DIGESTS
Remedies (under the NIRC of 1997)
Collection
The power to tax and to collect the same.
The power to tax necessarily carries with it the power to collect the taxes.
~~~Wee Poco & Co., Inc. vs. Posadas, Jr. (G.R. No. L-43142, 26 August 1937, En Banc, J. Concepcion)
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While taxation per se is generally legislative in nature, collection of tax is administrative in character. Thus, Congress delegated the assessment and collection of all national internal revenue taxes, fees, and charges to the BIR. And as the BIR’s chief, the CIR has the power to make assessments and prescribe additional requirements for tax administration and enforcement.
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Tax collection is part and parcel of the CIR’s power to make assessments and prescribe additional requirements for tax administration and enforcement.
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The primary agency tasked to assess and collect proper taxes.
The BIR is the primary agency tasked to assess and collect proper taxes, and to administer and enforce the Tax Code. To perform its functions of tax assessment and collection properly, it is given ample powers under the Tax Code, such as the power to examine tax returns and books of accounts, to issue a subpoena, and to assess based on best evidence obtainable, among others. However, these powers must “be exercised reasonably and [under] the prescribed procedure.” The Commissioner and revenue officers must strictly comply with the requirements of the law, with the BIR’s own rules, and with due regard to taxpayers’ constitutional rights.
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Tax collection should be made in accordance with law.
It has been repeatedly observed, and not without merit, that the enforcement of tax laws and the collection of taxes, is of paramount importance for the sustenance of government. Taxes are the lifeblood of the government and should be collected without unnecessary hindrance. However, 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 interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.
~~~Marcos II vs. Court of Appeals, et al. (G.R. No. 120880, 5 June 1997, 2nd Div., J. Torres, Jr.)
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While indeed the government has an interest in the swift collection of taxes, its assessment and collection should be exercised justly and fairly, and always in strict adherence to the requirements of the law and of the BIR’s own rules.
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Taxation must be exercised reasonably and in accordance with the prescribed procedure.
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 interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. Thus, even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure.
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Tax collection should be premised on a valid assessment.
Compliance with Section 228 of the NIRC is a substantive requirement. It is not a mere formality. Providing the taxpayer with the factual and legal bases for the assessment is crucial before proceeding with tax collection. Tax collection should be premised on a valid assessment, which would allow the taxpayer to present his or her case and produce evidence for substantiation.
Taxes are the lifeblood of government and should be collected without hindrance. However, the collection of taxes should be exercised reasonably and in accordance with the prescribed procedure.
The essential nature of taxes for the existence of the State grants government with vast remedies to ensure its collection. However, taxpayers are guaranteed their fundamental right to due process of law, as articulated in various ways in the process of tax assessment. After all, the State’s purpose is to ensure the well-being of its citizens, not simply to deprive them of their fundamental rights.
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Tax collection must continue when the tax assessment has become final and unappealable.
The Notices of Levy upon real property were issued within the prescriptive period and in accordance with the provisions of the present Tax Code. The deficiency tax assessment, having already become final, executory, and demandable, the same can now be collected through the summary remedy of distraint or levy pursuant to Section 205 of the NIRC.
The applicable provision in regard to the prescriptive period for the assessment and collection of tax deficiency in this instance is Article 223 of the NIRC, which pertinently provides:
“Sec. 223. Exceptions as to a period of limitation of assessment and collection of taxes.– (a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten (10) years after the discovery of the falsity, fraud, or omission: Provided, That, in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof.
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(c) Any internal revenue tax which has been assessed within the period of limitation above prescribed, may be collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax.
The omission to file an estate tax return, and the subsequent failure to contest or appeal the assessment made by the BIR is fatal to the petitioner’s cause, as under the above-cited provision, in case of failure to file a return, the tax may be assessed at any time within ten years after the omission, and any tax so assessed may be collected by levy upon real property within three years following the assessment of the tax. Since the estate tax assessment had become final and unappealable by the petitioner’s default as regards protesting the validity of the said assessment, there is now no reason why the BIR cannot continue with the collection of the said tax. Any objection against the assessment should have been pursued following the avenue paved in Section 229 of the NIRC on protests on assessments of internal revenue taxes.
The mere fact that the decedent has pending cases involving ill-gotten wealth does not affect the enforcement of tax assessments over the properties indubitably included in his estate.
~~~Marcos II vs. Court of Appeals, et al. (G.R. No. 120880, 5 June 1997, 2nd Div., J. Torres, Jr.)
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A valid assessment must first be established before proceeding with tax collection.
The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations: that taxpayers should be able to present their case and adduce supporting evidence. In the instant case, respondent has not been informed of the basis of the estate tax liability. Without complying with the unequivocal mandate of first informing the taxpayer of the government’s claim, there can be no deprivation of property, because no effective protest can be made. The haphazard shot at slapping an assessment, supposedly based on estate taxation’s general provisions that are expected to be known by the taxpayer, is utter chicanery.
Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals the lack of basis for — not to mention the insufficiency of — the gross figures and details of the itemized deductions indicated in the notice and the letter. This Court cannot countenance an assessment based on estimates that appear to have been arbitrarily or capriciously arrived at. Although taxes are the lifeblood of the government, their assessment and collection “should be made in accordance with law as any arbitrariness will negate the very reason for government itself.”
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Resort to the proper Court does not deter the BIR’s right to collect taxes.
With respect to petitioner’s argument that respondent’s act of elevating its protest to the CTA has fortified the continuing interruption of petitioner’s prescriptive period to collect under Section 223 of the Tax Code, the same is flawed at best because respondent was merely exercising its right to resort to the proper Court, and does not in any way deter petitioner’s right to collect taxes from respondent under existing laws.
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Two (2) types of remedies to enforce tax collection; These may be resorted by the BIR so long as the taxpayer has not been denied due process, and the period to assess and/or to collect has not prescribed.
The Tax Code provides two types of remedies to enforce the collection of unpaid taxes, to wit: (a) summary administrative remedies, such as the distraint and/or levy of taxpayer’s property; and/or (b) judicial remedies, such as the filing of a criminal or civil action against the erring taxpayer.
Verily, pursuant to the lifeblood doctrine, the Court has allowed tax authorities ample discretion to avail themselves of the most expeditious way to collect the taxes, including summary processes, with as little interference as possible. However, the Court, at the same time, has not hesitated to strike down these processes in cases wherein tax authorities disregarded due process. The BIR’s power to collect taxes must yield to the fundamental rule that no person shall be deprived of his/her property without due process of law. The rule is that taxes must be collected reasonably and in accordance with the prescribed procedure.
In the normal course of tax administration and enforcement, the BIR must first make an assessment then enforce the collection of the amounts so assessed. “An assessment is not an action or proceeding for the collection of taxes. x x x It is a step preliminary, but essential to warrant distraint, if still feasible, and, also, to establish a cause for judicial action.” The BIR may summarily enforce collection only when it has accorded the taxpayer administrative due process, which vitally includes the issuance of a valid assessment. A valid assessment sufficiently informs the taxpayer in writing of the legal and factual bases of the said assessment, thereby allowing the taxpayer to effectively protest the assessment and adduce supporting evidence in its behalf.
In CIR v. Reyes (Reyes Case), the petitioner issued an assessment notice and a demand letter for alleged deficiency estate tax against the taxpayer estate. The assessment notice and demand letter simply notified the taxpayer estate of petitioner’s findings, without stating the factual and legal bases for said assessment. The Court, absent a valid assessment, refused to accord validity and effect to petitioner’s collection efforts – which involved, among other things, the successive issuances of a collection letter, a final notice before seizure, and a warrant of distraint and/or levy against the taxpayer estate – and declared that:
x x x [P]etitioner violated the cardinal rule in administrative law that the taxpayer be accorded due process. Not only was the law here disregarded, but no valid notice was sent, either. A void assessment bears no valid fruit.
The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations: that taxpayers should be able to present their case and adduce supporting evidence. In the instant case, respondent has not been informed of the basis of the estate tax liability. Without complying with the unequivocal mandate of first informing the taxpayer of the government’s claim, there can be no deprivation of property, because no effective protest can be made. The haphazard shot at slapping an assessment, supposedly based on estate taxation’s general provisions that are expected to be known by the taxpayer, is utter chicanery.
Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals the lack of basis for – not to mention the insufficiency of – the gross figures and details of the itemized deductions indicated in the notice and the letter. This Court cannot countenance an assessment based on estimates that appear to have been arbitrarily or capriciously arrived at. Although taxes are the lifeblood of the government, their assessment and collection “should be made in accordance with law as any arbitrariness will negate the very reason for government itself.” (Emphasis supplied.)
The Court similarly found that there was no valid assessment in CIR v. BASF Coating + Inks Phils., Inc. (BASF Coating Case) as the assessment notice therein was sent to the taxpayer company’s former address. Without a valid assessment, the Court pronounced that petitioner’s issuance of a First Notice Before Issuance of Warrant of Distraint and Levy to be in violation of the taxpayer company’s right to due process and effectively blocked any further efforts by petitioner to collect by virtue thereof. The Court ratiocinated that:
It might not also be amiss to point out that petitioner’s issuance of the First Notice Before Issuance of Warrant of Distraint and Levy violated respondent’s right to due process because no valid notice of assessment was sent to it. An invalid assessment bears no valid fruit. The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations: that taxpayers should be able to present their case and adduce supporting evidence. In the instant case, respondent has not properly been informed of the basis of its tax liabilities. Without complying with the unequivocal mandate of first informing the taxpayer of the government’s claim, there can be no deprivation of property, because no effective protest can be made.
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It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of property without due process of law. In balancing the scales between the power of the State to tax and its inherent right to prosecute perceived transgressors of the law on one side, and the constitutional rights of a citizen to due process of law and the equal protection of the laws on the other, the scales must tilt in favor of the individual, for a citizen’s right is amply protected by the Bill of Rights under the Constitution.
It is worthy to note that in the Reyes Case and BASF Coating Case, there were assessments actually issued against the taxpayers therein, except that said assessments were adjudged invalid for different reasons (i.e., for failing to state the factual and legal bases for the assessment in the Reyes Case and for sending the assessment to the wrong address in the BASF Coating Case). In the instant cases, petitioner did not issue at all an assessment against respondents prior to his issuance of the 1998 and 2002 Collection Letters. Thus, there is even more reason for the Court to bar petitioner’s attempts to collect the alleged deficiency excise taxes through any summary administrative remedy.
In the present case, it is clear from the wording of the 1998 and 2002 Collection Letters that petitioner intended to pursue, through said collection letters, summary administrative remedies for the collection of respondents’ alleged excise tax deficiencies for the Covered Years. In fact, in the respondent Shell’s case, the collection letters were already followed by the BIR’s issuance of Warrants of Garnishment and Distraint and/or Levy against it.
That the BIR proceeded with the collection of respondents’ alleged unpaid taxes without a previous valid assessment is evident from the following: First, petitioner admitted in CTA Case Nos. 5728 and 6547 that: (a) the collections letters were not tax assessment notices; (b) the letters were issued solely based on the DOF Center’s findings; and (c) the BIR never issued any preliminary assessment notice prior to the issuance of the collection letters. Second, although the 1998 and 2002 Collection Letters and the 1999 Assessments against respondents were for the same excise taxes for the Covered Years, the former were evidently not based on the latter. The 1998 Collection Letters against respondents were issued prior to the 1999 Assessments; while the 2002 Collection Letter against respondent Shell was issued even while respondent Shell’s protest of the 1999 Assessment was still pending before the CTA. And third, assuming arguendo that the 1998 and 2002 Collection Letters were intended to implement the 1999 Assessments against respondents, the 1999 Assessments were already nullified in the 2007 Shell Case and 2010 Petron Case.
Absent a previously issued assessment supporting the 1998 and 2002 Collection Letters, it is clear that petitioner’s attempts to collect through said collection letters as well as the subsequent Warrants of Garnishment and Distraint and/or Levy are void and ineffectual. If an invalid assessment bears no valid fruit, with more reason will no such fruit arise if there was no assessment in the first place.
As the Court has explicitly found herein as well as in the 2007 Shell Case and 2010 Petron Case, petitioner failed to issue any valid assessment against respondents for the latter’s alleged deficiency excise taxes for the Covered Years. Without a valid assessment, the five-year prescriptive period to assess continued to run and had, in fact, expired in these cases. Irrefragably, petitioner is already barred by prescription from issuing an assessment against respondents for deficiency excise taxes for the Covered Years. Resultantly, this also bars petitioner from undertaking any summary administrative remedies, i.e., distraint and/or levy, against respondents for collection of the same taxes.
