the withholding tax corresponding thereto was
P3,858,757.00 computed as follows: remitted to the Bureau of Internal Revenue, not at the time of filing of the Final
Adjustment Return in April of the following year.
Calendar Year
However, this case was overturned by the Court in Commissioner of Internal
Ending 12-31-83 Revenue v. TMX Sales Incorporated and the Court of Tax Appeals,3 wherein we
said:
Date Paid O.R. No. Amount Paid
. . . in resolving the instant case, it is necessary that we consider not only
First Quarter 5/30/83 B2269337 P3,246,141. Section 292 (now Section 230) of the National Internal Revenue Code but also
00 the other provisions of the Tax Code, particularly Sections 84, 85 (now both
incorporated as Section 68), Section 86 (now Section 70) and Section 87 (now
Second Quarter 8/29/83 B1938178 396,874.00 Section 69) on Quarterly Corporate Income Tax Payment and Section 321 (now
Section 232) on keeping of books of accounts. All these provisions of the Tax
1983 Withholding Tax on rental 215,742.00 Code should be harmonized with each other.
income
1983 Income Tax Refundable P3,858,757. Section 292 (now Section 230) stipulates that the two-year prescriptive period
00 to claim refunds should be counted from date of payment of the tax sought to
be refunded. When applied to tax payers filing income tax returns on a
quarterly basis, the date of payment mentioned in Section 292 (now Section
230) must be deemed to be qualified by Sections 68 and 69 of the present Tax
Code which respectively provide:
ISSUE:
Sec. 68 Declaration of Quarterly Income Tax. — Every corporation shall file in
The issue in this case is the reckoning date of the two-year prescriptive period duplicate a quarterly summary declaration of its gross income and deductions
provided in Section 230 of the National Internal Revenue Code (formerly on a cumulative basis for the preceding quarter or quarters upon which the
Section 292) which states that: income tax, as provided in Title II of this Code shall be levied, collected and
paid. The Tax so computed shall be decreased by the amount of tax previously
paid or assessed during the preceding quarters and shall be paid not later than
Recovery of tax erroneously or illegally collected. — No suit or proceeding
sixty (60) days from the close of each of the first three (3) quarters of the
shall be maintained in any court for the recovery of any national internal
taxable year.
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 Sec. 69. Final Adjustment Return. — Every corporation liable to tax under
collected, until a claim for refund or credit has been duly filed with the Section 24 shall file a final adjustment return covering the total net income for
Commissioner; but such suit or proceeding may be maintained, whether or not the preceding calendar or fiscal year. If the sum of the quarterly tax payments
such tax, penalty, or sum has been paid under protest or duress. made during the said taxable year is not equal to the total tax due on the entire
taxable net income of that year the corporation shall either:
In any case, no such suit or proceeding shall be begun after the expiration of
two years from the date of payment of the tax or penalty regardless of any (a) Pay the excess still due; or
supervening cause that may arise after payment: Provided, however, That the
Commissioner may, even without a written claim therefor, refund or credit any
tax, where on the face of the return upon which payment was made, such (b) Be refunded the excess amount paid, as the case may be.
payment appears clearly to have been erroneously paid.
In case the corporation is entitled to a refund of the excess estimated quarterly
Forfeiture of refund. — A refund check or warrant issued in accordance with income taxes paid, the refundable amount shown on its final adjustment return
the pertinent provisions of this Code which shall remain unclaimed or uncashed may be credited against the estimated quarterly income tax liabilities for the
within five (5) years from the date the said warrant or check was mailed or taxable quarters of the succeeding taxable year.
delivered shall be forfeited in favor of the government and the amount thereof
shall revert to the General Fund. It may be observed that although quarterly taxes due are required to
be paid within sixty days from the close of each quarter, the fact that the
Petitioner poses the following question: In a case such as this, where a amount shall be deducted from the tax due for the succeeding quarter shows
corporate taxpayer remits/pays to the BIR tax withheld on income for the first that until a final adjustment return shall have been filed, the taxes paid in the
quarter but whose business operations actually resulted in a loss for that year, as preceding quarters are merely partial taxes due from a corporation. Neither
reflected in the Corporate Final Adjustment Return subsequently filed with the amount can serve as the final figure to quantity what is due the government nor
BIR, should not the running of the prescriptive period commence from the what should be refunded to the corporation.
remittance/payment at the end of the first quarter of the tax withheld instead of
from the filing of the Final Adjustment Return? This interpretation may be gleaned from the last paragraph of Section 69 of the
Tax Code which provides that the refundable amount, in case a refund is due a
In support of its contention, petitioner cites the case of Pacific Procon Ltd. v. corporation, is that amount which is shown on its final adjustment return and
Court of Tax Appeals, et a1.2 wherein the CTA denied therein petitioner's claim not on its quarterly returns.
for refund after it construed Section 292 (now Section 230) of the NIRC to be
mandatory and "not subject to any qualification," hence it applies regardless of Therefore, when private respondent paid P3,246,141.00 on May 30, 1983, it
the conditions under which payment may have been made. The Tax Court would not have been able to ascertain on that date, that the said amount was
ruled:
refundable. The same applies with cogency to the payment of P396,874.00 on G.R. Nos. 179045-46 August 25, 2010
August 29, 1983.
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
Clearly, the prescriptive period of two years should commence to run only vs.
from the time that the refund is ascertained, which can only be determined SMART COMMUNICATION, INC., ⃰ Respondent.
after a final adjustment return is accomplished. In the present case, this
date is April 16, 1984, and two years from this date would be April 16,
1986. The record shows that the claim for refund was filed on December DECISION
10, 1985 and the petition for review was brought before the CTA on
January 2, 1986. Both dates are within the two-year reglementary period.
DEL CASTILLO, J.:
Private respondent being a corporation, Section 292 (now Section 230)
cannot serve as the sole basis for determining the two-year prescriptive
period for refunds. As we have earlier said in the TMX Sales case, Sections The right of a withholding agent to claim a refund of erroneously or illegally
68, 69, and 70 on Quarterly Corporate Income Tax Payment and Section withheld taxes comes with the responsibility to return the same to the principal
321 should be considered in conjunction with it. taxpayer.

Moreover, even if the two-year period had already lapsed, the same is not This Petition for Review on Certiorari under Rule 45 of the Rules of Court
jurisdictional4 and may be suspended for reasons of equity and other seeks to set aside the Decision1 dated June 28, 2007 and the Resolution2 dated
special circumstances.5 July 31, 2007 of the Court of Tax Appeals (CTA) En Banc.

Petitioner also raises the issue of whether or not private respondent has Factual Antecedents
satisfactorily shown by competent evidence that it is entitled to the amount
sought to be refunded. This being a question of fact, this Court is bound by the
findings of the Court of Tax Appeals which has clearly established the propriety Respondent Smart Communications, Inc. is a corporation organized and
of private respondent's claim for refund for excess 1983 quarterly income tax existing under Philippine law. It is an enterprise duly registered with the Board
payments. On the other hand, petitioner Commissioner of Internal Revenue has of Investments.
failed to present any documentary or testimonial evidence in support of his
case. Instead, he opted to postpone the hearings several times and later chose to On May 25, 2001, respondent entered into three Agreements for
submit the case for decision on the basis of the records and pleadings of instant Programming and Consultancy Services3 with Prism Transactive (M) Sdn.
case. Bhd. (Prism), a non-resident corporation duly organized and existing
under the laws of Malaysia. Under the agreements, Prism was to provide
To repeat, we find that private respondent has presented sufficient evidence in programming and consultancy services for the installation of the Service
support of its claim for refund, whereas petitioner has failed to controvert the Download Manager (SDM) and the Channel Manager (CM), and for the
same adequately. installation and implementation of Smart Money and Mobile Banking Service
SIM Applications (SIM Applications) and Private Text Platform (SIM
Application).
WHEREFORE, the instant petition is DISMISSED and the decision of the
Court of Appeals is hereby AFFIRMED in toto. No costs.
On June 25, 2001, Prism billed respondent in the amount of US$547,822.45,
broken down as follows:
SO ORDERED.

SDM Agreement US$236,000.00

CM Agreement 296,000.00

SIM Application Agreement 15,822.45

Total US$547,822.45 4

Thinking that these payments constitute royalties, respondent withheld the

amount of US$136,955.61 or ₱7,008,840.43,5 representing the 25% royalty
tax under the RP-Malaysia Tax Treaty.6

On September 25, 2001, respondent filed its Monthly Remittance Return of

Final Income Taxes Withheld (BIR Form No. 1601-F)7 for the month of August
2001.

On September 24, 2003, or within the two-year period to claim a refund,

respondent filed with the Bureau of Internal Revenue (BIR), through the
International Tax Affairs Division (ITAD), an administrative claim for
refund8 of the amount of ₱7,008,840.43.

Proceedings before the CTA Second Division

Due to the failure of the petitioner Commissioner of Internal Revenue (CIR) to

act on the claim for refund, respondent filed a Petition for Review9 with the
CTA, docketed as CTA Case No. 6782 which was raffled to its Second
Division.

In its Petition for Review, respondent claimed that it is entitled to a refund

because the payments made to Prism are not royalties10 but "business
profits,"11 pursuant to the definition of royalties under the RP-Malaysia Tax
Treaty,12 and in view of the pertinent Commentaries of the Organization for
Economic Cooperation and Development (OECD) Committee on Fiscal Affairs
through the Technical Advisory Group on Treaty Characterization of Electronic
Commerce Payments.13 Respondent further averred that since under Article
7 of the RP-Malaysia Tax Treaty, "business profits" are taxable in the
Philippines "only if attributable to a permanent establishment in the
Philippines, the payments made to Prism, a Malaysian company with no
permanent establishment in the Philippines,"14 should not be taxed.15

On December 1, 2003, petitioner filed his Answer16 arguing that respondent,

as withholding agent, is not a party-in-interest to file the claim for
refund,17 and that assuming for the sake of argument that it is the proper
party, there is no showing that the payments made to Prism constitute
"business profits."18
Ruling of the CTA Second Division Issues

In a Decision19 dated February 23, 2006, the Second Division of the CTA The two issues to be resolved are: (1) whether respondent has the right to file
upheld respondent’s right, as a withholding agent, to file the claim for refund the claim for refund; and (2) if respondent has the right, whether the payments
citing the cases of Commissioner of Internal Revenue v. Wander Philippines, made to Prism constitute "business profits" or royalties.
Inc.,20 Commissioner of Internal Revenue v. Procter & Gamble Philippine
Manufacturing Corporation21 and Commissioner of Internal Revenue v. The
Petitioner’s Arguments
Court of Tax Appeals.22

Petitioner contends that the cases relied upon by the CTA in upholding
However, as to the claim for refund, the Second Division found respondent
respondent’s right to claim the refund are inapplicable since the
entitled only to a partial refund. Although it agreed with respondent that the
withholding agents therein are wholly owned subsidiaries of the principal
payments for the CM and SIM Application Agreements are "business
taxpayers, unlike in the instant case where the withholding agent and the
profits,"23 and therefore, not subject to tax24 under the RP-Malaysia Tax Treaty,
taxpayer are unrelated entities. Petitioner further claims that since
the Second Division found the payment for the SDM Agreement a royalty
respondent did not file the claim on behalf of Prism, it has no legal
subject to withholding tax.25 Accordingly, respondent was granted refund in the
standing to claim the refund. To rule otherwise would result to the unjust
amount of ₱3,989,456.43, computed as follows:26
enrichment of respondent, who never shelled-out any amount to pay the royalty
taxes. Petitioner, thus, posits that the real party-in-interest to file a claim for
refund of the erroneously withheld taxes is Prism. He cites as basis the case
Particulars Amount (in US$) of Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue,38 where it
was ruled that the proper party to file a refund is the statutory
1. CM 296,000.00 taxpayer.39 Finally, assuming that respondent is the proper party, petitioner
counters that it is still not entitled to any refund because the payments made to
2. SIM Application 15,822.45 Prism are taxable as royalties, having been made in consideration for the use of
the programs owned by Prism.
Total US$311,822.45
Respondent’s Arguments

Particulars Amount Respondent, on the other hand, maintains that it is the proper party to file
a claim for refund as it has the statutory and primary responsibility and
liability to withhold and remit the taxes to the BIR. It points out that under
Tax Base US$311,822.45 the withholding tax system, the agent-payor becomes a payee by fiction of law
because the law makes the agent personally liable for the tax arising from the
Multiply by: Withholding Tax Rate 25% breach of its duty to withhold. Thus, the fact that respondent is not in any way
related to Prism is immaterial.
Final Withholding Tax US$77,955.61
Moreover, respondent asserts that the payments made to Prism do not fall under
Multiply by: Prevailing Exchange Rate 51.176 the definition of royalties since the agreements are for programming and
consultancy services only, wherein Prism undertakes to perform services for the
Tax Refund Due ₱3,989,456.43 creation, development or the bringing into existence of software applications
solely for the satisfaction of the peculiar needs and requirements of respondent.

The dispositive portion of the Decision of the CTA Second Division reads: Our Ruling

WHEREFORE, premises considered, the instant petition is partially The petition is bereft of merit.
GRANTED. Accordingly, respondent Commissioner of Internal Revenue is
hereby ORDERED to REFUND or ISSUE a TAX CREDIT CERTIFICATE to
petitioner Smart Communications, Inc. in the amount of P3,989,456.43, Withholding agent may file a claim for refund
representing overpaid final withholding taxes for the month of August 2001.
Sections 204(c) and 229 of the National Internal Revenue Code (NIRC)
SO ORDERED.27 provide:

Both parties moved for partial reconsideration28 but the CTA Second Division Sec. 204. Authority of the Commissioner to Compromise, Abate, and Refund or
denied the motions in a Resolution29 dated July 18, 2006. Credit Taxes. – The Commissioner may –

Ruling of the CTA En Banc xxxx

Unsatisfied, both parties appealed to the CTA En Banc by filing their respective (C) Credit or refund taxes erroneously or illegally received or penalties
Petitions for Review,30 which were consolidated per Resolution31 dated imposed without authority, refund the value of internal revenue stamps when
February 8, 2007. they are returned in good condition by the purchaser, and, in his discretion,
redeem or change unused stamps that have been rendered unfit for use and
refund their value upon proof of destruction. No credit or refund of taxes or
On June 28, 2007, the CTA En Banc rendered a Decision affirming the partial penalties shall be allowed unless the taxpayer files in writing with the
refund granted to respondent. In sustaining respondent’s right to file the claim Commissioner a claim for credit or refund within two (2) years after the
for refund, the CTA En Banc said that although respondent "and Prism are payment of the tax or penalty: Provided, however, That a return filed showing
unrelated entities, such circumstance does not affect the status of [respondent] an overpayment shall be considered as a written claim for credit or refund.
as a party-in-interest [as its legal interest] is based on its direct and independent
liability under the withholding tax system."32 The CTA En Banc also concurred
with the Second Division’s characterization of the payments made to Prism, xxxx
specifically that the payments for the CM and SIM Application Agreements
constitute "business profits,"33 while the payment for the SDM Agreement is a
Sec. 229. Recovery of Tax Erroneously or Illegally Collected. – No suit or
royalty.34
proceeding shall be maintained in any court for the recovery of any national
internal revenue tax hereafter alleged to have been erroneously or illegally
The dispositive portion of the CTA En Banc Decision reads: assessed or collected, or of any penalty claimed to have been collected without
authority, or of any sum alleged to have been excessively or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with
WHEREFORE, the instant petition is hereby DISMISSED. Accordingly, the the Commissioner; but such suit or proceeding may be maintained, whether or
assailed Decision and Resolution are hereby AFFIRMED. not such tax, penalty, or sum has been paid under protest or duress.

SO ORDERED.35 In any case, no such suit or proceeding shall be filed after the expiration of two
(2) years from the date of payment of the tax or penalty regardless of any
Only petitioner sought reconsideration36 of the Decision. The CTA En supervening cause that may arise after payment: Provided, however, That the
Banc, however, found no cogent reason to reverse its Decision, and thus, denied Commissioner may, even without a written claim therefor, refund or credit any
petitioner’s motion for reconsideration in a Resolution37 dated July 31, 2007. tax, where on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid. (Emphasis supplied)
Unfazed, petitioner availed of the present recourse.
Pursuant to the foregoing, the person entitled to claim a tax refund is the
taxpayer. However, in case the taxpayer does not file a claim for refund, the
withholding agent may file the claim.
In Commissioner of Internal Revenue v. Procter & Gamble Philippine collected, he nevertheless has the obligation to remit the same to the
Manufacturing Corporation,40 a withholding agent was considered a proper principal taxpayer. As an agent of the taxpayer, it is his duty to return what
party to file a claim for refund of the withheld taxes of its foreign parent he has recovered; otherwise, he would be unjustly enriching himself at the
company. Pertinent portions of the Decision read: expense of the principal taxpayer from whom the taxes were withheld, and
from whom he derives his legal right to file a claim for refund.
The term "taxpayer" is defined in our NIRC as referring to "any person
subject to tax imposed by the Title [on Tax on Income]." It thus becomes As to Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue43 cited
important to note that under Section 53(c)41 of the NIRC, the withholding by the petitioner, we find the same inapplicable as it involves excise taxes, not
agent who is "required to deduct and withhold any tax" is made withholding taxes. In that case, it was ruled that the proper party to question, or
"personally liable for such tax" and indeed is indemnified against any seek a refund of, an indirect tax "is the statutory taxpayer, the person on whom
claims and demands which the stockholder might wish to make in the tax is imposed by law and who paid the same even if he shifts the burden
questioning the amount of payments effected by the withholding agent in thereof to another."
accordance with the provisions of the NIRC. The withholding agent, P&G-
Phil., is directly and independently liable for the correct amount of the tax that
In view of the foregoing, we find no error on the part of the CTA in upholding
should be withheld from the dividend remittances. The withholding agent is,
respondent’s right as a withholding agent to file a claim for refund.
moreover, subject to and liable for deficiency assessments, surcharges and
penalties should the amount of the tax withheld be finally found to be less than
the amount that should have been withheld under law. The payments for the CM and the SIM Application Agreements constitute