Unlike summary administrative remedies, the government’s power to enforce the collection through judicial action is not conditioned upon a previous valid assessment. Sections 318 and 319(a) of the 1977 NIRC expressly allowed the institution of court proceedings for collection of taxes without assessment within five years from the filing of the tax return and 10 years from the discovery of falsity, fraud, or omission, respectively.
A judicial action for the collection of a tax is begun: (a) by the filing of a complaint with the court of competent jurisdiction, or (b) where the assessment is appealed to the CTA, by filing an answer to the taxpayer’s petition for review wherein payment of the tax is prayed for.
From respondents’ filing of their excise tax returns in the years 1992 to 1997 until the lapse of the five-year prescriptive period under Section 318 of the 1977 NIRC in the years 1997 to 2002, petitioner did not institute any judicial action for collection of tax as aforedescribed. Instead, petitioner relied solely on summary administrative remedies by issuing the collection letters and warrants of garnishment and distraint and/or levy without prior assessment against respondents. Sifting through records, it can be said that petitioner’s earliest attempts to judicially enforce collection of respondents’ alleged deficiency excise taxes were his Answers to respondents’ Petitions for Review filed before the CTA in Case Nos. 5657, 5728, and 6547 on August 6, 1998, March 2, 1999, and November 29, 2002, respectively.
Verily, in a long line of jurisprudence, the Court deemed the filing of such pleadings as effective tax collection suits so as to stop the running of the prescriptive period in cases where: (a) the CIR issued an assessment and the taxpayer appealed the same to the CTA; (b) the CIR filed the answer praying for the payment of tax within five years after the issuance of the assessment; and (c) at the time of its filing, jurisdiction over judicial actions for collection of internal revenue taxes was vested in the CTA, not in the regular courts.
However, judging by the foregoing conditions, even petitioner’s Answers in CTA Case Nos. 5657, 5728, and 6547 cannot be deemed judicial actions for collection of tax. First, CTA Case Nos. 5657, 5728, and 6547 were not appeals of assessments. Respondents went before the CTA to challenge the 1998 and 2002 Collection Letters, which, by petitioner’s own admission, are not assessments. Second, by the time petitioner filed his Answers before the CTA on August 6, 1998, March 2, 1999, and November 29, 2002, his power to collect alleged deficiency excise taxes, the returns for which were filed from 1992 to 1997, had already partially prescribed, particularly those pertaining to the earlier portion of the Covered Years. Third, at the time petitioner filed his Answers before the CTA, the jurisdiction over judicial actions for collection of internal revenue taxes was vested in the regular courts, not the CTA. Original jurisdiction over collection cases was transferred to the CTA only on April 23, 2004, upon the effectivity of RA No. 9282.
Without either a formal tax collection suit filed before the court of competent jurisdiction or an answer deemed as a judicial action for collection of tax within the prescribed five-year period under Section 318 of the 1977 NIRC, petitioner’s power to institute a court proceeding for the collection of respondents’ alleged deficiency excise taxes without an assessment had already prescribed in 1997 to 2002.
The Court’s ruling remains the same even if the 10-year prescriptive period under Section 319(a) of the 1977 NIRC, in case of falsity, fraud, or omission in the taxpayer’s return, is applied to the present cases.
Even if the Court concedes, for the sake of argument, that respondents’ returns for the Covered Years were false or fraudulent, Section 319(a) of the 1977 NIRC similarly required petitioner to (a) issue an assessment; and/or (b) file a court action for collection without an assessment, but within 10 years after the discovery of the falsity, fraud, or omission in the taxpayer’s return. As early as the 1998 Collection Letters, petitioner could already be charged with knowledge of the alleged falsity or fraud in respondents’ excise tax returns, which precisely led petitioner to invalidate respondents’ payments using the transferred TCCs and to demand payment of deficiency excise taxes through said letters. The 10-year prescriptive period under Section 319(a) of the 1977 NIRC wholly expired in 2008 without petitioner issuing a valid assessment or instituting judicial action for collection.
The Court cannot countenance the tax authorities’ non-performance of their duties in the present cases. The law provides for a statute of limitations on the assessment and collection of internal revenue taxes in order to safeguard the interest of the taxpayer against unreasonable investigation.
While taxes are the lifeblood of the nation, the Court cannot allow tax authorities indefinite periods to assess and/or collect alleged unpaid taxes. Certainly, it is an injustice to leave any taxpayer in perpetual uncertainty whether he will be made liable for deficiency or delinquent taxes.
In sum, petitioner’s attempts to collect the alleged deficiency excise taxes from respondents are void and ineffectual because (a) the Issues regarding the transferred TCCs’ validity, respondents’ qualifications as transferees of said TCCs, and respondents’ use of the TCCs to pay for their excise tax liabilities for the Covered Years, had already been settled with finality in the 2007 Shell Case and 2010 Petron Case, and could no longer be re-litigated on the ground of res judicata in the concept of conclusiveness of judgment; (b) petitioner’s resort to summary administrative remedies without a valid assessment was not in accordance with the prescribed procedure and was in violation of respondents’ right to substantive due process; and (c) none of petitioner’s collection efforts constitute a valid institution of a judicial remedy for collection of taxes without an assessment, and any such judicial remedy is now barred by prescription.
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Governing provisions
In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice Plant, et al., G.R. No. L-23081, December 30, 1969, it was held that the assessment, collection and recovery of taxes, as well as the matter of prescription thereof are governed by the provisions of the NIRC, particularly Sections 331 and 332 thereof (now Sections 203 and 222, NIRC of 1997), and not by other provisions of law. (See also Lim Tio, Dy Heng and Dee Jue vs. Court of Tax Appeals & Collector of Internal Revenue, G.R. No. L-10681, March 29, 1958).
~~~Vera, et al. vs. Fernandez, et al. (G.R. No. L-31364, 30 March 1979, 1st Div., J. De Castro)
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Periods of limitation to assess and collect.
The period for the BIR to assess and collect an internal revenue tax is limited to three years by Section 203 of the Tax Code of 1977, as amended (now Section 203, NIRC of 1997).
The three-year period of limitations on the assessment and collection of national internal revenue taxes set by Section 203 of the Tax Code of 1977, as amended, can be affected, adjusted, or suspended, in accordance with [Section 223] of the same Code (now Section 222, NIRC of 1997).
As enunciated in these statutory provisions, the BIR has three years, counted from the date of actual filing of the return or from the last date prescribed by law for the filing of such return, whichever comes later, to assess a national internal revenue tax or to begin a court proceeding for the collection thereof without an assessment. In case of a false or fraudulent return with intent to evade tax or the failure to file any return at all, the prescriptive period for assessment of the tax due shall be 10 years from discovery by the BIR of the falsity, fraud, or omission. When the BIR validly issues an assessment, within either the three-year or ten-year period, whichever is appropriate, then the BIR has another three years after the assessment within which to collect the national internal revenue tax due thereon by distraint, levy, and/or court proceeding. The assessment of the tax is deemed made and the three-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent by the BIR to the taxpayer.
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The law prescribed a period of three years from the date the return was actually filed or from the last date prescribed by law for the filing of such return, whichever came later, within which the BIR may assess a national internal revenue tax. However, the law increased the prescriptive period to assess or to begin a court proceeding for the collection without an assessment to ten years when a false or fraudulent return was filed with the intent of evading the tax or when no return was filed at all. In such cases, the ten-year period began to run only from the date of discovery by the BIR of the falsity, fraud or omission.
If the BIR issued this assessment within the three-year period or the ten-year period, whichever was applicable, the law provided another three years after the assessment for the collection of the tax due thereon through the administrative process of distraint and/or levy or through judicial proceedings. The three-year period for collection of the assessed tax began to run on the date the assessment notice had been released, mailed or sent by the BIR.
The assessment, in this case, was presumably issued on 14 April 1994 since the respondent did not dispute the CIR’s claim. Therefore, the BIR had until 13 April 1997. However, as there was no Warrant of Distraint and/or Levy served on the respondents nor any judicial proceedings initiated by the BIR, the earliest attempt of the BIR to collect the tax due based on this assessment was when it filed its Answer in CTA Case No. 6568 on 9 January 2003, which was several years beyond the three-year prescriptive period. Thus, the CIR is now proscribed from collecting the assessed tax.
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Periods of limitation to assess; and to collect [prior to the NIRC of 1997 (RA No. 8424)].
The statute of limitations on assessment and collection of national internal revenue taxes was shortened from five (5) years to three (3) years by Batas Pambansa Blg. 700. Thus, the CIR has three (3) years from the date of actual filing of the tax return to assess a national internal revenue tax or to commence court proceedings for the collection thereof without an assessment.
When it validly issues an assessment within the three (3)-year period, it has another three (3) years within which to collect the tax due by distraint, levy, or court proceeding. The assessment of the tax is deemed made and the three (3)-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent to the taxpayer.
As applied to the present case, the CIR had three (3) years from the time he issued assessment notices to BPI on 7 April 1989 or until 6 April 1992 within which to collect the deficiency DST. However, it was only on 9 August 2002 that the CIR ordered BPI to pay the deficiency.
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To determine prescription, what is essential only is that the facts demonstrating the lapse of the prescriptive period were sufficiently and satisfactorily apparent on the record either in the allegations of the plaintiff’s complaint, or otherwise established by the evidence. Under the then applicable Section 319(c) [now, 222(c), NIRC of 1997] of the NIRC of 1977, as amended, any internal revenue tax which has been assessed within the period of limitation may be collected by distraint or levy, and/or court proceeding within three years following the assessment of the tax. The assessment of the tax is deemed made and the three-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent by the BIR to the taxpayer.
In the present case, although there was no allegation as to when the assessment notice had been released, mailed or sent to BPI, still, the latest date that the BIR could have released, mailed or sent the assessment notice was on the date BPI received the same on 16 June 1989. Counting the three-year prescriptive period from 16 June 1989, the BIR had until 15 June 1992 to collect the assessed DST. But despite the lapse of 15 June 1992, the evidence established that there was no warrant of distraint or levy served on BPI’s properties, or any judicial proceedings initiated by the BIR.
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Petitioner avers that its right to collect the EWT for taxable year 1992 has not yet prescribed. It argues that while the final assessment notice and demand letter on EWT for taxable year 1992 were all issued on January 9, 1996, the five (5)-year prescriptive period to collect was interrupted when respondent filed its request for reinvestigation on March 14, 1997 which was granted by petitioner on January 22, 2001 through the issuance of Tax Verification Notice No. 00165498 on even date. Thus, the period for tax collection should have begun to run from the date of the reconsidered or modified assessment.
This argument fails to persuade us.
The statute of limitations on assessment and collection of national internal revenue taxes was shortened from five (5) years to three (3) years by virtue of Batas Pambansa Blg. 700. Thus, petitioner has three (3) years from the date of actual filing of the tax return to assess a national internal revenue tax or to commence court proceedings for the collection thereof without an assessment. However, when it validly issues an assessment within the three (3)-year period, it has another three (3) years within which to collect the tax due by distraint, levy, or court proceeding. The assessment of the tax is deemed made and the three (3)-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent to the taxpayer.
On this matter, we note the findings of the CTA-Special First Division that no evidence was formally offered to prove when respondent filed its returns and paid the corresponding EWT and WTC for taxable year 1992.
Nevertheless, as correctly held by the CTA En Banc, the Preliminary Collection Letter for deficiency taxes for taxable year 1992 was only issued on February 21, 2002, despite the fact that the FANs for the deficiency EWT and WTC for taxable year 1992 was issued as early as January 9, 1996. Clearly, five (5) long years had already lapsed, beyond the three (3)-year prescriptive period, before collection was pursued by petitioner.
Further, while the request for reinvestigation was made on March 14, 1997, the same was only acted upon by petitioner on January 22, 2001, also beyond the three (3) year statute of limitations reckoned from January 9, 1996, notwithstanding the lack of impediment to rule upon such issue.