A "person liable for tax" has been held to be a "person subject to tax" and "business profits"
properly considered a "taxpayer." The terms "liable for tax" and "subject
to tax" both connote legal obligation or duty to pay a tax. It is very
difficult, indeed conceptually impossible, to consider a person who is Under the RP-Malaysia Tax Treaty, the term royalties is defined as payments of
statutorily made "liable for tax" as not "subject to tax." By any reasonable any kind received as consideration for: "(i) the use of, or the right to use, any
standard, such a person should be regarded as a party in interest, or as a patent, trade mark, design or model, plan, secret formula or process, any
person having sufficient legal interest, to bring a suit for refund of taxes he copyright of literary, artistic or scientific work, or for the use of, or the right to
believes were illegally collected from him. use, industrial, commercial, or scientific equipment, or for information
concerning industrial, commercial or scientific experience; (ii) the use of, or the
right to use, cinematograph films, or tapes for radio or television
In Philippine Guaranty Company, Inc. v. Commissioner of Internal Revenue, broadcasting."44 These are taxed at the rate of 25% of the gross amount.45
this Court pointed out that a withholding agent is in fact the agent both of the
government and of the taxpayer, and that the withholding agent is not an
ordinary government agent: Under the same Treaty, the "business profits" of an enterprise of a Contracting
State is taxable only in that State, unless the enterprise carries on business in
the other Contracting State through a permanent establishment.46 The term
"The law sets no condition for the personal liability of the withholding agent to "permanent establishment" is defined as a fixed place of business where the
attach. The reason is to compel the withholding agent to withhold the tax under enterprise is wholly or partly carried on.47 However, even if there is no fixed
all circumstances. In effect, the responsibility for the collection of the tax as place of business, an enterprise of a Contracting State is deemed to have a
well as the payment thereof is concentrated upon the person over whom the permanent establishment in the other Contracting State if it carries on
Government has jurisdiction. Thus, the withholding agent is constituted the supervisory activities in that other State for more than six months in connection
agent of both the Government and the taxpayer. With respect to the with a construction, installation or assembly project which is being undertaken
collection and/or withholding of the tax, he is the Government’s agent. In in that other State.48
regard to the filing of the necessary income tax return and the payment of
the tax to the Government, he is the agent of the taxpayer. The withholding
agent, therefore, is no ordinary government agent especially because under In the instant case, it was established during the trial that Prism does not have a
Section 53 (c) he is held personally liable for the tax he is duty bound to permanent establishment in the Philippines. Hence, "business profits" derived
withhold; whereas the Commissioner and his deputies are not made liable by from Prism’s dealings with respondent are not taxable. The question is whether
law." the payments made to Prism under the SDM, CM, and SIM Application
agreements are "business profits" and not royalties.

If, as pointed out in Philippine Guaranty, the withholding agent is also an agent
of the beneficial owner of the dividends with respect to the filing of the Paragraph 1.3 of the Programming Services (Schedule A) of the SDM
necessary income tax return and with respect to actual payment of the tax to the Agreement,49 reads:
government, such authority may reasonably be held to include the authority to
file a claim for refund and to bring an action for recovery of such claim. This 1.3 Intellectual Property Rights (IPR)
implied authority is especially warranted where, as in the instant case, the
withholding agent is the wholly owned subsidiary of the parent-stockholder and
therefore, at all times, under the effective control of such parent-stockholder. In The SDM shall be installed by PRISM, including the SDM Libraries, the IPR
the circumstances of this case, it seems particularly unreal to deny the implied of which shall be retained by PRISM. PRISM, however, shall provide the
authority of P&G-Phil. to claim a refund and to commence an action for such Client the APIs for the SDM at no cost to the Client. The Client shall be
refund. permitted to develop programs to interface with the SDM or the SDM
Libraries, using the related APIs as appropriate.50 (Emphasis supplied.)

xxxx
Whereas, paragraph 1.4 of the Programming Services (Schedule A) of the CM
Agreement and paragraph 1.3 of the Programming Services (Schedule A) of the
We believe and so hold that, under the circumstances of this case, P&G-Phil. is SIM Agreement provide:
properly regarded as a "taxpayer" within the meaning of Section 309,42 NIRC,
and as impliedly authorized to file the claim for refund and the suit to recover
such claim. (Emphasis supplied.) 1.4 Intellectual Property Rights (IPR)

Petitioner, however, submits that this ruling applies only when the The IPR of all components of the CM belong to the Client with the exception of
withholding agent and the taxpayer are related parties, i.e., where the the following components, which are provided, without technical or
withholding agent is a wholly owned subsidiary of the taxpayer. commercial restraints or obligations:

We do not agree. • ConfigurationException.java

Although such relation between the taxpayer and the withholding agent is • DataStructures (DblLinkedListjava, DbIListNodejava, List
a factor that increases the latter’s legal interest to file a claim for refund,
there is nothing in the decision to suggest that such relationship is required EmptyException.java, ListFullException.java,
or that the lack of such relation deprives the withholding agent of the right ListNodeNotFoundException.java,
to file a claim for refund. Rather, what is clear in the decision is that a
withholding agent has a legal right to file a claim for refund for two
reasons. First, he is considered a "taxpayer" under the NIRC as he is QueueEmptyException.java, QueueFullException.java, QueueList.java,
personally liable for the withholding tax as well as for deficiency QueuListEx.java, and QueueNodeNotFoundException.java)
assessments, surcharges, and penalties, should the amount of the tax
withheld be finally found to be less than the amount that should have been • FieldMappedObjeet.java
withheld under law. Second, as an agent of the taxpayer, his authority to
file the necessary income tax return and to remit the tax withheld to the
government impliedly includes the authority to file a claim for refund and • LogFileEx.java
to bring an action for recovery of such claim.
• Logging (BaseLogger.java and Logger.java)
In this connection, it is however significant to add that while the
withholding agent has the right to recover the taxes erroneously or illegally
• PrismGeneric Exception.java
• PrismGenericObject.java [G.R. No. L-11527. November 25, 1958.]

THE COLLECTOR OF INTERNAL REVENUE, Petitioner, v. SUYOC

• ProtocolBuilders/CIMD2 (Alive.java, BaseMessageData. CONSOLIDATED MINING COMPANY, ET AL., Respondents.
java, DeliverMessage.java, Login.java, Logout.java, Nack.java,
SubmitMessage.java, Solicitor General Ambrosio Padilla and Solicitor Sumilang V. Bernardo
for Petitioner.
• TemplateManagement (FileTemplateDataBag.java, Template
DataBag.java, TemplateManagerExBag.java, and TemplateParserExBag.java) Ohnick, Velilla & Balongkita for Respondents.