We cannot countenance such inaction by petitioner to the prejudice of respondent pursuant to our ruling in Commissioner of Internal Revenue v. Philippine Global Communication, Inc., to wit:
The assessment, in this case, was presumably issued on 14 April 1994 since the respondent did not dispute the CIR’s claim. Therefore, the BIR had until 13 April 1997. However, as there was no Warrant of Distraint and/or Levy served on the respondents nor any judicial proceedings initiated by the BIR, the earliest attempt of the BIR to collect the tax due based on this assessment was when it filed its Answer in CTA Case No. 6568 on 9 January 2003, which was several years beyond the three-year prescriptive period. Thus, the CIR is now prescribed from collecting the assessed tax.
Here, petitioner had ample time to make a factually and legally well-founded assessment and implement collection pursuant thereto. Whatever examination that petitioner may have conducted cannot possibly outlast the entire three (3)-year prescriptive period provided by law to collect the assessed tax. Thus, there is no reason to suspend the running of the statute of limitations in this case.
Moreover, in Bank of the Philippine Islands, citing earlier jurisprudence, we held that the request for reinvestigation should be granted or at least acted upon in due course before the suspension of the statute of limitations may set in, thus:
In BPI v. Commissioner of Internal Revenue, the Court emphasized the rule that the CIR must first grant the request for reinvestigation as a requirement for the suspension of the statute of limitations. The Court said:
In the case of Republic of the Philippines v. Gancayco, taxpayer Gancayco requested for a thorough reinvestigation of the assessment against him and placed at the disposal of the Collector of Internal Revenue all the evidences he had for such purpose; yet, the Collector ignored the request, and the records and documents were not at all examined. Considering the given facts, this Court pronounced that—
x x x The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in order to effect suspension. (Collector v. Suyoc Consolidated, supra; also Republic v. Ablaza, supra). Moreover, the Collector gave appellee until April 1, 1949, within which to submit his evidence, which the latter did one day before. There were no impediments on the part of the Collector to file the collection case from April 1, 1949…
In Republic of the Philippines v. Acebedo, this Court similarly found that –
x x x T]he defendant, after receiving the assessment notice of September 24, 1949, asked for a reinvestigation thereof on October 11, 1949 (Exh. “A”). There is no evidence that this request was considered or acted upon. In fact, on October 23, 1950 the then Collector of Internal Revenue issued a warrant of distraint and levy for the full amount of the assessment (Exh. “D”), but there was follow-up of this warrant. Consequently, the request for reinvestigation did not suspend the running of the period for filing an action for collection. [Emphasis in the original]
With respect to petitioner’s argument that respondent’s act of elevating its protest to the CTA has fortified the continuing interruption of petitioner’s prescriptive period to collect under Section 223 of the Tax Code, the same is flawed at best because respondent was merely exercising its right to resort to the proper Court, and does not in any way deter petitioner’s right to collect taxes from respondent under existing laws.
On the strength of the foregoing observations, we ought to reiterate our earlier teachings that “in balancing the scales between the power of the State to tax and its inherent right to prosecute perceived transgressors of the law on one side, and the constitutional rights of a citizen to due process of law and the equal protection of the laws on the other, the scales must tilt in favor of the individual, for a citizen’s right is amply protected by the Bill of Rights under the Constitution.” Thus, while “taxes are the lifeblood of the government,” the power to tax has its limits, in spite of all its plenitude. Even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure.
After all, the statute of limitations on the collection of taxes was also enacted to benefit and protect the taxpayers, as elucidated in the case of Philippine Global Communication, Inc., thus:
x x x The report submitted by the tax commission clearly states that these provisions on prescription should be enacted to benefit and protect taxpayers:
Under the former law, the right of the Government to collect the tax does not prescribe. However, in fairness to the taxpayer, the Government should be estopped from collecting the tax where it failed to make the necessary investigation and assessment within 5 years after the filing of the return and where it failed to collect the tax within 5 years from the date of assessment thereof. Just as the government is interested in the stability of its collections, so also are the taxpayers entitled to an assurance that they will not be subjected to further investigation for tax purposes after the expiration of a reasonable period of time. (Vol. II, Report of the Tax Commission of the Philippines, pp. 321-322).
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To recall, the BIR issued the assessment for deficiency DST on 19 April 1989, when the applicable rule was Section 319(c) of the NIRC of 1977, as amended [now Section 222(c), NIRC of 1997]. In that provision, the time limit for the government to collect the assessed tax is set at three years, to be reckoned from the date when the BIR mails/releases/sends the assessment notice to the taxpayer. Further, Section 319(c) [now Section 222(c)] states that the assessed tax must be collected by distraint or levy and/or court proceeding within the three-year period.
With these rules in mind, we shall now determine whether the claim of the BIR is barred by time.
In this case, the records do not show when the assessment notice was mailed, released or sent to CBC. Nevertheless, the latest possible date that the BIR could have released, mailed or sent the assessment notice was on the same date that CBC received it, 19 April 1989. Assuming therefore that 19 April 1989 is the reckoning date, the BIR had three years to collect the assessed DST. However, the records of this case show that there was neither a warrant of distraint or levy served on CBC’s properties nor a collection case filed in court by the BIR within the three-year period.
The attempt of the BIR to collect the tax through its Answer with a demand for CBC to pay the assessed DST in the CTA on 11 March 2002 did not comply with Section 319(c) of the 1977 Tax Code, as amended [now Section 222(c), NIRC of 1997]. The demand was made almost thirteen years from the date from which the prescriptive period is to be reckoned. Thus, the attempt to collect the tax was made way beyond the three-year prescriptive period.
The BIR’s Answer in the case filed before the CTA could not, by any means, have qualified as a collection case as required by law. Under the rule prevailing at the time the BIR filed its Answer, the regular courts, and not the CTA, had jurisdiction over judicial actions for collection of internal revenue taxes. It was only on 23 April 2004, when RA No. 9282 took effect, that the jurisdiction of the CTA was expanded to include, among others, original jurisdiction over collection cases in which the principal amount involved is one million pesos or more.
Consequently, the claim of the CIR for deficiency DST from petitioner is forever lost, as it is now barred by time. This Court has no other option but to dismiss the present case.
*******
The period of collection has also prescribed. As held by the CTA:
As to the period of collection, We uphold the ruling of the Division that such has already prescribed. Regardless if We will reckon the period to collect from May 6, 1991, or the alleged Final Demand Letter on February 5, 1992, counting the three-year period therein to collect in accordance with Section 223 (c) of the 1977 Tax Code, obviously, the mode of collection through the issuance of Warrant of Distraint and/or Levy on October 05, 2011 was made beyond the prescriptive period.
It must be remembered that [T]he law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations: that taxpayers should be able to present their case and adduce supporting evidence. Although taxes are the lifeblood of the government, their assessment and collection “should be made in accordance with law as any arbitrariness will negate the very reason for government itself.”
*******
Under Section 318 of the 1977 NIRC, petitioner had five years from the time respondents filed their excise tax returns in question to: (a) issue an assessment; and/or (b) file a court action for collection without an assessment. In the petitions at bar, respondents filed their returns for the Covered Years from 1992 to 1997, and the five-year prescriptive period under Section 319 of the 1977 NIRC would have prescribed accordingly from 1997 to 2002.
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The issue of the validity of assessment is separate and distinct from the issue of the whether the right to collect an assessed tax has prescribed.
To be sure, the fact that an assessment has become final for failure of the taxpayer to file a protest within the time allowed only means that the validity or correctness of the assessment may no longer be questioned on appeal. However, the validity of the assessment itself is a separate and distinct issue from the issue of whether the right of the CIR to collect the validly assessed tax has prescribed. This issue of prescription, being a matter provided for by the NIRC, is well within the jurisdiction of the CTA to decide.
*******
Be that as it may, even if the Court excuses these flaws, the CIR is still barred from collecting the subject taxes from BPI.
The BIR may no longer collect the
alleged deficiency taxes.
The authorities in the present case sought to collect the subject deficiency EWT, WTD, DFT, and WTC through the November 2011 Warrant. The distraint and/or levy of the taxpayer’s property is a summary administrative remedy to enforce the collection of taxes, as provided under the 1977 Tax Code.
Verily, the lifeblood doctrine enables the BIR “to avail themselves of the most expeditious way to collect the taxes, including summary processes, with as little interference as possible.” However, to temper the wide latitude of discretion accorded to the tax authorities, “[t]he law provides for a statute of limitations on the assessment and collection of internal revenue taxes in order to safeguard the interest of the taxpayer against unreasonable investigation.”
Under the 1977 Tax Code, as amended, “[a]ny internal revenue tax which has been assessed within the period of limitation above-prescribed may be collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax.” Stated differently, the three-year prescriptive period for the BIR to collect taxes via summary administrative processes shall be reckoned from “the date the assessment notice had been released, mailed or sent by-the BIR to the taxpayer.”
This reckoning point is not clear from the facts of the present case. However, the parties no longer dispute: (a) that the CIR issued a letter dated May 6, 1991, to which the subject assessment notices were appended; (b) that Citytrust filed its protest (dated May 27, 1991) on May 30, 1991; and that (c) the first instance the CIR proceeded to administratively collect the assessed taxes was through the issuance of the November 2011 Warrant.
With only these considerations, the latest possible time the CIR could have released the assessment was the same day Citytrust protested the same or on May 30, 1991. From this time, the CIR had three years to collect the taxes assessed or until May 30, 1994.
No matter how the CIR frames the arguments, it is glaring from the 20-year gap between the issuance/release of the assessment (1991) and the enforcement of collection through distraint and/or levy (2011) that prescription had already set in.
To be sure, aside from summary administrative remedies, the law also allows the collection of unpaid taxes through the institution of a collection case in court within the same three-year period. However, even the CIR’s answer to BPI’s Second CTA Petition, which could have been considered as a judicial action for the collection of tax, was filed belatedly (2011).
It is clear that the tax authorities had been remiss in the performance of their duties. The Court must bar the CIR from collecting the taxes in the present case because, “[w]hile taxes are the lifeblood of the nation, the Court cannot allow tax authorities indefinite periods to assess and/or collect alleged unpaid taxes. Certainly, it is an injustice to leave any taxpayer in perpetual uncertainty whether he will be made liable for deficiency or delinquent taxes.”
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If the pleadings or the evidence on record show that the claim is barred by prescription, the court must dismissed the same, even if prescription is not raised as a defense.
If the pleadings or the evidence on record show that the claim is barred by prescription, the court is mandated to dismiss the claim even if prescription is not raised as a defense. In Heirs of Valientes v. Ramas (G.R. No. 157852, 15 December 2010), we ruled that the CA may motu proprio dismiss the case on the ground of prescription despite failure to raise this ground on appeal. The court is imbued with sufficient discretion to review matters, not otherwise assigned as errors on appeal, if it finds that their consideration is necessary in arriving at a complete and just resolution of the case. More so, when the provisions on prescription were enacted to benefit and protect taxpayers from investigation after a reasonable period of time.
To determine prescription, what is essential only is that the facts demonstrating the lapse of the prescriptive period were sufficiently and satisfactorily apparent on the record either in the allegations of the plaintiff’s complaint, or otherwise established by the evidence.
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Legislative intent on the provisions on prescription in tax assessment and collection.
The provisions on prescription in the assessment and collection of national internal revenue taxes became law upon the recommendation of the tax commissioner of the Philippines. The report submitted by the tax commission clearly states that these provisions on prescription should be enacted to benefit and protect taxpayers:
Under the former law, the right of the Government to collect the tax does not prescribe. However, in fairness to the taxpayer, the Government should be estopped from collecting the tax where it failed to make the necessary investigation and assessment within 5 years after the filing of the return and where it failed to collect the tax within 5 years from the date of assessment thereof. Just as the government is interested in the stability of its collections, so also are the taxpayers entitled to an assurance that they will not be subjected to further investigation for tax purposes after the expiration of a reasonable period of time. (Vol. II, Report of the Tax Commission of the Philippines, pp. 321-322).
In a number of cases, this Court has also clarified that the statute of limitations on the collection of taxes should benefit both the Government and the taxpayers. In these cases, the Court further illustrated the harmful effects that the delay in the assessment and collection of taxes inflicts upon taxpayers. In Collector of Internal Revenue v. Suyoc Consolidated Mining Company [104 Phil. 819 (1958)], Justice Montemayor, in his dissenting opinion, identified the potential loss to the taxpayer if the assessment and collection of taxes are not promptly made.