• TemplateManager.class SYLLABUS

• TemplateServer.class
1. INCOME TAX; COLLECTION; PERIOD OF LIMITATION;
REEXAMINATION OR REINVESTIGATION OF ASSESSMENT DOES
• TemplateServer$RequestThread.class NOT SUSPEND PERIOD OF LIMITATION; EXCEPTIONS. — A mere
request for reexamination or reinvestigation of assessment may not suspend the
• Template Server_skel.class running of the period of limitation for in such a 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
• TemplateServer_stub.class 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 himself feel that the
• TemplateService.class
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
• Prism Crypto Server module for PHP451 hold, based on weighty reasons, that such an attitude or behavior should not be
countenanced if only to protect the interest of the Government.
xxxx 2. ID.; ID.; ID.; GOVERNMENT’S ACTION WITHHELD AT TAXPAYER’S
REQUEST; ESTOPPEL. — He who prevents a thing from being done may not
1.3 Intellectual Property Rights (IPR) avail himself of the non-performance 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. v. U.S. 78 L Ed. 6647). Or, as was aptly said,
The Client shall own the IPR for the Specifications and the Source Code for the "The tax could have been collected, but the government withheld action at the
SIM Applications. PRISM shall develop an executable compiled code (the specific request of the plaintiff. The plaintiff is now estopped and should not be
"Executable Version") of the SIM Applications for use on the aSIMetric card permitted to raise the defense of the statute of limitations." (Newpoint Co. v.
which, however, shall only be for the Client’s use. The Executable Version may U.S. (Dc-wis), 34 Off. Supp. 588.)
not be provided by PRISM to any third [party] without the prior written consent
of the Client. It is further recognized that the Client anticipates licensing the use
of the SIM Applications, but it is agreed that no license fee will be charged to DECISION
PRISM or to a licensee of the aSIMetrix card from PRISM when SIMs are
supplied to the Client.52 (Emphases supplied.)
BAUTISTA ANGELO, J.:
The provisions in the agreements are clear. Prism has intellectual property right
over the SDM program, but not over the CM and SIM Application programs as
the proprietary rights of these programs belong to respondent. In other words, Suyoc Consolidated Mining Company, a mining corporation operating
out of the payments made to Prism, only the payment for the SDM program is a before the war, was unable to file in 1942 its income tax return for the year
royalty subject to a 25% withholding tax. A refund of the erroneously withheld 1941 due to the last war. After liberation, Congress enacted
royalty taxes for the payments pertaining to the CM and SIM Application Commonwealth Act No. 722 which extended the filing of tax returns for
Agreements is therefore in order. 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,
Indeed, the government has no right to retain what does not belong to 1946, and the company was authorized to file its return for 1941 on the
it.1âwphi1 "No one, not even the State, should enrich oneself at the expense of basis of the best evidence obtainable.
another."53
The company filed three income tax returns for the calendar year ending
WHEREFORE, the petition is DENIED. The assailed Decision dated June 28, December 31, 1941. On February 12, 1946, it filed a tentative return as it had
2007 and the Resolution dated July 31, 2007 of the Court of Tax Appeals En not yet completely reconstructed its records. On November 28, 1946, it filed a
Banc are hereby AFFIRMED. The Bureau of Internal Revenue is second final return on the basis of the records it has been able to reconstruct at
hereby ordered to issue a Tax Credit Certificate to Prism Transactive (M) Sdn. that time. On February 6, 1947, it filed its third amended final return on the
Bhd. in the amount of ₱3,989,456.43 representing the overpaid final basis of the available records which to that date it had been able to reconstruct.
withholding taxes for the month of August 2001.
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
SO ORDERED. tax for 1941, plus P1,414.50 as 5 per cent surcharge and P3,394.80 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 alive, unaffected as yet by any statutory bar. The request in its fair meaning
Revenue. The Collector interposed the present petition for review. 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
COURT: 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
Under the law, an internal revenue tax shall be assessed within five years that a credit was to be void if made by the Government in response to such
after the return is filed by the taxpayer and no proceeding in court for its prayer.
collection shall be begun after the expiration of such period (Section 331,
National Internal Revenue Code). The law also provides that where an "The applicable principle is fundamental and unquestioned.’He who prevents a
assessment of internal revenue tax is made within the above period, such thing from being done may not avail himself of the nonperformance which he
tax may be collected by distraint or levy or by a proceeding in court but has himself ocassioned, for the law says to him in effect "this is your own act,
only if the same is begun (1) within five years after assessment or (2) within and therefore you are not damnified," ‘ Dolan v. Rogers, 149 N. Y. 489, 491, 44
the period that may be agreed upon in writing between the Collector and N.E. 167, and Imperator Realty Co. v. Tull, 228 N. Y. 447, 457, 127 N.E. 263,
the taxpayer before the expiration of the 5-year period [Section 332 (c), quoting West v. Blakeway, 2 Mann. & G. 729, 751, 133, Eng. Reprint, 940,
Idem. ]. 949. Sometimes the resulting disability has been characterized as an estoppel,
sometimes as a waiver. The label counts for little. Enough for present purposes
It appears that the first assessment made against respondent based on its second that the disability has its roots in a principle more nearly ultimate than either
final return filed on November 28, 1946 was made on February 11, 1947. Upon waiver or estoppel, the principle that no one shall be permitted to found any
receipt of this assessment respondent requested for at least one year within claim upon his own inequity or take advantage of his own wrong. Imperator
which to pay the amount assessed although it reserved its right to question the Realty Co. v. Tull, 228 N.Y. 447, 127 N.E. 263, supra. A suit may not be built
correctness of the assessment before actual payment. Petitioner granted an on an omission induced by him who sues. Swain v. Seamens, 9 Wall. 254, 274,
extension of only three months. When it failed to pay the tax within the period 19 L. ed. 554, 560; United States v. Peck, 102 U.S. 64, 26 L. ed. 46; Thomson
extended, petitioner sent respondent a letter on November 28, 1950 demanding v. Poor, 147 N.Y. 402, 42 N.E. 13; New Zealand Shipping Co. v. Societe des
payment of the tax as assessed, and upon receipt of the letter respondent asked Ateliers (1919) A. C. 1, 6-H. L.; 2 Williston, Contr. sec. 689. (R. H. Stearns Co.
for a reinvestigation and reconsideration of the assessment. When this request v. U.S., supra; Emphasis supplied.)
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 ". . . It is admitted that these assessments were timely made in August 1923.
Conference Staff. The appeal was heard by the Conference Staff from Upon the making of the assessment the Commissioner sought to make
September 2, 1953 to July 16, 1955, and as a result of these various collection, which likewise was at a time when the statute had not run on
negotiations, the assessment was finally reduced on July 26, 1955. This is collection, but the authorized representative of the Lattimores strenuously
the ruling which is now being questioned after a protracted negotiation on objected to the collection and urged the Commissioner to withhold collection,
the ground that the collection of the tax has already prescribed. pending adjustment of the controversy between them and the Commissioner.
The Commissioner yielded to their request and postponed collection until
It is obvious from the foregoing that petitioner refrained from collecting August 19, 1926, which was after the statute had run on collection. In the
the tax by distraint or levy or by proceeding in court within the 5-year meantime, further claims for refund and protests were filed, conferences were
period from the filing of the second amended final return due to the several held and consideration was given to the settlement of the controversy, and the
requests of respondent for extension to which petitioner yielded to give it matter was not finally disposed of until 1926, when the statute had run on
every opportunity to prove its claim regarding the correctness of the collection. The procedure carried out was that requested by plaintiffs, and they
assessment. Because of such requests, several reinvestigations were made cannot now be heard to say that the collection was not timely. R. H. Stearns
and a hearing was even held by the Conference Staff organized in the Company v. United States, 291 U.S. 54, 54 S. Ct. 325, 78 L. Ed. 647.
collection office to consider claims of such nature which, as the record (Lattimore v. U.S., 12 F. Supp. 895, 91.)
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 Wherefore, the decision appealed from is reversed. The decision of the
advantage of such desistance to elude his deficiency income tax liability to Collector of Internal Revenue rendered on July 26, 1955 is hereby affirmed. No
the prejudice of the Government invoking the technical ground of costs.
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. v. 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. v. U.S., (DC-WIS), 34 F. Supp. 588].

The following authorities cited in the brief of the Solicitor General are in
point:jgc:chanrobles.com.ph

"The petitioner makes the point that by the Revenue Act of May 29, 1928
(chap. 852, 40 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 falling short of
inducement or request. Cf. Stange v. 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, sec. 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 overriding the doctrine of estoppel (Randon v.
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
G.R. No. L-22356 July 21, 1967 of imprisonment or fine, or both, for refusal or neglect to pay income tax or
to make a return thereof, it failed to provide the collection of said tax in
criminal proceedings. The only civil remedies provided, for the collection
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, of income tax, in Chapters I and II, Title IX of the Code and section 316
vs. thereof, are distraint of goods, chattels, etc. or by judicial action, which
PEDRO B. PATANAO, defendant-appellee. remedies are generally exclusive in the absence of a contrary intent from
the legislator. Considering that the Government cannot seek satisfaction of
Office of the Solicitor General Arturo A. Alafriz, Solicitor A. B. Afurong and L. the taxpayer's civil liability in a criminal proceeding under the tax law or,
O. Gal-lang for plaintiff-appellant. otherwise stated, since the said civil liability is not deemed included in the
Tranquilino O. Calo, Jr. for defendant-appellee. criminal action, acquittal of the taxpayer in the criminal proceeding does
not necessarily entail exoneration from his liability to pay the taxes. It is
error to hold, as the lower court has held, that the judgment in the criminal
ANGELES, J.: cases Nos. 2089 and 2090 bars the action in the present case. The acquittal
in the said criminal cases cannot operate to discharge defendant appellee
This is an appeal from an order of the Court of First Instance of Agusan in civil from the duty of paying the taxes which the law requires to be paid, since
case No. 925, dismissing plaintiff's complaint so far as concerns the collection that duty is imposed by statute prior to and independently of any attempts
of deficiency income taxes for the years 1951, 1953 and 1954 and additional by the taxpayer to evade payment. Said obligation is not a consequence of
residence taxes for 1951 and 1952, and requiring the defendant to file his the felonious acts charged in the criminal proceeding, nor is it a mere civil
answer with respect to deficiency income tax for 1955 and residence taxes for liability arising from crime that could be wiped out by the judicial
1953-1955. declaration of non-existence of the criminal acts charged. (Castro vs. The
Collector of Internal Revenue, G.R. No. L-12174, April 20, 1962).

In the complaint filed by the Republic of the Philippines, through the Solicitor
General, against Pedro B. Patanao, it is alleged that defendant was the holder of Regarding prescription of action, the lower court held that the cause of action
an ordinary timber license with concession at Esperanza, Agusan, and as such on the deficiency income tax and residence tax for 1951 is barred because
was engaged in the business of producing logs and lumber for sale during the appellee's income tax return for 1951 was assessed by the Bureau of Internal
years 1951-1955; that defendant failed to file income tax returns for 1953 Revenue only on February 14, 1958, or beyond the five year period of
and 1954, and although he filed income tax returns for 1951, 1952 and limitation for assessment as provided in section 331 of the National Internal
1955, the same were false and fraudulent because he did not report Revenue Code. Appellant contends that the applicable law is section 332 (a) of
substantial income earned by him from his business; that in an examination the same Code under which a proceeding in court for the collection of the tax
conducted by the Bureau of Internal Revenue on defendant's income and may be commenced without assessment at any time within 10 years from the
expenses for 1951-1955, it was ascertained that the sum of P79,892.75, discovery of the falsity, fraud or omission.
representing deficiency; income taxes and additional residence taxes for the
aforesaid years, is due from defendant; that on February 14, 1958, plaintiff, The complaint filed on December 7, 1962, alleges that the fraud in the
through the Deputy Commissioner of Internal Revenue, sent a letter of appellee's income tax return for 1951, was discovered on February 14, 1958. By
demand with enclosed income tax assessment to the defendant requiring filing a motion to dismiss, appellee hypothetically admitted this allegation as all
him to pay the said amount; that notwithstanding repeated demands the the other averments in the complaint were so admitted. Hence, section 332 (a)
defendant refused, failed and neglected to pay said taxes; and that the and not section 331 of the National Internal Revenue Code should determine
assessment for the payment of the taxes in question has become final, executory whether or not the cause of action of deficiency income tax and residence tax
and demandable, because it was not contested before the Court of Tax Appeals for 1951 has prescribed. Applying the provision of section 332 (a), the
in accordance with the provisions of section 11 of Republic Act No. 1125. appellant's action instituted in court on December 7, 1962 has not prescribed.

Defendant moved to dismiss the complaint on two grounds, namely: (1) that Wherefore, the order appealed from is hereby set aside. Let the records of this
the action is barred by prior judgment, defendant having been acquitted in case be remanded to the court of origin for further proceedings. No
criminal cases Nos. 2089 and 2090 of the same court, which were prosecutions pronouncement as to costs.
for failure to file income tax returns and for non-payment of income taxes; and
(2) that the action has prescribed.

After considering the motion to dismiss, the opposition thereto and the
rejoinder to the opposition, the lower court entered the order appealed from,
holding that the only cause of action left to the plaintiff in its complaint is the
collection of the income tax due for the taxable year 1955 and the residence tax
(Class B) for 1953, 1954 and 1955. A motion to reconsider said order was
denied, whereupon plaintiff interposed the instant appeal, which was brought
directly to this Court, the questions involved being purely legal.