Prescription in the assessment and in the collection of taxes is provided by the Legislature for the benefit of both the Government and the taxpayer; for the Government for the purpose of expediting the collection of taxes, so that the agency charged with the assessment and collection may not tarry too long or indefinitely to the prejudice of the interests of the Government, which needs taxes to run it; and for the taxpayer so that within a reasonable time after filing his return, he may know the amount of the assessment he is required to pay, whether or not such assessment is well founded and reasonable so that he may either pay the amount of the assessment or contest its validity in court x x x. It would surely be prejudicial to the interest of the taxpayer for the Government collecting agency to unduly delay the assessment and the collection because by the time the collecting agency finally gets around to making the assessment or making the collection, the taxpayer may then have lost his papers and books to support his claim and contest that of the Government, and what is more, the tax is in the meantime accumulating interest which the taxpayer eventually has to pay.
In Republic of the Philippines v. Ablaza [108 Phil.1105 (1960)], this Court emphatically explained that the statute of limitations of actions for the collection of taxes is justified by the need to protect law-abiding citizens from possible harassment:
The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latter’s real liability, but to take advantage of every opportunity to molest, peaceful, law-abiding citizens. Without such legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficient purpose of affording protection to the taxpayer within the contemplation of the Commission which recommended the approval of the law.
And again in the recent case Bank of the Philippine Islands v. Commissioner of Internal Revenue, this Court, in confirming these earlier rulings, pronounced that:
Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both the Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable investigation. The indefinite extension of the period for assessment is unreasonable because it deprives the said taxpayer of the assurance that he will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time.
Thus, in Commissioner of Internal Revenue v. B.F. Goodrich, this Court affirmed that the law on prescription should be liberally construed in order to protect taxpayers and that, as a corollary, the exceptions to the law on prescription should be strictly construed.
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Suspension of the running of the prescriptive period on the assessment and collection of taxes; Request for reconsideration vs. Request of reinvestigation.
The Tax Code of 1977, as amended (now the NIRC of 1997), provides instances when the running of the statute of limitations on the assessment and collection of national internal revenue taxes could be suspended, even in the absence of a waiver, under Section 271 thereof (now Section 223, NIRC of 1997) reads:
Section 224. Suspension of running of statute. – The running of the statute of limitation provided in Sections 268 and 269 on the making of assessments and the beginning of distraint or levy or a proceeding in court for collection in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected x x x. (Emphasis supplied.)
Among the exceptions provided by the aforecited section, and invoked by the CIR as a ground for this petition, is the instance when the taxpayer requests for a reinvestigation which is granted by the Commissioner. However, this exception does not apply to this case since the respondent never requested for a reinvestigation. More importantly, the CIR could not have conducted a reinvestigation where, as admitted by the CIR in its Petition, the respondent refused to submit any new evidence.
RR No. 12-85, the Procedure Governing Administrative Protests of Assessment of the Bureau of Internal Revenue, issued on 27 November 1985, defines the two types of protest, the request for reconsideration and the request for reinvestigation, and distinguishes one from the other in this manner:
Section 6. Protest. – The taxpayer may protest administratively an assessment by filing a written request for reconsideration or reinvestigation specifying the following particulars:
x x x x
For the purpose of protest herein-
(a) Request for reconsideration— refers to a plea for a re-evaluation of an assessment on the basis of existing records without need of additional evidence. It may involve both a question of fact or of law or both.
(b) Request for reinvestigation-refers to a plea for re-evaluation of an assessment on the basis of newly-discovered evidence or additional evidence that a taxpayer intends to present in the investigation. It may also involve a question of fact or law or both.
The main difference between these two types of protests lies in the records or evidence to be examined by internal revenue officers, whether these are existing records or newly discovered or additional evidence. A re-evaluation of existing records which results from a request for reconsideration does not toll the running of the prescription period for the collection of an assessed tax. Section 271 (now Section 223, NIRC of 1997) limits the suspension of the running of the statute of limitations to instances when reinvestigation is requested by a taxpayer and is granted by the CIR. The Court provided a clear-cut rationale in the case of Bank of the Philippine Islands v. Commissioner of Internal Revenue explaining why a request for reinvestigation, and not a request for reconsideration, interrupts the running of the statute of limitations on the collection of the assessed tax:
Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited to the evidence already at hand; this justifies why the former can suspend the running of the statute of limitations on collection of the assessed tax, while the latter cannot.
In the present case, the separate letters of protest dated 6 May 1994 and 23 May 1994 are requests for reconsideration. The CIR’s allegation that there was a request for reinvestigation is inconceivable since respondent consistently and categorically refused to submit new evidence and cooperate in any reinvestigation proceedings. This much was admitted in the Decision dated 8 October 2002 issued by then CIR Guillermo Payarno, Jr.
In the said conference-hearing, Revenue Officer Alameda basically testified that Philcom, despite repeated demands, failed to submit documentary evidences in support of its claimed deductible expenses. Hence, except for the item of interest expense which was disallowed for being not ordinary and necessary, the rest of the claimed expenses were disallowed for non-withholding. In the same token, Revenue Officer Escober testified that upon his assignment to conduct the re-investigation, he immediately requested the taxpayer to present various accounting records for the year 1990, in addition to other documents in relation to the disallowed items (p.171). This was followed by other requests for submission of documents (pp.199 &217) but these were not heeded by the taxpayer. Essentially, he stated that Philcom did not cooperate in his reinvestigation of the case.
In response to the testimonies of the Revenue Officers, Philcom thru Atty. Consunji, emphasized that it was denied due process because of the issuance of the Pre-Assessment Notice and the Assessment Notice on successive dates. x x x Counsel for the taxpayer even questioned the propriety of the conference-hearing inasmuch as the only question to resolved (sic) is the legality of the issuance of the assessment. On the disallowed items, Philcom thru counsel manifested that it has no intention to present documents and/or evidences allegedly because of the pending legal question on the validity of the assessment.
Prior to the issuance of Revenue Regulations No. 12-85, which distinguishes a request for reconsideration and a request for reinvestigation, there have been cases wherein these two terms were used interchangeably. But upon closer examination, these cases all involved a reinvestigation that was requested by the taxpayer and granted by the BIR.
In Collector of Internal Revenue v. Suyoc Consolidated Mining Company [104 Phil. 819 (1958)], the Court weighed the considerable time spent by the BIR to actually conduct the reinvestigations requested by the taxpayer in deciding that the prescription period was suspended during this time.
Because of such requests, several reinvestigations were made and a hearing was even held by the Conference Staff organized in the collection office to consider claims of such nature which, as the record shows, lasted for several months. After inducing petitioner to delay collection as he in fact did, it is most unfair for respondent to now take advantage of such desistance to elude his deficiency income tax liability to the prejudice of the Government invoking the technical ground of prescription.
Although the Court used the term “requests for reconsideration” in reference to the letters sent by the taxpayer in the case of Querol v. Collector of Internal Revenue [116 Phil. 615 (1962)], it took into account the reinvestigation conducted soon after these letters were received and the revised assessment that resulted from the reinvestigations.
It is true that the Collector revised the original assessment on February 9, 1955; and appellant avers that this revision was invalid in that it was not made within the five-year prescriptive period provided by law (Collector vs. Pineda, 112 Phil. 321). But that fact is that the revised assessment was merely a result of petitioner Querol’s requests for reconsideration of the original assessment, contained in his letters of December 14, 1951 and May 25, 1953. The records of the Bureau of Internal Revenue show that after receiving the letters, the Bureau conducted a reinvestigation of petitioner’s tax liabilities, and, in fact, sent a tax examiner to San Fernando, La Union, for that purpose; that because of the examiner’s report, the Bureau revised the original assessment, x x x. In other words, the reconsideration was granted in part, and the original assessment was altered. Consequently, the period between the petition for reconsideration and the revised assessment should be subtracted from the total prescriptive period (Republic vs. Ablaza, 108 Phil 1105).
The Court, in Republic v. Lopez [117 Phil. 575 (1963)], even gave a detailed accounting of the time the BIR spent for each reinvestigation in order to deduct it from the five-year period set at that time in the statute of limitations:
It is now a settled ruled in our jurisdiction that the five-year prescriptive period fixed by Section 332(c) of the Internal Revenue Code [now Section 222(c), NIRC of 1997] within which the Government may sue to collect an assessed tax is to be computed from the last revised assessment resulting from a reinvestigation asked for by the taxpayer and (2) that where a taxpayer demands a reinvestigation, the time employed in reinvestigating should be deducted from the total period of limitation.
x x x x
The first reinvestigation was granted, and a reduced assessment issued on 29 May 1954, from which date the Government had five years for bringing an action to collect.
The second reinvestigation was asked on 16 January 1956, and lasted until it was decided on 22 April 1960, or a period of 4 years, 3 months, and 6 days, during which the limitation period was interrupted.
The Court reiterated the ruling in Republic v. Lopez in the case of Commissioner of Internal Revenue v. Sison [117 Phil. 892 (1963)], “that where a taxpayer demands a reinvestigation, the time employed in reinvestigating should be deducted from the total period of limitation.” Finally, in Republic v. Arcache [119 Phil. 604 (1964)], the Court enumerated the reasons why the taxpayer is barred from invoking the defense of prescription, one of which was that, “In the first place, it appears obvious that the delay in the collection of his 1946 tax liability was due to his own repeated requests for reinvestigation and similarly repeated requests for extension of time to pay.”
In this case, the BIR admitted that there was no new or additional evidence presented. Considering that the BIR issued its Preliminary Assessment Notice on 13 April 1994 and its Formal Assessment Notice on 14 April 1994, just one day before the three-year prescription period for issuing the assessment expired on 15 April 1994, it had ample time to make a factually and legally well-founded assessment. Added to the fact that the Final Decision that the CIR issued on 8 October 2002 merely affirmed its earlier findings, whatever examination that the BIR may have conducted cannot possibly outlast the entire three-year prescriptive period provided by law to collect the assessed tax, not to mention the eight years it actually took the BIR to decide the respondent’s protest. The factual and legal issues involved in the assessment are relatively simple, that is, whether certain income tax deductions should be disallowed, mostly for failure to pay withholding taxes. Thus, there is no reason to suspend the running of the statute of limitations in this case.
The distinction between a request for reconsideration and a request for reinvestigation is significant. It bears repetition that a request for reconsideration, unlike a request for reinvestigation, cannot suspend the statute of limitations on the collection of an assessed tax. If both types of protest can effectively interrupt the running of the statute of limitations, an erroneous assessment may never prescribe. If the taxpayer fails to file a protest, then the erroneous assessment would become final and unappealable. On the other hand, if the taxpayer does file the protest on a patently erroneous assessment, the statute of limitations would automatically be suspended and the tax thereon may be collected long after it was assessed. Meanwhile the interest on the deficiencies and the surcharges continue to accumulate. And for an unrestricted number of years, the taxpayers remain uncertain and are burdened with the costs of preserving their books and records. This is the predicament that the law on the statute of limitations seeks to prevent.
The Court, in sustaining for the first time the suspension of the running of the statute of limitations in cases where the taxpayer requested for a reinvestigation, gave this justification:
A taxpayer may be prevented from setting up the defense of prescription even if he has not previously waived it in writing as when by his repeated requests or positive acts the Government has been, for good reasons, persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant by the Government.
x x x x
This case has no precedent in this jurisdiction for it is the first time that such has risen, but there are several precedents that may be invoked in American jurisprudence. As Mr. Justice Cardozo has said: “The applicable principle is fundamental and unquestioned. “He who prevents a thing from being done may not avail himself of the nonperformance which he himself occasioned, for the law says to him in effect “this is your own act, and therefore you are not damnified.“‘ (R.H. Stearns Co. v. U.S., 78 L. ed., 647). (Emphasis supplied.)
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 [124 Phil. 927 (1966)], 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. (G.R. No. L-18896, 17 February 1988), 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 [now five (5) years under Section 222(c), NIRC of 1997], a law enacted to protect the interests of the taxpayer, must be given effect. In providing for exceptions to such rule in Section 271 (now Section 222, NIRC of 1997), 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.
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In order to suspend the running of the prescriptive period for tax collection, the request for reinvestigation must be granted by the CIR.
The fact that the taxpayer in this case may have requested a reinvestigation did not toll the running of the three-year prescriptive period.
[Section 320 of the 1977 Tax Code] (now Section 223, NIRC of 1997) is clear. A request for reinvestigation alone will not suspend the statute of limitations. Two things must concur: there must be a request for reinvestigation and the CIR must have granted it. BPI v. Commissioner of Internal Revenue emphasized this rule.
In the present case, there is no showing from the records that the CIR ever granted the request for reinvestigation filed by CBC. That being the case, it cannot be said that the running of the three-year prescriptive period was effectively suspended.
*******
The CIR insists that its right to collect the tax deficiency it assessed on respondent is not barred by prescription since the prescriptive period thereof was allegedly suspended by respondent’s request for reinvestigation.
Based on the facts of this case, we find that the CIR’s contention is without basis. The pertinent provision of the 1986 NIRC is Section 224 (now Section 223, NIRC of 1997), to wit:
Section 224. Suspension of running of statute. – The running of the statute of limitations provided in Sections 203 and 223 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a re-investigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected: Provided, That, if the taxpayer informs the Commissioner of any change in address, the statute will not be suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines. (Emphasis supplied.)
The plain and unambiguous wording of the said provision dictates that two requisites must concur before the period to enforce collection may be suspended: (a) that the taxpayer requests for reinvestigation, and (b) that petitioner grants such request.
On this point, we have previously held that:
The above section is plainly worded. In order to suspend the running of the prescriptive periods for assessment and collection, the request for reinvestigation must be granted by the CIR. (Emphasis supplied.)
Consequently, the mere filing of a protest letter which is not granted does not operate to suspend the running of the period to collect taxes. In the case at bar, the records show that respondent filed a request for reinvestigation on December 3, 1993, however, there is no indication that petitioner acted upon respondent’s protest. As the CTA Original Division in C.T.A. Case No. 6362 succinctly pointed out in its Decision, to wit:
It is evident that the respondent did not conduct a reinvestigation, the protest having been dismissed on the ground that the assessment has become final and executory. There is nothing in the record that would show what action was taken in connection with the protest of the petitioner. In fact, petitioner did not hear anything from the respondent nor received any communication from the respondent relative to its protest, not until eight years later when the final decision of the Commissioner was issued (TSN, March 7, 2002, p. 24). In other words, the request for reinvestigation was not granted. x x x. (Emphasis supplied.)
Since the CIR failed to disprove the aforementioned findings of fact of the CTA which are borne by substantial evidence on record, this Court is constrained to uphold them as binding and true. This is in consonance with our oft-cited ruling that instructs this Court to not lightly set aside the conclusions reached by the CTA, which, by the very nature of its functions, is dedicated exclusively to the resolution of tax problems and has accordingly developed an expertise on the subject unless there has been an abuse or improvident exercise of authority.
Indeed, it is contradictory for the CIR to argue that respondent’s December 3, 1993 protest which contained a request for reinvestigation was filed beyond the reglementary period but still claim that the same request for reinvestigation was implicitly granted by virtue of its October 27, 2001 letter. We find no cogent reason to reverse the CTA when it ruled that the prescriptive period for the CIR’s right to collect was not suspended under the circumstances of this case.
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When a request for reconsideration does not suspend the running of the prescriptive period under Section 223(c) [now Section 222(c) of the NIRC of 1997]; When the enforcement of tax collection through summary proceedings may be carried out even beyond the statutory period.
With regard to the issue that the case filed by petitioner for the collection of respondent’s tax deficiency is barred by prescription, §223(c) of the NIRC [now Section 222(c) of the NIRC of 1997) provides:
Any internal revenue tax which has been assessed within the period of limitation above-prescribed may be collected by distraint or levy or by a proceeding in court within three years [now five (5) years] following the assessment of the tax.
The running of the three-year prescriptive period is suspended –
for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which the tax is being assessed or collected; provided, that, if the taxpayer informs the Commissioner of any change in address, the running of the statute of limitations will not be suspended; when the warrant of distraint or levy is duly served upon the taxpayer, his authorized representative or a member of his household with sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines.
Petitioner argues that, in accordance with this provision, respondent’s request for reinvestigation of her tax deficiency assessment on November 3, 1992 effectively suspended the running of the period of prescription such that the government could still file a case for tax collection.
The contention has no merit. Sec. 229 of the Code (now Section 228 of the NIRC of 1997) mandates that a request for reconsideration must be made within 30 days from the taxpayer’s receipt of the tax deficiency assessment, otherwise the assessment becomes final, unappealable and, therefore, demandable. The notice of assessment for respondent’s tax deficiency was issued by petitioner on July 18, 1986. On the other hand, respondent made her request for reconsideration thereof only on November 3, 1992, without stating when she received the notice of tax assessment. She explained that she was constrained to ask for a reconsideration in order to avoid the harassment of BIR collectors. In all likelihood, she must have been referring to the distraint and levy of her properties by petitioner’s agents which took place on January 12, 1989. Even assuming that she first learned of the deficiency assessment on this date, her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter. Hence, her request for reconsideration did not suspend the running of the prescriptive period provided under §223(c) (now Section 228 of the NIRC of 1997). Although the Commissioner acted on her request by eventually denying it on August 11, 1994, this is of no moment and does not detract from the fact that the assessment had long become demandable.
Nonetheless, it is contended that the running of the prescriptive period under §223(c) was suspended when the BIR timely served the warrants of distraint and levy on respondent on January 12, 1989. Petitioner cites for this purpose our ruling in Advertising Associates Inc. v. Court of Appeals [133 SCRA 765 (1984)]. Because of the suspension, it is argued that the BIR could still avail of the other remedy under §223(c) of filing a case in court for collection of the tax deficiency, as the BIR in fact did on January 1, 1997.
Petitioner’s reliance on the Court’s ruling in Advertising Associates Inc. v. Court of Appeals is misplaced. What the Court stated in that case and, indeed, in the earlier case of Palanca v. Commissioner of Internal Revenue [114 Phil. 203 (1962)], is that the timely service of a warrant of distraint or levy suspends the running of the period to collect the tax deficiency in the sense that the disposition of the attached properties might well take time to accomplish, extending even after the lapse of the statutory period for collection. In those cases, the BIR did not file any collection case but merely relied on the summary remedy of distraint and levy to collect the tax deficiency. The importance of this fact was not lost on the Court. Thus, in Advertising Associates, it was held: “It should be noted that the Commissioner did not institute any judicial proceeding to collect the tax. He relied on the warrants of distraint and levy to interrupt the running of the statute of limitations.”
Moreover, if, as petitioner in effect says, the prescriptive period was suspended twice, i.e., when the warrants of distraint and levy were served on respondent on January 12, 1989 and then when respondent made her request for reinvestigation of the tax deficiency assessment on November 3, 1992, the three-year prescriptive period must have commenced running again sometime after the service of the warrants of distraint and levy. Petitioner, however, does not state when or why this took place and, indeed, there appears to be no reason for such. It is noteworthy that petitioner raised this point before the lower court apparently as an alternative theory, which, however, is untenable.
For the foregoing reasons, we hold that petitioner’s contention that the action in this case had not prescribed when filed has no merit. Our holding, however, is without prejudice to the disposition of the properties covered by the warrants of distraint and levy which petitioner served on respondent, as such would be a mere continuation of the summary remedy it had timely begun. Although considerable time has passed since then, as held in Advertising Associates Inc. v. Court of Appeals and Palanca v. Commissioner of Internal Revenue, the enforcement of tax collection through summary proceedings may be carried out beyond the statutory period considering that such remedy was seasonably availed of.
~~~Republic of the Philippines vs. Hizon (G.R. No. 130430, 13 December 1999, 2nd Div., J. Mendoza)
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Notices of Levy in connection with estate tax collection – to whom service must be made.
Petitioner argues that all the questioned Notices of Levy, however, must be nullified for having been issued without validly serving copies thereof to the petitioner. As a mandatory heir of the decedent, petitioner avers that he has an interest in the subject estate, and notices of levy upon its properties should have been served upon him.
We do not agree. In the case of notices of levy issued to satisfy the delinquent estate tax, the delinquent taxpayer is the Estate of the decedent, and not necessarily, and exclusively, the petitioner as heir of the deceased. In the same vein, in the matter of income tax delinquency of the late president and his spouse, petitioner is not the taxpayer liable. Thus, it follows that service of notices of levy in satisfaction of these tax delinquencies upon the petitioner is not required by law, as under Section 213 of the NIRC, which pertinently states:
“xxx
…Levy shall be effected by writing upon said certificate a description of the property upon which levy is made. At the same time, written notice of the levy shall be mailed to or served upon the Register of Deeds of the province or city where the property is located and upon the delinquent taxpayer, or if he be absent from the Philippines, to his agent or the manager of the business in respect to which the liability arose, or if there be none, to the occupant of the property in question.
xxx”
The foregoing notwithstanding, the record shows that notices of warrants of distraint and levy of sale were furnished the counsel of petitioner on April 7, 1993, and June 10, 1993, and the petitioner himself on April 12, 1993 at his office at the Batasang Pambansa. We cannot therefore, countenance petitioner’s insistence that he was denied due process. Where there was an opportunity to raise objections to government action, and such opportunity was disregarded, for no justifiable reason, the party claiming oppression then becomes the oppressor of the orderly functions of government. He who comes to court must come with clean hands. Otherwise, he not only taints his name, but ridicules the very structure of established authority.
~~~Marcos II vs. Court of Appeals, et al. (G.R. No. 120880, 5 June 1997, 2nd Div., J. Torres, Jr.)
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Tax liens
Taxation is an attribute of sovereignty. The power to tax is the strongest of all the powers of government. If approximate equality in taxation is to be attained, all property subject to a tax must respond, or there is resultant inequality. Under the most favorable circumstances, an enormous amount of property escapes taxation altogether. To prevent such a lamentable situation, the law ordains that the claim of the State upon the property of the tax debtor shall be superior to that of any other creditor.
A lien in its modern-acceptation is understood to denote a legal claim or charge on property, either real or personal, as security for the payment of some debt or obligation. Its meaning is more extensive than the jus retentionis (derecho de retencion) of the civil law. Unless the statute is otherwise, the rule is that a valid lien created on real or personal estate is enforceable against property in the hands of any person, other than a bona fide purchaser for value without notice, who subsequently acquires the estate.
The general rule of the Civil Law may be different. Possession of movables is not necessary to the validity of a lien, whether created by contract or by act of law. Such lien will attach upon movable property, even in the hands of a bona fide purchaser without notice.
The law of taxation establishes principles which generally, although not exactly, conform to the law of liens. The tax lien does not establish itself upon property which has been transferred to an innocent purchaser prior to demand. In a decision relating to the United States Internal Revenue Law, Mr. Justice Miller held that a demand is necessary to create and bring the lien into operation. (U. S. vs. Pacific Railroad Co. [1877], Fed. Cas. No. 15,984; U. S. vs.Pacific Railroad Co. [1880], 1 Fed., 97.) Where a statute makes taxes on personal property a lien thereon, a purchaser of such property takes the same free from any lien for taxes if the title passes before such a lien attaches by levy, distraint, or otherwise.
In order that the lien may follow the property into the hands of a third party, it is further essential that the latter should have notice, either actual or constructive. The reason is the benevolence of our Constitution which prohibits the taking of property without due process of law.
~~~The Hongkong & Shanghai Banking Corp. vs. Rafferty (G.R. No. 13188, 30 October 1980, En Banc, J. Malcolm)
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A criminal complaint need not be preceded by an assessment; A criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.
Private respondents maintain that the filing of a criminal complaint must be preceded by an assessment. This is incorrect, because Section 222 of the NIRC specifically states that in cases where a false or fraudulent return is submitted or in cases of failure to file a return such as this case, proceedings in court may be commenced without an assessment. Furthermore, Section 205 of the same Code clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. In Ungab v. Cusi (97 SCRA 877, 30 May 1980), petitioner therein sought the dismissal of the criminal Complaints for being premature, since his protest to the CTA had not yet been resolved. The Court held that such protests could not stop or suspend the criminal action which was independent of the resolution of the protest in the CTA. This was because the commissioner of internal revenue had, in such tax evasion cases, discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do both.
Private respondents insist that Section 222 should be read in relation to Section 255 of the NIRC, which penalizes failure to file a return. They add that a tax assessment should precede a criminal indictment. We disagree. To reiterate, said Section 222 states that an assessment is not necessary before a criminal charge can be filed. This is the general rule. Private respondents failed to show that they are entitled to an exception. Moreover, the criminal charge need only be supported by a prima facie showing of failure to file a required return. This fact need not be proven by an assessment.