The conclusion of the trial court, that the present action is barred by prior
judgment, is anchored on the following rationale:

There is no question that the defendant herein has been accused in Criminal
Cases Nos. 2089 and 2090 of this Court for not filing his income tax returns
and for non-payment of income taxes for the years 1953 and 1954. In both
cases, he was acquitted. The rule in this jurisdiction is that the accused once
acquitted is exempt from both criminal and civil responsibility because when a
criminal action is instituted, civil action arising from the same offense is
impliedly instituted unless the offended party expressly waives the civil action
or reserves the right to file it separately. In the criminal cases abovementioned
wherein the defendant was completely exonerated, there was no waiver or
reservation to file a separate civil case so that the failure to obtain conviction on
a charge of non-payment of income taxes is fatal to any civil action to collect
the payment of said taxes.1äwphï1.ñët

Plaintiff-appellant assails the ruling as erroneous. Defendant-appellee on his

part urges that it should be maintained.

In applying the principle underlying the civil liability of an offender under

the Penal Code to a case involving the collection of taxes, the court a
quo fell into error. The two cases are circumscribed by factual premises
which are diametrically opposed to each either, and are founded on
entirely different philosophies. Under the Penal Code the civil liability is
incurred by reason of the offender's criminal act. Stated differently, the
criminal liability gives birth to the civil obligation such that generally, if
one is not criminally liable under the Penal Code, he cannot become civilly
liable thereunder. The situation under the income tax law is the exact
opposite. Civil liability to pay taxes arises from the fact, for instance, that
one has engaged himself in business, and not because of any criminal act
committed by him. The criminal liability arises upon failure of the debtor
to satisfy his civil obligation. The incongruity of the factual premises and
foundation principles of the two cases is one of the reasons for not
imposing civil indemnity on the criminal infractor of the income tax law.
Another reason, of course, is found in the fact that while section 73 of the
National Internal Revenue Code has provided the imposition of the penalty
G.R. No. L-14142 May 30, 1961 denied liability to the plaintiff for any amount, the cross-plaintiff has no cause
of action against the cross-defendants; and that the amount of expenses of
litigation and attorney's fees claimed by the cross-plaintiff, should there be any,
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, is to be determined by the Court in the exercise of its discretion. As
vs. counterclaim, they prayed for recovery from the cross-plaintiff of the sum of
J. AMADO ARANETA and AMADO ARANETA & CO., INC., and P2,000 as expenses of litigation and attorney's fees incurred in defending their
MANILA SURETY & FIDELITY CO., INC., defendants. rights on the cross-claim.
J. AMADO ARANETA & CO., INC., defendants-appellants.

On 18 June 1957, the cross-plaintiff filed an answer to the cross-defendants'

MANILA SURETY & FIDELITY CO., INC., cross-plaintiff-appellant, counterclaim denying the allegations therein and setting up a counterclaim to
vs. the cross-defendants defendants' counterclaim in the amount of P1,000 as
J. AMADO ARANETA and J. AMADO ARANETA & CO., INC., cross- exemplary damages.
defendants-appellees.

PADILLA, J.: On 3 December 1957 the defendants-principals filed a motion to dismiss on the
ground of lack of jurisdiction because the case involves a disputed tax
assessment; on 9 December 1957 the plaintiff, an "opposition" thereto. On 12
On 22 February 1957 in the Court of First Instance of Manila the Solicitor December 1957 the Court denied the motion to dismiss.
General, in behalf of the Republic Of the Philippines, brought an action
against J. Amado Araneta and J. Amado Araneta & Company, Inc., as
principals and the Manila Surety & Fidelity Company, Inc., as surety, to On 25 February 1957 the cross-plaintiff and the cross-defendants entered into
recover from them jointly and severally the sum of P30, as fixed tax upon the following stipulation of facts:
business due from 1946 to 1948, imposed by section 182, in connection with
sections 178 to 180 of the National Internal Revenue Code, as amended:
COME NOW, the parties in the cross-complaint represented by their respective
P5,067.42, as 2% tax on P253,370.84, the gross receipts from their business as
counsel and to this Honorable Court respect-fully submit the following
a common carrier during the said period, pursuant to section 192 of the same
stipulation of facts:
Code; and P1,266.86, as 25% surcharge, or a total sum of P6,364.28, the
payment of which was guaranteed by a bond (Annex B) executed by the
defendant-surety, and 6% in interest on the amount of P6,364.28 from 6 1. That the jurisdictional facts and the capacity of the parties to sue and be sued
December 1951, when the first extrajudicial demand was made, until fully paid. are submitted;
On 12 March 1957 the defendants-principals filed a motion to dismiss the
plaintiffs complaint on the ground that its cause of action is barred by the
statute of limitations and on 20 March 1957 the plaintiff, an objection thereto. 2. That on or about March 18, 1949, cross-defendants J. Amado Araneta and J.
On 23 March 1957 the Court denied the defendants-principals' motion to Amado Araneta & Co., Inc. (Philippine Shipping Lines) represented by J.
dismiss. Amado Araneta requested the herein cross-plaintiff to post a surety bond in
behalf of cross-defendant Philippine Shipping Lines and in favor of the
Republic of the Philippines in the amount of P11,814.00 to guarantee the
On 29 March the defendants-principals filed their answer denying that they payment of the Common Carrier's Tax and Compensating Tax of the former
had operated their vessel as a common carrier, the truth being that they with the latter, to which request the cross-plaintiff agreed and did in fact post
had used it to ship goods and cargoes manufactured and sold by them and the said bond, the original copy of which is attached as Annex "A" of the
allied companies owned and/or controlled by them; asserting that granting Stipulation of Facts entered into with the plaintiff Republic of the Philippines
without admitting that they were liable for common carrier's tax, their and made an integral part hereof by reference as Annex "1-MSFC";
gross receipts during the alleged period was P166,299.67 only and not
P253,370.24; and that the "Bond to Guarantee Payment of Common Carrier's
Tax and Compensating Tax," attached to the complaint as Annex A or to the 3. That the parties admit the truth of the terms and conditions of said bond;
stipulation of facts filed on 25 February 1958 as Annex B, is not genuine and
had not been duly executed because the same had not been approved by the 4. That the cross-plaintiff agreed and did in fact post the aforesaid surety bond
Collector of Internal Revenue; and setting up affirmative defenses that the upon written undertaking of the cross-defendants the original carbon copy of
five-year period of limitation provided for in section 332, paragraph (c) of which is hereto attached as Annex "2-MSFCI" and made an integral part of this
the National Internal Revenue Code, as amended, already had elapsed, stipulation of facts obligating themselves to indemnify the cross-plaintiff for
hence the plaintiff's action was barred; and that granting that the said bond any damage, losses, costs, charges or expenses of whatever kind and nature
was valid, the enforcement of the principal obligation having been barred, it including counsel or attorney's fees which the company may incur at any time
follows that the enforcement of the obligation undertaken in the said bond was as a consequence of having become surety of the abovementioned bond;
also barred. They set up a counterclaim of P2,000 for expenses of litigation and
attorney's fees incurred in defending their legal rights. On 30 March 1957 the
defendant surety filed its answer setting up the following affirmative defenses: 5. That the parties admit the truth of the terms and conditions of the said written
that the plaintiff's complaint states no cause of action; that its liability under the undertaking marked Annex "2- MSFCI";
bond (Annex B) was extinguished by its novation and alteration without its
knowledge and consent; that granting that its liability still subsists, the said 6. That upon the passage and approval of Republic Act No. 961 on June 9,
bond being merely se ondary or auxiliary to a principal obligation that could no 1949, exempting from payment of the compensating tax the purchase or receipt
longer be enforced by reason of prescription, its obligation thereunder could, of vessels, their equipment and/or appurtenances, from without the Philippines,
likewise, no longer be enforced; and that the bond (Annex B), not having been before or after the taking effect of said Republic Act No. 361, the alleged tax
approved by the Collector of Internal Revenue, was void. As counterclaim, it liability of the cross-defendant was reduced by P5,250.00 from the original
sought from the plaintiff the sum of P2,500 for expenses of litigation and assessment of P11,814.00 leaving the sum of P6,364.28 only, representing the
attorney's fees incurred for the protection of its rights. fixed and common carrier's tax allegedly due the Government;

On 10 April 1957, the plaintiff answered the defendants' respective 7. That on February 22, 1957, the Republic of the Philippines initiated court
counterclaim, alleging that it was a valid cause of action against them and that proceedings seeking to recover from the as principal and the cross-plaintiff as
its complaint was filed pursuant to its policy of collecting long overdue surety the said sum of P6,364.28 including penalties plus six (6%) percent
accounts from delinquent taxpayers. thereon from December 6, 1951 until fully paid plus costs;