The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted. If the commissioner is unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically and clearly that an assessment has been made against him or her. In contrast, the criminal charge need not go through all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed against him, not that the commissioner has issued an assessment. It must be stressed that a criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.
*******
On petitioner’s final contention that it has a meritorious case in view of the dismissal of the above-mentioned criminal case filed against it for violation of the 1997 Internal Revenue Code, the same fails. For the criminal complaint was instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.
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Suspension of the running of the prescriptive period to collect deficiency tax under Section 223 of the NIRC of 1997.
In the instant case, PSI filed a petition before the CTA to prevent the collection of the assessed deficiency tax. When the CTA dismissed the case, petitioner elevated the case before us, hoping for a review in its favor. The actions taken by the petitioner before the CTA and now before us, suspended the running of the statute of limitation. In the old case of Republic of the Philippines vs. Ker and Company, Ltd. [124 Phil. (1966)], we held:
“Under Section 333 (renumbered to 271 during the instant case) of the Tax Code (now Section 223 of the NIRC of 1997) the running of the prescriptive period to collect deficiency taxes shall be suspended for the period during which the Commissioner of Internal Revenue is prohibited from beginning a distraint and levy or instituting a proceeding in court, and for sixty days thereafter. In the case at bar, the pendency of the taxpayer’s appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner. If the taxpayer’s stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld, taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same. Under the circumstances, the running of the prescriptive period was suspended.”
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Suspension of the period to collect tax via a Warrant of Distraint and/or Levy
Under Section 223(c) of the Tax Code of 1977, as amended [now Section 222(c), NIRC of 1997], it is not essential that the Warrant of Distraint and/or Levy be fully executed so that it can suspend the running of the statute of limitations on the collection of the tax. It is enough that the proceedings have validly began or commenced and that their execution has not been suspended by reason of the voluntary desistance of the respondent BIR Commissioner. Existing jurisprudence establishes that distraint and levy proceedings are validly begun or commenced by the issuance of the Warrant and service thereof on the taxpayer. It is only logical to require that the Warrant of Distraint and/or Levy be, at the very least, served upon the taxpayer in order to suspend the running of the prescriptive period for collection of an assessed tax, because it may only be upon the service of the Warrant that the taxpayer is informed of the denial by the BIR of any pending protest of the said taxpayer, and the resolute intention of the BIR to collect the tax assessed.
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The statute of limitations principally intends to afford protection to the taxpayer against unreasonable investigation.
Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both the Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable investigation. The indefinite extension of the period for assessment is unreasonable because it deprives the said taxpayer of the assurance that he will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time. As aptly explained in Republic of the Philippines v. Ablaza [108 Phil. 1105 (1960)] –
The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latter’s real liability, but to take advantage of every opportunity to molest peaceful, law-abiding citizens. Without such a legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law.
In order to provide even better protection to the taxpayer against unreasonable investigation, the Tax Code of 1977, as amended, identifies specifically in Sections 223 and 224 (now Sections 222 and 223 of the NIRC of 1997) thereof the circumstances when the prescriptive periods for assessing and collecting taxes could be suspended or interrupted.
To give effect to the legislative intent, these provisions on the statute of limitations on assessment and collection of taxes shall be construed and applied liberally in favor of the taxpayer and strictly against the Government.
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The prescriptive periods could be waived by agreement.
According to paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended [now Section 222(b) and (d), NIRC of 1997], the prescriptive periods for assessment and collection of national internal revenue taxes, respectively, could be waived by agreement.
The agreements so described in the afore-quoted provisions are often referred to as waivers of the statute of limitations. The waiver of the statute of limitations, whether on assessment or collection, should not be construed as a waiver of the right to invoke the defense of prescription but, rather, an agreement between the taxpayer and the BIR to extend the period to a date certain, within which the latter could still assess or collect taxes due. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally.
A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended [now Section 222(b) and (d), NIRC of 1997], must be: (1) in writing; (2) agreed to by both the Commissioner and the taxpayer; (3) before the expiration of the ordinary prescriptive periods for assessment and collection; and (4) for a definite period beyond the ordinary prescriptive periods for assessment and collection. The period agreed upon can still be extended by subsequent written agreement, provided that it is executed prior to the expiration of the first period agreed upon. The BIR had issued RMO No. 20-90 on 04 April 1990 to lay down an even more detailed procedure for the proper execution of such a waiver. RMO No. 20-90 mandates that the procedure for execution of the waiver shall be strictly followed, and any revenue official who fails to comply therewith resulting in the prescription of the right to assess and collect shall be administratively dealt with.
This Court had consistently ruled in a number of cases that a request for reconsideration or reinvestigation by the taxpayer, without a valid waiver of the prescriptive periods for the assessment and collection of tax, as required by the Tax Code and implementing rules, will not suspend the running thereof.
*******
The period to assess and collect taxes may be extended upon the Commissioner and the taxpayer’s written agreement, executed before the expiration of the three (3)-year period.
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Nature of a Waiver; Importance of furnishing the taxpayer with a copy thereof.
A Waiver of the Defense of Prescription is a bilateral agreement between a taxpayer and the BIR to extend the period of assessment and collection to a certain date. The requirement to furnish the taxpayer with a copy of the waiver is not only to give notice of the existence of the document but of the acceptance by the BIR and the perfection of the agreement.
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The running of the statute of limitations could be suspended, when the taxpayer requests for a reinvestigation which is granted by the CIR.
The Tax Code of 1977, as amended, also recognizes instances when the running of the statute of limitations on the assessment and collection of national internal revenue taxes could be suspended, even in the absence of a waiver, under Section 224 thereof (now Section 223, NIRC of 1997).
Of particular importance to the present case is one of the circumstances enumerated in Section 224 of the Tax Code of 1977, as amended (now Section 223, NIRC of 1997), wherein the running of the statute of limitations on assessment and collection of taxes is considered suspended “when the taxpayer requests for a reinvestigation which is granted by the Commissioner.”
This Court gives credence to the argument of petitioner BPI that there is a distinction between a request for reconsideration and a request for reinvestigation. RR No. 12-85, issued on 27 November 1985 by the Secretary of Finance, upon the recommendation of the BIR Commissioner, governs the procedure for protesting an assessment and distinguishes between the two types of protest, as follows –
PROTEST TO ASSESSMENT
SEC. 6. Protest. The taxpayer may protest administratively an assessment by filing a written request for reconsideration or reinvestigation. . .
. . .
For the purpose of the protest herein –
(a) Request for reconsideration. – refers to a plea for a re-evaluation of an assessment on the basis of existing records without need of additional evidence. It may involve both a question of fact or of law or both.
(b) Request for reinvestigation. – refers to a plea for re-evaluation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation. It may also involve a question of fact or law or both.
With the issuance of RR No. 12-85 on 27 November 1985 providing the above-quoted distinctions between a request for reconsideration and a request for reinvestigation, the two types of protest can no longer be used interchangeably and their differences so lightly brushed aside. It bears to emphasize that under Section 224 of the Tax Code of 1977, as amended (now Section 223, NIRC of 1997), the running of the prescriptive period for collection of taxes can only be suspended by a request for reinvestigation, not a request for reconsideration. Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited to the evidence already at hand; this justifies why the former can suspend the running of the statute of limitations on collection of the assessed tax, while the latter can not.
Even if, for the sake of argument, this Court glosses over the distinction between a request for reconsideration and a request for reinvestigation, and considers the protest of petitioner BPI as a request for reinvestigation, the filing thereof could not have suspended at once the running of the statute of limitations. Article 224 of the Tax Code of 1977, as amended (now Section 223, NIRC of 1997), very plainly requires that the request for reinvestigation had been granted by the BIR Commissioner to suspend the running of the prescriptive periods for assessment and collection.
That the BIR Commissioner must first grant the request for reinvestigation as a requirement for suspension of the statute of limitations is even supported by existing jurisprudence.
In the case of Republic of the Philippines v. Gancayco [120 Phil. 376 (1964)], taxpayer Gancayco requested for a thorough reinvestigation of the assessment against him and placed at the disposal of the Collector of Internal Revenue all the evidences he had for such purpose; yet, the Collector ignored the request, and the records and documents were not at all examined. Considering the given facts, this Court pronounced that –
. . .The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in order to effect suspension. (Collector vs. Suyoc Consolidated, supra; also Republic vs. Ablaza, supra). Moreover, the Collector gave appellee until April 1, 1949, within which to submit his evidence, which the latter did one day before. There were no impediments on the part of the Collector to file the collection case from April 1, 1949. . . .
In Republic of the Philippines v. Acebedo [131 Phil. 469 (1968)], this Court similarly found that –
. . . [T]he defendant, after receiving the assessment notice of September 24, 1949, asked for a reinvestigation thereof on October 11, 1949 (Exh. A). There is no evidence that this request was considered or acted upon. In fact, on October 23, 1950 the then Collector of Internal Revenue issued a warrant of distraint and levy for the full amount of the assessment (Exh. D), but there was no follow-up of this warrant. Consequently, the request for reinvestigation did not suspend the running of the period for filing an action for collection.
–
–
The burden of proof that the taxpayer’s request for reinvestigation had been actually granted shall be on respondent BIR Commissioner. The grant may be expressed in communications with the taxpayer or implied from the actions of the respondent BIR Commissioner or his authorized BIR representatives in response to the request for reinvestigation.
In Querol v. Collector of Internal Revenue [116 Phil. 615 (1962)], the BIR, after receiving the protest letters of taxpayer Querol, sent a tax examiner to San Fernando, Pampanga, to conduct the reinvestigation; as a result of which, the original assessment against taxpayer Querol was revised by permitting him to deduct reasonable depreciation. In another case, Republic of the Philippines v. Lopez [117 Phil. 575 (1963)], taxpayer Lopez filed a total of four petitions for reconsideration and reinvestigation. The first petition was denied by the BIR. The second and third petitions were granted by the BIR and after each reinvestigation, the assessed amount was reduced. The fourth petition was again denied and, thereafter, the BIR filed a collection suit against taxpayer Lopez. When the taxpayers spouses Sison, in Commissioner of Internal Revenue v. Sison [117 Phil. 892 (1963)], contested the assessment against them and asked for a reinvestigation, the BIR ordered the reinvestigation resulting in the issuance of an amended assessment. Lastly, in Republic of the Philippines v. Oquias [114 Phil. 492 (1970)], the BIR granted taxpayer Oquias’s request for reinvestigation and duly notified him of the date when such reinvestigation would be held; only, neither taxpayer Oquias nor his counsel appeared on the given date.
In all these cases, the request for reinvestigation of the assessment filed by the taxpayer was evidently granted and actual reinvestigation was conducted by the BIR, which eventually resulted in the issuance of an amended assessment. On the basis of these facts, this Court ruled in the same cases that the period between the request for reinvestigation and the revised assessment should be subtracted from the total prescriptive period for the assessment of the tax; and, once the assessment had been reconsidered at the taxpayer’s instance, the period for collection should begin to run from the date of the reconsidered or modified assessment.
The rulings of the foregoing cases do not apply to the present Petition because: (1) the protest filed by petitioner BPI was a request for reconsideration, not a reinvestigation, of the assessment against it; and (2) even granting that the protest of petitioner BPI was a request for reinvestigation, there was no showing that it was granted by respondent BIR Commissioner and that actual reinvestigation had been conducted.
To summarize, the statute of limitations on collection may only be interrupted or suspended by a valid waiver executed in accordance with paragraph (d) of Section 223 of the Tax Code of 1977, as amended [now Section 222(d), NIRC of 1997], and the existence of the circumstances enumerated in Section 224 of the same Code (now Section 223, NIRC of 1997), which include a request for reinvestigation granted by the BIR Commissioner.
*******
The BIR nevertheless insists that the running of the prescriptive period to collect the tax was suspended by BPI’s filing of a request for the reinvestigation and/or reconsideration on 23 June 1989. In the similar case of Bank of the Philippine Islands, we already ruled on the matter as follows:
Of particular importance to the present case is one of the circumstances enumerated in Section [320 (now, 223)] of the Tax Code of 1977, as amended, wherein the running of the statute of limitations on assessment and collection of taxes is considered suspended “when the taxpayer requests for a reinvestigation which is granted by the Commissioner.”
This Court gives credence to the argument of petitioner BPI that there is a distinction between a request for reconsideration and a request for reinvestigation. Revenue Regulations (RR) No. 12-85, issued on 27 November 1985 by the Secretary of Finance, upon the recommendation of the BIR Commissioner, governs the procedure for protesting an assessment and distinguishes between the two types of protest, as follows–
x x x x
(a) Request for reconsideration. – refers to a plea for a re-evaluation of an assessment on the basis of existing records without need of additional evidence. It may involve both a question of fact or of law or both.
(b) Request for reinvestigation. – refers to a plea for re-evaluation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation. It may also involve a question of fact or law or both.
x x x Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited to the evidence already at hand; this justifies why the former can suspend the running of the statute of limitations on collection of the assessed tax, while the latter can not.
x x x A close review of the contents thereof would reveal, however, that it protested Assessment No. FAS-5-85-89-002054 based on a question of law, in particular, whether or not petitioner BPI was liable for DST on its sales of foreign currency to the Central Bank in taxable year 1985. The same protest letter did not raise any question of fact; neither did it offer to present any new evidence. In its own letter to petitioner BPI, dated 10 September 1992, the BIR itself referred to the protest of petitioner BPI as a request for reconsideration. These considerations would lead this Court to deduce that the protest letter of petitioner BPI was in the nature of a request for reconsideration, rather than a request for reinvestigation and, consequently, Section 224 of the Tax Code of 1977, as amended, on the suspension of the running of the statute of limitations should not apply.
Even if, for the sake of argument, this Court glosses over the distinction between a request for reconsideration and a request for reinvestigation, and considers the protest of petitioner BPI as a request for reinvestigation, the filing thereof could not have suspended at once the running of the statute of limitations. Article 224 of the Tax Code of 1977, as amended, very plainly requires that the request for reinvestigation had been granted by the BIR Commissioner to suspend the running of the prescriptive periods for assessment and collection. (Emphasis supplied)
In the present case, the protest letter of BPI essentially raises the same question of law, that is whether BPI was liable for DST on its sales of foreign bills of exchange to the Central Bank in the taxable year 1985. Although it raised the issue of being taxed twice, the BIR admitted that BPI did not present any new or additional evidence to substantiate its allegations. In its letter dated 4 August 1998, the BIR itself referred to the protest of BPI as a request for reconsideration, found the arguments in it legally untenable, and denied the request. Hence, we find that the protest letter of BPI was a request for reconsideration, which did not suspend the running of the prescriptive period to collect.
Even considering that BPI’s protest was a request for reinvestigation, there was nothing in the records which showed that the BIR granted such request. On the other hand, the BIR only responded to BPI on 4 August 1998 or after nine years from the protest letter of BPI. In the Bank of the Philippine Islands case, we clarified and qualified our ruling in Commissioner of Internal Revenue v. Wyeth Suaco Laboratories, Inc. [279 Phil. 132 (1991)], such that the request for reinvestigation in that case was granted by the BIR. Thus, unlike in the present case, there was a proper ground for suspension of the prescriptive period in Wyeth Suaco.
Considering that the dismissal of the present case due to prescription is imperative, there is no more need to determine the validity of the assessment.
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If the pleadings or the evidence on record show that the claim is barred by prescription, the court must dismissed the same, even if prescription is not raised as a defense.
If the pleadings or the evidence on record show that the claim is barred by prescription, the court is mandated to dismiss the claim even if prescription is not raised as a defense. In Heirs of Valientes v. Ramas (G.R. No. 157852, 15 December 2010), we ruled that the CA may motu proprio dismiss the case on the ground of prescription despite failure to raise this ground on appeal. The court is imbued with sufficient discretion to review matters, not otherwise assigned as errors on appeal, if it finds that their consideration is necessary in arriving at a complete and just resolution of the case. More so, when the provisions on prescription were enacted to benefit and protect taxpayers from investigation after a reasonable period of time.
To determine prescription, what is essential only is that the facts demonstrating the lapse of the prescriptive period were sufficiently and satisfactorily apparent on the record either in the allegations of the plaintiff’s complaint, or otherwise established by the evidence.
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The only exception to the statute of limitations on collection of taxes, other than those already provided in the Tax Code, was recognized in the Suyoc case.
The statute of limitations on assessment and collection of national internal revenue taxes may be suspended if the taxpayer executes a valid waiver thereof, as provided in paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended [now Section 222(b) and (d), NIRC of 1997]; and in specific instances enumerated in Section 224 of the same Code [now Section 223, NIRC of 1997], which include a request for reinvestigation granted by the BIR Commissioner. Outside of these statutory provisions, however, this Court also recognized one other exception to the statute of limitations on collection of taxes in the case of Collector of Internal Revenue v. Suyoc Consolidated Mining Co. [104 Phil. 819 (1958)].
In the said case, the Collector of Internal Revenue issued an assessment against taxpayer Suyoc Consolidated Mining Co. on 11 February 1947 for deficiency income tax for the taxable year 1941. Taxpayer Suyoc requested for at least a year within which to pay the amount assessed, but at the same time, reserving its right to question the correctness of the assessment before actual payment. The Collector granted taxpayer Suyoc an extension of only three months to pay the assessed tax. When taxpayer Suyoc failed to pay the assessed tax within the extended period, the Collector sent it a demand letter, dated 28 November 1950. Upon receipt of the demand letter, taxpayer Suyoc asked for a reinvestigation and reconsideration of the assessment, but the Collector denied the request. Taxpayer Suyoc reiterated its request for reconsideration on 25 April 1952, which was denied again by the Collector on 06 May 1953. Taxpayer Suyoc then appealed the denial to the Conference Staff. The Conference Staff heard the appeal from 02 September 1952 to 16 July 1955, and the negotiations resulted in the reduction of the assessment on 26 July 1955. It was the collection of the reduced assessment that was questioned before this Court for being enforced beyond the prescriptive period.
In resolving the issue on prescription, this Court ratiocinated thus –
It is obvious from the foregoing that petitioner refrained from collecting the tax by distraint or levy or by proceeding in court within the 5-year period from the filing of the second amended final return due to the several requests of respondent for extension to which petitioner yielded to give it every opportunity to prove its claim regarding the correctness of the assessment. Because of such requests, several reinvestigations were made and a hearing was even held by the Conference Staff organized in the collection office to consider claims of such nature which, as the record shows, lasted for several months. After inducing petitioner to delay collection as he in fact did, it is most unfair for respondent to now take advantage of such desistance to elude his deficiency income tax liability to the prejudice of the Government invoking the technical ground of prescription.
While we may agree with the Court of Tax Appeals that a mere request for reexamination or reinvestigation may not have the effect of suspending the running of the period of limitation for in such case there is need of a written agreement to extend the period between the Collector and the taxpayer, there are cases however where a taxpayer may be prevented from setting up the defense of prescription even if he has not previously waived it in writing as when by his repeated requests or positive acts the Government has been, for good reasons, persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant by the Government. And when such situation comes to pass there are authorities that hold, based on weighty reasons, that such an attitude or behavior should not be countenanced if only to protect the interest of the Government.
By the principle of estoppel, taxpayer Suyoc was not allowed to raise the defense of prescription against the efforts of the Government to collect the tax assessed against it. This Court adopted the following principle from American jurisprudence: “He who prevents a thing from being done may not avail himself of the nonperformance which he has himself occasioned, for the law says to him in effect ‘this is your own act, and therefore you are not damnified.’”
In the Suyoc case, this Court expressly conceded that a mere request for reconsideration or reinvestigation of an assessment may not suspend the running of the statute of limitations. It affirmed the need for a waiver of the prescriptive period in order to effect suspension thereof. However, even without such waiver, the taxpayer may be estopped from raising the defense of prescription because by his repeated requests or positive acts, he had induced Government authorities to delay collection of the assessed tax.
To summarize, even when the request for reconsideration or reinvestigation is not accompanied by a valid waiver or there is no request for reinvestigation that had been granted by the BIR Commissioner, the taxpayer may still be held in estoppel and be prevented from setting up the defense of prescription of the statute of limitations on collection when, by his own repeated requests or positive acts, the Government had been, for good reasons, persuaded to postpone collection to make the taxpayer feel that the demand is not unreasonable or that no harassment or injustice is meant by the Government, as laid down by this Court in the Suyoc case.
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Although this Court is not compelled to abandon its decision in the Wyeth Suaco case, it finds that the said case is not applicable to the Petition at bar because of the distinct facts involved herein.
Petitioner BPI contends that the declaration made in the later case of CIR vs. Wyeth Suaco Laboratories, Inc. (G.R. No. 76281, 30 September 1991), that the statute of limitations on collection is suspended once the taxpayer files a request for reconsideration or reinvestigation, runs counter to the ruling made by this Court in the case of Collector of Internal Revenue v. Suyoc Consolidated Mining Co. [104 Phil. 819 (1958)].
In the case of Wyeth Suaco, taxpayer Wyeth Suaco was assessed for failing to remit withholding taxes on royalties and dividend declarations, as well as, for deficiency sales tax. The BIR issued two assessments, dated 16 December 1974 and 17 December 1974, both received by taxpayer Wyeth Suaco on 19 December 1974. Taxpayer Wyeth Suaco, through its tax consultant, SGV & Co., sent to the BIR two letters, dated 17 January 1975 and 08 February 1975, protesting the assessments and requesting their cancellation or withdrawal on the ground that said assessments lacked factual or legal basis. On 12 September 1975, the BIR Commissioner advised taxpayer Wyeth Suaco to avail itself of the compromise settlement being offered under Letter of Instruction No. 308. Taxpayer Wyeth Suaco manifested its conformity to paying a compromise amount, but subject to certain conditions; though, apparently, the said compromise amount was never paid. On 10 December 1979, the BIR Commissioner rendered a decision reducing the assessment for deficiency withholding tax against taxpayer Wyeth Suaco, but maintaining the assessment for deficiency sales tax. It was at this point when taxpayer Wyeth Suaco brought its case before the CTA to enjoin the BIR from enforcing the assessments by reason of prescription. Although the CTA decided in favor of taxpayer Wyeth Suaco, it was reversed by this Court when the case was brought before it on appeal. According to the decision of this Court –
Settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment. . .
. . .
Although the protest letters prepared by SGV & Co. in behalf of private respondent did not categorically state or use the words “reinvestigation” and “reconsideration,” the same are to be treated as letters of reinvestigation and reconsideration…
These letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to collect the deficiency taxes. The Bureau of Internal Revenue, after having reviewed the records of Wyeth Suaco, in accordance with its request for reinvestigation, rendered a final assessment… It was only upon receipt by Wyeth Suaco of this final assessment that the five-year prescriptive period started to run again.
The foremost criticism of petitioner BPI of the Wyeth Suaco decision is directed at the statement made therein that, “settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment.” It would seem that both petitioner BPI and respondent BIR Commissioner, as well as, the CTA and Court of Appeals, take the statement to mean that the filing alone of the request for reconsideration or reinvestigation can already interrupt or suspend the running of the prescriptive period on collection. This Court therefore takes this opportunity to clarify and qualify this statement made in the Wyeth Suaco case. While it is true that, by itself, such statement would appear to be a generalization of the exceptions to the statute of limitations on collection, it is best interpreted in consideration of the particular facts of the Wyeth Suaco case and previous jurisprudence.
The Wyeth Suaco case cannot be in conflict with the Suyoc case because there are substantial differences in the factual backgrounds of the two cases. The Suyoc case refers to a situation where there were repeated requests or positive acts performed by the taxpayer that convinced the BIR to delay collection of the assessed tax. This Court pronounced therein that the repeated requests or positive acts of the taxpayer prevented or estopped it from setting up the defense of prescription against the Government when the latter attempted to collect the assessed tax. In the Wyeth Suaco case, taxpayer Wyeth Suaco filed a request for reinvestigation, which was apparently granted by the BIR and, consequently, the prescriptive period was indeed suspended as provided under Section 224 of the Tax Code of 1977, as amended (now Section 223, NIRC of 1997).
To reiterate, Section 224 of the Tax Code of 1977, as amended (now Section 223, NIRC of 1997), identifies specific circumstances when the statute of limitations on assessment and collection may be interrupted or suspended, among which is a request for reinvestigation that is granted by the BIR Commissioner. The act of filing a request for reinvestigation alone does not suspend the period; such request must be granted. The grant need not be express, but may be implied from the acts of the BIR Commissioner or authorized BIR officials in response to the request for reinvestigation.