After obtaining leave of court, on 25 May 1957 the de defendant-surety filed an 8. That in accordance with the indemnity agreement An Annex "2-MSFCI", the
amended answer reiterating its denials, affirmative defenses and counterclaim cross-defendants agreed to indemnify the cross-plaintiff as soon as the latter has
in its first answer and adding or including a cross-claim against the defendants- become liable for the payment of any amount under the aforementioned bond,
principals for recovery from the latter of whatever sum of money it might be whether or not it shall have paid such sum or sums of money, or any part
ordered to pay the plaintiff by judgment of the Court, with interest at the rate of thereof;
12% per annum from the date of payment until the sum it shall have paid be
fully reimbursed to it by the defendants-principals; of the sum of P3,598.20 as
premiums due for the period from 18 September 1949 to 18 March 1957, with 9. That in spite of repeated demands cross-defendants have failed and refused
interest at the rate 12% per annum from 18 March 1957 until fully paid; of a and still fail and refuse to indemnify the cross-plaintiff the amount claimed for
sum equivalent to 15% of the total amount claimed as attorney's fees, as agreed in the cross-plaintiff's complaint;
upon in the indemnity bond executed by the cross-defendants on 21 March
1949 and accepted by the cross-plaintiff (Annex "1-MSFCI") attached to the 10. That the cross-plaintiff hereby withdraws the second and third causes of
attended answer and made a part thereof; and of the costs of the suit with action as contained in the cross-claim; and
respect to its cross-claim. It prayed further for any other just and equitable
relief.
11. That the parties hereto hereby withdraw their respective counterclaims.
On 10 June 1957 the cross-defendants filed an answer to the cross-complaint of
the defendant-surety, denying the truth, genuineness and correctness of the copy which they submitted to the Court (pp. 71-76; 84-91, recs. on app.).
of the bond attached to the complaint as Annex A and as Annex B of the
stipulation of facts; and claiming that the mere filing of a suit against the cross-
On the same day, 25 February 1957, all the parties to this case submitted to the
plaintiff did not render it liable to pay the alleged tax liability of the cross-
Court the following stipulation of facts dated 7 February 1957:
defendants; that the bond filed on 18 March 1949 by the cross-plaintiff (Annex
B) was null and void, hence the same could not be the basis of the cross-
plaintiff's cross-claim against the cross-defendants; that since both of them have
COME NOW the parties in the above-entitled case represented by their 10. That due to the failure of defendants to comply with the above-demands,
respective counsel and to this Honorable Court respectfully submit the plaintiff instituted the present action on February 22, 1957, to collect from
following stipulation of facts: defendants J. Amado Araneta and/or J. Amado Araneta & Co., Inc., and Manila
Surety & Fidelity Co., Inc., jointly and severally the amount of P6,364.28
including penalties plus 6% interest thereon from December 6, 1951, until fully
1. That the jurisdictional facts and the capacity of the parties to sue and be sued paid, and/or in default thereof, to execute upon the bond (Annex "B") for the
are admitted; satisfaction of the claim.

2. That sometime in 1946, the defendant J. Amado Araneta purchased from the WHEREFORE, it is respectfully prayed that the above case be submitted for
Philippine Shipping Commission, and received delivery of one F. S. vessel for decision based upon the above stipulation of facts. (pp. 76-101; 66-83, recs. on
the sum of P120,000.00; app.)

3. That during the fourth quarter of 1946 up to and in including the fourth On 31 May 1958 the Court rendered judgment holding that the action brought
quarter of 1948, defendants J. Amado Araneta and/or J. Amado Araneta & Co., by the plaintiff was for the enforcement of an obligation undertaken by the
operated said F. S. vessel within Philippine waters under the business style defendants-principals and the defendant-surety in the bond executed by them in
"Philippine Shipping Lines" without first providing themselves with the favor of the plaintiff (Annex B); that the action having been brought on 22
necessary fixed tax C-3-C required by Sec. 182 of the Tax Code; February 1957 was within the period of ten years from 18 March 1949, the date
of execution of the bond; that the defendants-principals having defaulted in the
4. That during the above-mentioned period from the fourth quarter of 1946 to payment of their tax obligation, which the defendant-surety had guaranteed to
the fourth quarter of 1947, said defendants J. Amado Araneta and/or J. Amado pay should the principals fail, the surety's obligation undertaken in the bond
Araneta & Co., failed to make a return of gross receipts from the operation of became a principal obligation; and that although the Collector of Internal
said F.S. vessel; Revenue failed to affix his signature in the bond (Annex B), the latter's
acceptance constituted approval thereof, and ordering the defendants, jointly
and severally, to pay the plaintiff the sum of P6,364.28, with interest at the rate
5. That the Bureau of Internal Revenue conducted an examination of the books of 6% per annum from 22 February 1957, the date of the filing of the
of the Philippine Shipping Lines, as a result of which the Bureau of Internal complaint, until fully paid; and dismissing the defendants' counterclaims
Revenue assessed defer defendant in the sums of P6,361.28, as fixed and against the plaintiff and those against each other as well as the cross-claim by
percentage taxes and surcharge and P5,250.00 as compensating tax and the cross plaintiff and defendant-surely against the cross-defendants and
surcharge, or a total of P11,614.28, as evidenced by the letter, dated May 15, defendants-principals, without pronouncement as to costs.
1948, hereto attached as Annex "A" to this stipulation of facts and made an
integral part hereof, computed as follows:
On 12 June and 5 July 1958 the defendants filed motions for reconsideration;
on 14 June 1958, the cross-defendants, an objection to the cross-plaintiff's
motion for reconsideration.
Fixed Tax (1947-1948) ...................................................... P 30.00
2% common carrier's tax in accordance with Sec. 192, NIRC, On 27 June and 8 July 1958 the Court denied the defendants' respective
on gross receipt for the same period in the sum of motions for reconsideration.
P253,370.84 .................................................................. 5,067.42
The defendants have appealed separately.
25% surcharge .................................................................. 1,266.86

TOTAL ..................................................................... P 6,364.28 The contention of the appellants-taxpayers (J. Amado Araneta and J.
Amado Araneta & Company, Inc.) is that the appellee's cause of action has
and an assessment for compensating tax as follows: prescribed, because the action for recovery of internal revenue taxes and
surcharge due brought on 22 February 1957, was not commenced within
the period of five years after the assessment dated 15 May 1948 had been
2-1/2% on P120,000.00 ............................................. P 4,200.00 made (Annex A); that the bond executed by them and the appellant-surety
(Manila Surety & Fidelity Company, Inc.) to guarantee payment of the common
25% surcharge on P4,200.00 ................................... 1,050.00 carrier's tax (Annex B), being merely auxiliary or ancillary to the principal
obligation the enforcement of which has prescribed, the enforcement of their
TOTAL COMPENSATING TAX DUE .................... P 5,250.00 auxiliary obligation in the bond also has prescribed; and that the bond, (Annex
B) is null and void because the same was not approved by the Collector of
Internal Revenue.
6. That on March 18, 1949, defendants J. Amado Araneta as principal and the
Manila Surety & Fidelity Co., Inc. as surety executed "Bond to Guarantee
The ground of the appellant-surety's appeal is that, not-withstanding the fact
Payment of Common Carriers Tax and Compensating Tax", the original of
that the appellants-taxpayers had bound themselves to indemnify it "for any
which is hereto attached to this stipulation of facts as Annex "B" and made an
damages, loss, costs, charges, or expenses of whatever kind and nature," as a
integral part hereof. That the parties admit the truth of the terms and conditions
result of its having executed and filed the bond marked as Annex B (Annex 2-
of said bond and the fact that at the lower portion of said bond which reads:
MSFCI), the trial court dismissed its cross-claim against the appellants-
taxpayers instead of ordering them to pay it whatever amount it shall have paid
"APPROVED: to the appellee by virtue of its judgment and the stipulated interests thereon
from the date of payment of said amount by the cross-plaintiff to the appellee
until full payment thereof by the cross-defendants to the cross-plaintiff.
"BIBIANO L. MEER
"Collector of Internal Revenue"
COURT:The appellants-taxpayers' appeal is without merit.
was left unsigned by said official;
They cannot invoke prescription under the provisions of section 331 of the
National Internal Revenue Code, as amended, because the appellee is suing
7. That in view of the enactment of Rep. Act No. 361, the defendant J. Amado on the bond executed and filed by them and the appellant-surety (Annex
Araneta and/or J. Amado Araneta & Co., Inc. sent a letter to the Collector of B). It must be borne in mind that on 15 March 1948 the Collector of Internal
Internal Revenue dated June 14, 1949, a certified true copy of which is hereto Revenue assessed the appellants-taxpayers for fixed tax upon business due from
attached with this stipulation of facts as Annex "C" and made an integral part 1946 to 1948 under the provisions of section 182, in connection with sections
hereof. Said letter was answered by the Collector of Internal Revenue dated 178 to 180, of the National Internal Revenue Code, as amended, and 2% tax on
June 21, 1949, a certified true copy of which is likewise attached to this gross receipts from their business as common carrier under those of section 192
stipulation of facts as Annex "D" and made an integral part hereof; of the same Code, and surcharge, all amounting to P6,364.28 (An Annex
A);1 that the appellants-taxpayers requested the Collector of internal Revenue to
8. That plaintiff through the Collector of Internal Revenue sent letters of be allowed to pay their tax liability in six equal monthly installments beginning
demand to the defendants J. Amado Araneta and the Manila Surety & Fidelity 15 April 1949; that the Collector of Internal Revenue granted their request
Co., Inc., dated December 6, 1951 and May 17, 1952, respectively, certified provided a bond to guarantee payment of their tax liability be filed by them
true copies of which are hereto attached to this stipulation of facts as Annexes (Annex B); that the appellants-taxpayers requested the appellant-surety to
"E" and "F" and made integral parts hereof. Another set of demand letters dated underwrite the required bond (Annex 2-MSFCI); and that on 18 March 1949
November 14, 1953, was sent to the defendant J. Amado Araneta under the firm the appellants-taxpayers and the appel appellant-surety executed the, required
name of Philippine Shipping Lines and to the Manila Surety & Fidelity Co., bend (Annex B) and submitted it to the Collector of Internal Revenue who
Inc. certified true copies of which are likewise hereto attached to this received and kept it. The condition of the bond is —
stipulation of facts as Annexes "G" and "H" and likewise made integral parts
hereof; . . . that if the above-bounden Principal (the appellants-tax-payers) truly and
faithfully make a prompt and complete payment of the 2% common carriers tax
9. That on February 3, 1955, the Bureau of Internal Revenue sent another and compensating tax due on the above-mentioned vessel for the year 1948, in
demand letter to the Philippine Shipping Lines. A copy of said letter is hereto six (6) equal monthly installments Commencing on April 15, 1949, as well as
attached and made an integral part hereof as Annex I; all fines and penalties imposed in accordance with the National Internal
Revenue Code, then this obligation shall be null and void, otherwise it shall
remain in full force and effect (Annex B).
The appellants-taxpayers failed to pay any of the installments due despite G.R. No. 167146 October 31, 2006
demand (Annexes E, G & 1). Hence, the appellee sued on the bond (Annex
B) which is a separate and distinct obligation of the parties thereto. For
COMMISSIONER OF INTERNAL REVENUE, petitioner,
this Court to sustain the appellants' defense of prescription would in effect
vs.
nullify their undertaking in the bond which was executed and filed by them
PHILIPPINE GLOBAL COMMUNICATION, INC., respondent.
to lighten their tax obligation or burden by being allowed to pay in six
equal installments.

DECISION
The action to enforce the obligation on the bond executed on 18 March
1949, having been filed in court by the appellee on 22 February 1957, was
within the prescriptive period of ten years.
CHICO-NAZARIO, J.:
The appellants-taxpayers' argument that the bond (Annex B) being
ancillary to the principal obligation to pay heir tax liability, which already This is a Petition for Review on Certiorari, under Rule 45 of the Rules of
has prescribed, the enforcement of their obligation in the bond also has Court, seeking to set aside the en banc Decision of the Court of Tax Appeals
prescribed is untenable. What has been said about their claim of (CTA) in CTA EB No. 37 dated 22 February 2005,1 ordering the petitioner to
prescription against the collection of the tax equally applies to the claim of withdraw and cancel Assessment Notice No. 000688-80-7333 issued against
prescription against the enforcement of the bond obligation or respondent Philippine Global Communication, Inc. for its 1990 income tax
undertaking. 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.
The act of the Collector of Internal Revenue in receiving and keeping the
bond, deferring collection of the tax, and suing on the bond (Annex B)
upon failure of the appellants taxpayers to pay the tax, the payment of Respondent, a corporation engaged in telecommunications, filed its Annual
which is guaranteed by the bond, meant or amounted to approval thereof. 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)
Turning now to the appeal of the appellant-surety, the having bound themselves
officials to examine the books of account and other accounting records of
to the former as follows:
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
INDEMNITY: (b) To indemnify the Company for any damage, loss, costs, the latter to present for examination certain records and documents, but
charges, or expenses of whatever kind and nature including counsel or respondent failed to present any document. On 21 April 1994, respondent
attorney's fees, which the COMPANY may, at any time, sustain or incur as a received a Preliminary Assessment Notice dated 13 April 1994 for deficiency
consequence of having become surety upon the above-mentioned bond; said income tax in the amount of P118,271,672.00, inclusive of surcharge, interest,
attorneys fees shall not be less than fifteen (15%) per cent of e total amount and compromise penalty, arising from deductions that were disallowed for
claimed in any action which the COMPANY may institute against the failure to pay the withholding tax and interest expenses that were likewise
undersigned in Court. 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
MATURITY OF THE OBLIGATION UNDER THIS SECOND: (c) Said
indemnity shall be paid to the COMPANY as soon as it has become liable for
the payment of any amount, under the abovementioned bond, whether or not it On 6 May 1994, respondent, through its counsel Ponce Enrile Cayetano
shall have paid such sums or sums of money, or any part thereof. 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
INTEREST IN CASE OF DEFAULT: (d) And in the case of non-payment of & Ongsiako Law Offices. In both letters, respondent requested for the
the said sum or sums of money to the COMPANY by the undersigned, the said cancellation of the tax assessment, which they alleged was invalid for lack
undersigned shall pay, upon said sum or sums of money, an interest of twelve of factual and legal basis.4
(12%) per cent per annum, which interest, while not paid, shall be liquidated
and accumulated monthly to the capital owed by the undersigned, drawing the
same interest as the said capital. 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
UNQUESTIONABILITY OF THE PAYMENTS AND DISBURSEMENTS denying the respondent’s protest against Assessment Notice No.
MADE BY THE COMPANY: (e) Any payment or disbursement made by the 000688-80-7333, and affirming the said assessment in toto.5
COMPANY on account of the abovementioned bond, either in the belief that it
was bound to make said payment or disbursement or in the belief that the
payment or disbursement made was necessary or expedient, in order to avoid On 15 November 2002, respondent filed a Petition for Review with the CTA.
greater losses or obligations for which it would be liable under the After due notice and hearing, the CTA rendered a Decision in favor of
abovementioned bond, shall be final and shall not be questioned by the respondent on 9 June 2004.6 The CTA ruled on the primary issue of prescription
undersigned who hereby agree to indemnify, jointly and severally, to the and found it unnecessary to decide the issues on the validity and propriety of
COMPANY, for each and everyone of said payments and disbursements. the assessment. It decided that the protest letters filed by the respondent cannot
(Emphasis supplied). Annex "2- MSFCI" 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.
should be ordered to reimburse the appellant-surety for whatever amount it 000688-80-7333 was issued in 1994, the CIR’s right to collect the same has
shall have paid to the appellee by virtue of the judgment rendered in this case prescribed in conformity with Section 269 of the National Internal Revenue
and to pay the stipulated interest thereon. The premium and attorney's fees Code of 19778 (Tax Code of 1977). The dispositive portion of this decision
sought to be collected by the appellant-surety in the second and third causes of reads:
action of its cross-complaint against the appellants-taxpayers have been
withdrawn by it (paragraph 10 of the stipulation of facts).
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the petitioner. Accordingly, respondent’s Final Decision dated October 8, 2002
WITH THE FOREGOING MODIFICATION, the rest of the judgment is hereby REVERSED and SET ASIDE and respondent is hereby ORDERED
appealed from is affirmed, with costs against the appellants-taxpayers. 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 Prescription in the assessment and in the collection of taxes is provided by the
FROM RESPONDENT FOR THE YEAR 1990 HAS PRESCRIBED 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
A. THE PRESCRIPTIVE PERIOD WAS INTERUPTED WHEN long or indefinitely to the prejudice of the interests of the Government,
RESPONDENT FILED TWO LETTERS OF PROTEST DISPUTING IN which needs taxes to run it; and for the taxpayer so that within a
DETAIL THE DEFICIENCY ASSESSMENT IN QUESTION AND reasonable time after filing his return, he may know the amount of the
REQUESTING THE CANCELLATION OF SAID ASSESSMENT. THE TWO assessment he is required to pay, whether or not such assessment is well
LETTERS OF PROTEST ARE, BY NATURE, REQUESTS FOR founded and reasonable so that he may either pay the amount of the
REINVESTIGATION OF THE DISPUTED ASSESSMENT. 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
B. THE REQUESTS FOR REINVESTIGATION OF RESPONDENT WERE delay the assessment and the collection because by the time the collecting
GRANTED BY THE BUREAU OF INTERNAL REVENUE.12 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
ISSUE: accumulating interest which the taxpayer eventually has to pay .

whether or not CIR’s right to collect respondent’s alleged deficiency income tax In Republic of the Philippines v. Ablaza,19 this Court emphatically explained
is barred by prescription under Section 269(c) of the Tax Code of 1977 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:
COURT: This Court finds no merit in this Petition.
The law prescribing a limitation of actions for the collection of the income tax
The main issue in this case is whether or not CIR’s right to collect respondent’s is beneficial both to the Government and to its citizens; to the Government
alleged deficiency income tax is barred by prescription under Section 269(c) of because tax officers would be obliged to act promptly in the making of
the Tax Code of 1977, which reads: 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
Section 269. Exceptions as to the period of limitation of assessment and the latter’s real liability, but to take advantage of every opportunity to molest,
collection of taxes. – x x x peaceful, law-abiding citizens. Without such legal defense taxpayers would
furthermore be under obligation to always keep their books and keep them open
xxxx 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
c. Any internal revenue tax which has been assessed within the period of within the contemplation of the Commission which recommended the approval
limitation above-prescribed may be collected by distraint or levy or by a of the law.
proceeding in court within three years following the assessment of the tax.
And again in the recent case Bank of the Philippine Islands v. Commissioner of
The law prescribed a period of three years from the date the return was Internal Revenue,20 this Court, in confirming these earlier rulings, pronounced
actually filed or from the last date prescribed by law for the filing of such that:
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 Though the statute of limitations on assessment and collection of national
assessment to ten years when a false or fraudulent return was filed with the internal revenue taxes benefits both the Government and the taxpayer, it
intent of evading the tax or when no return was filed at all.14 In such cases, principally intends to afford protection to the taxpayer against unreasonable
the ten-year period began to run only from the date of discovery by the investigation. The indefinite extension of the period for assessment is
BIR of the falsity, fraud or omission. 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.
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 Thus, in Commissioner of Internal Revenue v. B.F. Goodrich,21 this Court
the administrative process of distraint and/or levy or through judicial affirmed that the law on prescription should be liberally construed in order to
proceedings.15 The three-year period for collection of the assessed tax protect taxpayers and that, as a corollary, the exceptions to the law on
began to run on the date the assessment notice had been released, mailed prescription should be strictly construed.
or sent by the BIR.16
The Tax Code of 1977, as amended, provides instances when the running of the
The assessment, in this case, was presumably issued on 14 April 1994 since statute of limitations on the assessment and collection of national internal
the respondent did not dispute the CIR’s claim. Therefore, the BIR had revenue taxes could be suspended, even in the absence of a waiver, under
until 13 April 1997. However, as there was no Warrant of Distraint and/or Section 271 thereof which reads:
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 Section 224. Suspension of running of statute. – The running of the statute of
assessment was when it filed its Answer in CTA Case No. 6568 on 9 limitation provided in Sections 268 and 269 on the making of assessments and
January 2003, which was several years beyond the three-year prescriptive the beginning of distraint or levy or a proceeding in court for collection in
period. Thus, the CIR is now prescribed from collecting the assessed tax. respect of any deficiency, shall be suspended for the period during which the
Commissioner is prohibited from making the assessment or beginning distraint
The provisions on prescription in the assessment and collection of national or levy or a proceeding in court and for sixty days thereafter; when the
internal revenue taxes became law upon the recommendation of the tax taxpayer requests for a reinvestigation which is granted by the
commissioner of the Philippines. The report submitted by the tax commission Commissioner; when the taxpayer cannot be located in the address given by
clearly states that these provisions on prescription should be enacted to benefit him in the return filed upon which a tax is being assessed or collected x x x.
and protect taxpayers: (Emphasis supplied.)

Under the former law, the right of the Government to collect the tax does not Among the exceptions provided by the aforecited section, and invoked by the
prescribe. However, in fairness to the taxpayer, the Government should be CIR as a ground for this petition, is the instance when the taxpayer requests for
estopped from collecting the tax where it failed to make the necessary a reinvestigation which is granted by the Commissioner. However, this
investigation and assessment within 5 years after the filing of the return and exception does not apply to this case since the respondent never requested for a
where it failed to collect the tax within 5 years from the date of assessment reinvestigation. More importantly, the CIR could not have conducted a
thereof. Just as the government is interested in the stability of its collections, so reinvestigation where, as admitted by the CIR in its Petition, the respondent
also are the taxpayers entitled to an assurance that they will not be subjected to refused to submit any new evidence.
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. Revenue Regulations No. 12-85, the Procedure Governing Administrative
321-322).17 Protests of Assessment of the Bureau of Internal Revenue, issued on 27
November 1985, defines the two types of protest, the request for
In a number of cases, this Court has also clarified that the statute of reconsideration and the request for reinvestigation, and distinguishes one from
limitations on the collection of taxes should benefit both the Government the other in this manner:
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 Section 6. Protest. - The taxpayer may protest administratively an assessment
taxpayers. In Collector of Internal Revenue v. Suyoc Consolidated Mining by filing a written request for reconsideration or reinvestigation specifying the
Company,18 Justice Montemayor, in his dissenting opinion, identified the following particulars:
potential loss to the taxpayer if the assessment and collection of taxes are not
promptly made.
xxxx
For the purpose of protest herein— 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
(a) Request for reconsideration-- refers to a plea for a re-evaluation of an examiner to San Fernando, La Union, for that purpose; that because of the
assessment on the basis of existing records without need of additional evidence. examiner’s report, the Bureau revised the original assessment, x x x. In other
It may involve both a question of fact or of law or both. words, the reconsideration was granted in part, and the original assessment was
altered. Consequently, the period between the petition for reconsideration and
(b) Request for reinvestigation—refers to a plea for re-evaluation of an the revised assessment should be subtracted from the total prescriptive period
assessment on the basis of newly-discovered evidence or additional evidence (Republic vs. Ablaza, 108 Phil 1105).
that a taxpayer intends to present in the investigation. It may also involve a
question of fact or law or both. 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
The main difference between these two types of protests lies in the records or period set at that time in the statute of limitations:
evidence to be examined by internal revenue officers, whether these are
existing records or newly discovered or additional evidence. A re-evaluation of It is now a settled ruled in our jurisdiction that the five-year prescriptive period
existing records which results from a request for reconsideration does not toll fixed by Section 332(c) of the Internal Revenue Code within which the
the running of the prescription period for the collection of an assessed tax. Government may sue to collect an assessed tax is to be computed from the last
Section 271 distinctly limits the suspension of the running of the statute of revised assessment resulting from a reinvestigation asked for by the taxpayer
limitations to instances when reinvestigation is requested by a taxpayer and is and (2) that where a taxpayer demands a reinvestigation, the time employed in
granted by the CIR. The Court provided a clear-cut rationale in the case of Bank reinvestigating should be deducted from the total period of limitation.
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: xxxx

Undoubtedly, a reinvestigation, which entails the reception and evaluation of The first reinvestigation was granted, and a reduced assessment issued on 29
additional evidence, will take more time than a reconsideration of a tax May 1954, from which date the Government had five years for bringing an
assessment, which will be limited to the evidence already at hand; this justifies action to collect.
why the former can suspend the running of the statute of limitations on
collection of the assessed tax, while the latter cannot.
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,
In the present case, the separate letters of protest dated 6 May 1994 and 23 May during which the limitation period was interrupted.
1994 are requests for reconsideration. The CIR’s allegation that there was a
request for reinvestigation is inconceivable since respondent consistently and
The Court reiterated the ruling in Republic v. Lopez in the case
categorically refused to submit new evidence and cooperate in any
of Commissioner of Internal Revenue v. Sison,27 "that where a taxpayer
reinvestigation proceedings. This much was admitted in the Decision dated 8
demands a reinvestigation, the time employed in reinvestigating should be
October 2002 issued by then CIR Guillermo Payarno, Jr.
deducted from the total period of limitation." Finally, in Republic v.
Arcache,28 the Court enumerated the reasons why the taxpayer is barred from
In the said conference-hearing, Revenue Officer Alameda basically testified invoking the defense of prescription, one of which was that, "In the first place,
that Philcom, despite repeated demands, failed to submit documentary it appears obvious that the delay in the collection of his 1946 tax liability was
evidences in support of its claimed deductible expenses. Hence, except for the due to his own repeated requests for reinvestigation and similarly repeated
item of interest expense which was disallowed for being not ordinary and requests for extension of time to pay."
necessary, the rest of the claimed expenses were disallowed for non-
withholding. In the same token, Revenue Officer Escober testified that upon his
In this case, the BIR admitted that there was no new or additional evidence
assignment to conduct the re-investigation, he immediately requested the
presented. Considering that the BIR issued its Preliminary Assessment Notice
taxpayer to present various accounting records for the year 1990, in addition to
on 13 April 1994 and its Formal Assessment Notice on 14 April 1994, just one
other documents in relation to the disallowed items (p.171). This was followed
day before the three-year prescription period for issuing the assessment expired
by other requests for submission of documents (pp.199 &217) but these were
on 15 April 1994, it had ample time to make a factually and legally well-
not heeded by the taxpayer. Essentially, he stated that Philcom did not
founded assessment. Added to the fact that the Final Decision that the CIR
cooperate in his reinvestigation of the case.
issued on 8 October 2002 merely affirmed its earlier findings, whatever
examination that the BIR may have conducted cannot possibly outlast the entire
In response to the testimonies of the Revenue Officers, Philcom thru Atty. three-year prescriptive period provided by law to collect the assessed tax, not to
Consunji, emphasized that it was denied due process because of the issuance of mention the eight years it actually took the BIR to decide the respondent’s
the Pre-Assessment Notice and the Assessment Notice on successive dates. x x protest. The factual and legal issues involved in the assessment are relatively
x Counsel for the taxpayer even questioned the propriety of the conference- simple, that is, whether certain income tax deductions should be disallowed,
hearing inasmuch as the only question to resolved (sic) is the legality of the mostly for failure to pay withholding taxes. Thus, there is no reason to suspend
issuance of the assessment. On the disallowed items, Philcom thru counsel the running of the statute of limitations in this case.
manifested that it has no intention to present documents and/or evidences
allegedly because of the pending legal question on the validity of the
The distinction between a request for reconsideration and a request for
assessment.23
reinvestigation is significant. It bears repetition that a request for
reconsideration, unlike a request for reinvestigation, cannot suspend the statute
Prior to the issuance of Revenue Regulations No. 12-85, which distinguishes a of limitations on the collection of an assessed tax. If both types of protest can
request for reconsideration and a request for reinvestigation, there have been effectively interrupt the running of the statute of limitations, an erroneous
cases wherein these two terms were used interchangeably. But upon closer assessment may never prescribe. If the taxpayer fails to file a protest, then the
examination, these cases all involved a reinvestigation that was requested by erroneous assessment would become final and unappealable.29 On the other
the taxpayer and granted by the BIR. 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
In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,24 the deficiencies and the surcharges continue to accumulate. And for an unrestricted
Court weighed the considerable time spent by the BIR to actually conduct the number of years, the taxpayers remain uncertain and are burdened with the
reinvestigations requested by the taxpayer in deciding that the prescription costs of preserving their books and records. This is the predicament that the law
period was suspended during this time. on the statute of limitations seeks to prevent.

Because of such requests, several reinvestigations were made and a hearing was The Court, in sustaining for the first time the suspension of the running of the
even held by the Conference Staff organized in the collection office to consider statute of limitations in cases where the taxpayer requested for a
claims of such nature which, as the record shows, lasted for several months. reinvestigation, gave this justification:
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 A taxpayer may be prevented from setting up the defense of prescription even if
ground of prescription. 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
Although the Court used the term "requests for reconsideration" in reference to no harassment or injustice is meant by the Government.
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 xxxx
reinvestigations.
This case has no precedent in this jurisdiction for it is the first time that such
It is true that the Collector revised the original assessment on February 9, 1955; has risen, but there are several precedents that may be invoked in American
and appellant avers that this revision was invalid in that it was not made within jurisprudence. As Mr. Justice Cardozo has said: "The applicable principle is
the five-year prescriptive period provided by law (Collector vs. Pineda, 112 fundamental and unquestioned. ‘He who prevents a thing from being done
Phil. 321). But that fact is that the revised assessment was merely a result of may not avail himself of the nonperformance which he himself occasioned,
petitioner Querol’s requests for reconsideration of the original assessment, 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. 000688-80-7333 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.