This Court found in the Wyeth Suaco case that the BIR actually conducted a reinvestigation, in accordance with the request of the taxpayer Wyeth Suaco, which resulted in the reduction of the assessment originally issued against it. Taxpayer Wyeth Suaco was also aware that its request for reinvestigation was granted, as written by its Finance Manager in a letter dated 01 July 1975, addressed to the Chief of the Tax Accounts Division, wherein he admitted that, “[a]s we understand, the matter is now undergoing review and consideration by your Manufacturing Audit Division.” The statute of limitations on collection, then, started to run only upon the issuance and release of the reduced assessment.
The Wyeth Suaco case, therefore, is correct in declaring that the prescriptive period for collection is interrupted or suspended when the taxpayer files a request for reinvestigation, provided that, as clarified and qualified herein, such request is granted by the BIR Commissioner.
Thus, this Court finds no compelling reason to abandon its decision in the Wyeth Suaco case. It also now rules that the said case is not applicable to the Petition at bar because of the distinct facts involved herein. As already heretofore determined by this Court, the protest filed by petitioner BPI was a request for reconsideration, which merely required a review of existing evidence and the legal basis for the assessment. Respondent BIR Commissioner did not require, neither did petitioner BPI offer, additional evidence on the matter. After petitioner BPI filed its request for reconsideration, there was no other communication between it and respondent BIR Commissioner or any of the authorized representatives of the latter. There was no showing that petitioner BPI was informed or aware that its request for reconsideration was granted or acted upon by the BIR.
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In order to suspend the running of the prescriptive periods for assessment and collection, the request for reinvestigation must be granted by the CIR.
In order to determine whether the prescriptive period for collecting the tax deficiency was effectively tolled by BPI’s filing of the protest letters dated 20 April and 8 May 1989 as claimed by the CIR, we need to examine Section 320 of the Tax Code of 1977 (now Section 223, NIRC of 1997), which states:
Sec. 320. Suspension of running of statute.—The running of the statute of limitations provided in Sections 318 or 319 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a re-investigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected: Provided,That if the taxpayer informs the Commissioner of any change in address, the running of the statute of limitations will not be suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines. (Emphasis supplied)
The above section is plainly worded. In order to suspend the running of the prescriptive periods for assessment and collection, the request for reinvestigation must be granted by the CIR.
In BPI v. Commissioner of Internal Revenue, the Court emphasized the rule that the CIR must first grant the request for reinvestigation as a requirement for the suspension of the statute of limitations. The Court said:
In the case of Republic of the Philippines v. Gancayco, taxpayer Gancayco requested for a thorough reinvestigation of the assessment against him and placed at the disposal of the Collector of Internal Revenue all the evidences he had for such purpose; yet, the Collector ignored the request, and the records and documents were not at all examined. Considering the given facts, this Court pronounced that—
x x x The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in order to effect suspension. (Collector v. Suyoc Consolidated, supra; also Republic v. Ablaza, supra). Moreover, the Collector gave appellee until April 1, 1949, within which to submit his evidence, which the latter did one day before. There were no impediments on the part of the Collector to file the collection case from April 1, 1949…
In Republic of the Philippines v. Acebedo, this Court similarly found that—
x x x T]he defendant, after receiving the assessment notice of September 24, 1949, asked for a reinvestigation thereof on October 11, 1949 (Exh. “A”). There is no evidence that this request was considered or acted upon. In fact, on October 23, 1950 the then Collector of Internal Revenue issued a warrant of distraint and levy for the full amount of the assessment (Exh. “D”), but there was follow-up of this warrant. Consequently, the request for reinvestigation did not suspend the running of the period for filing an action for collection. [Emphasis in the original]
The Court went on to declare that the burden of proof that the request for reinvestigation had been actually granted shall be on the CIR. Such grant may be expressed in its communications with the taxpayer or implied from the action of the CIR or his authorized representative in response to the request for reinvestigation.
There is nothing in the records of this case which indicates, expressly or impliedly, that the CIR had granted the request for reinvestigation filed by BPI. What is reflected in the records is the piercing silence and inaction of the CIR on the request for reinvestigation, as he considered BPI’s letters of protest to be.
In fact, it was only in his comment to the present petition that the CIR, through the OSG, argued for the first time that he had granted the request for reinvestigation. His consistent stance invoking the CIR vs. Wyeth Suaco Laboratories, Inc. (G.R. No. 76281, 30 September 1991), as reflected in the records, is that the prescriptive period was tolled by BPI’s request for reinvestigation, without any assertion that the same had been granted or at least acted upon.
In the Wyeth Suaco case, private respondent Wyeth Suaco Laboratories, Inc. sent letters seeking the reinvestigation or reconsideration of the deficiency tax assessments issued by the BIR. The records of the case showed that as a result of these protest letters, the BIR Manufacturing Audit Division conducted a review and reinvestigation of the assessments. The records further showed that the company, thru its finance manager, communicated its inability to settle the tax deficiency assessment and admitted that it knew of the ongoing review and consideration of its protest.
As differentiated from the Wyeth Suaco case, however, there is no evidence in this case that the CIR actually conducted a reinvestigation upon the request of BPI or that the latter was made aware of the action taken on its request. Hence, there is no basis for the tax court’s ruling that the filing of the request for reinvestigation tolled the running of the prescriptive period for collecting the tax deficiency.
Neither did the waiver of the statute of limitations signed by BPI supposedly effective until 31 December 1994 suspend the prescriptive period. The CIR himself contends that the waiver is void as it shows no date of acceptance in violation of RMO No. 20-90. At any rate, the records of this case do not disclose any effort on the part of the BIR to collect the deficiency tax after the expiration of the waiver until eight (8) years thereafter when it finally issued a decision on the protest.
We also find the [case of Collector of Internal Revenue v. Suyoc Consolidated Mining Company, et al., 104 Phil. 819 (1958)] inapplicable. In that case, several requests for reinvestigation and reconsideration were filed by Suyoc Consolidated Mining Company purporting to question the correctness of tax assessments against it. As a result, the Collector of Internal Revenue refrained from collecting the tax by distraint, levy or court proceeding in order to give the company every opportunity to prove its claim. The Collector also conducted several reinvestigations which eventually led to a reduced assessment. The company, however, filed a petition with the CTA claiming that the right of the government to collect the tax had already prescribed.
When the case reached this Court, we ruled that Suyoc could not set up the defense of prescription since, by its own action, the government was induced to delay the collection of taxes to make the company feel that the demand was not unreasonable or that no harassment or injustice was meant by the government.
In this case, BPI’s letters of protest and submission of additional documents pertaining to its SWAP transactions, which were never even acted upon, much less granted, cannot be said to have persuaded the CIR to postpone the collection of the deficiency DST.
The inordinate delay of the CIR in acting upon and resolving the request for reinvestigation filed by BPI and in collecting the DST allegedly due from the latter had resulted in the prescription of the government’s right to collect the deficiency. As this Court declared in Republic of the Philippines v. Ablaza [108 Phil. 1105 (1960)]:
The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latter’s real liability, but to take advantage of every opportunity to molest peaceful, law-abiding citizens. Without such a legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law.
Given the prescription of the government’s claim, we no longer deem it necessary to pass upon the validity of the assessment.
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When an assessment cannot yet serve as basis for collection.
The assessment was clearly not yet final, executory or demandable. While it is pending with the CIR, it cannot yet serve as the basis of collection by distraint or levy or by judicial action.
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When the BIR’s Answer to a Petition for Review could not qualify as a collection case.
The BIR’s Answer in the case filed before the CTA could not, by any means, have qualified as a collection case as required by law. Under the rule prevailing at the time the BIR filed its Answer, the regular courts, and not the CTA, had jurisdiction over judicial actions for collection of internal revenue taxes. It was only on 23 April 2004, when RA No. 9282 took effect, that the jurisdiction of the CTA was expanded to include, among others, original jurisdiction over collection cases in which the principal amount involved is one million pesos or more.
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Taxes, as claims against the estate of decedent.
Hence, this appeal on certiorari, petitioner assigning the following errors:
1. The lower court erred in holding that the claim for taxes by the government against the estate of Luis D. Tongoy was filed beyond the period provided in Section 2, Rule 86 of the Rules of Court.
2. The lower court erred in holding that the claim for taxes of the government was already barred under Section 5, Rule 86 of the Rules of Court.
which raise the sole issue of whether or not the statute of non-claims Section 5, Rule 86 of the New Rule of Court, bars claim of the government for unpaid taxes, still within the period of limitation prescribed in Section 331 and 332 of the NIRC (now Sections 203 and 222, NIRC of 1997, respectively).
Section 5, Rule 86, as invoked by the respondent Administrator in hid Oppositions to the Motion for Allowance of Claim, etc. of the petitioners reads as follows:
All claims for money against the decedent, arising from contracts, express or implied, whether the same be due, not due, or contingent, all claims for funeral expenses and expenses for the last sickness of the decedent, and judgment for money against the decedent, must be filed within the time limited in they notice; otherwise they are barred forever, except that they may be set forth as counter claims in any action that the executor or administrator may bring against the claimants. Where the executor or administrator commence an action, or prosecutes an action already commenced by the deceased in his lifetime, the debtor may set forth may answer the claims he has against the decedents, instead of presenting them independently to the court has herein provided, and mutual claims may be set off against each other in such action; and in final judgment is rendered in favored of the decedent, the amount to determined shall be considered the true balance against the estate, as though the claim has been presented directly before the court in the administration proceedings. Claims not yet due, or contingent may be approved at their present value.
A perusal of the aforequoted provisions shows that it makes no mention of claims for monetary obligation of the decedent created by law, such as taxes which is entirely of different character from the claims expressly enumerated therein, such as: “all claims for money against the decedent arising from contract, express or implied, whether the same be due, not due or contingent, all claim for funeral expenses and expenses for the last sickness of the decedent and judgment for money against the decedent.” Under the familiar rule of statutory construction of expressio unius est exclusio alterius, the mention of one thing implies the exclusion of another thing not mentioned. Thus, if a statute enumerates the things upon which it is to operate, everything else must necessarily, and by implication be excluded from its operation and effect (Crawford, Statutory Construction, pp. 334-335).
In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice Plant, et al., G.R. No. L-23081, December 30, 1969, it was held that the assessment, collection and recovery of taxes, as well as the matter of prescription thereof are governed by the provisions of the National Internal revenue Code, particularly Sections 331 and 332 thereof (now Sections 203 and 222, NIRC of 1997, respectively), and not by other provisions of law. (See also Lim Tio, Dy Heng and Dee Jue vs. Court of Tax Appeals & Collector of Internal Revenue, G.R. No. L-10681, March 29, 1958). Even without being specifically mentioned, the provisions of Section 2 of Rule 86 of the Rules of Court may reasonably be presumed to have been also in the mind of the Court as not affecting the aforecited Section of the NIRC.
In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even more pointedly held that “taxes assessed against the estate of a deceased person … need not be submitted to the committee on claims in the ordinary course of administration. In the exercise of its control over the administrator, the court may direct the payment of such taxes upon motion showing that the taxes have been assessed against the estate.” The abolition of the Committee on Claims does not alter the basic ruling laid down giving exception to the claim for taxes from being filed as the other claims mentioned in the Rule should be filed before the Court. Claims for taxes may be collected even after the distribution of the decedent’s estate among his heirs who shall be liable therefor in proportion of their share in the inheritance. (Government of the Philippines vs. Pamintuan, 55 Phil. 13).
The reason for the more liberal treatment of claims for taxes against a decedent’s estate in the form of exception from the application of the statute of non-claims, is not hard to find. Taxes are the lifeblood of the Government and their prompt and certain availability are imperious need. (Commissioner of Internal Revenue vs. Pineda, G. R. No. L-22734, September 15, 1967, 21 SCRA 105). Upon taxation depends the Government ability to serve the people for whose benefit taxes are collected. To safeguard such interest, neglect or omission of government officials entrusted with the collection of taxes should not be allowed to bring harm or detriment to the people, in the same manner as private persons may be made to suffer individually on account of his own negligence, the presumption being that they take good care of their personal affairs. This should not hold true to government officials with respect to matters not of their own personal concern. This is the philosophy behind the government’s exception, as a general rule, from the operation of the principle of estoppel. (Republic vs. Caballero, L-27437, September 30, 1977, 79 SCRA 177; Manila Lodge No. 761, Benevolent and Protective Order of the Elks Inc. vs. Court of Appeals, L-41001, September 30, 1976, 73 SCRA 162; Sy vs. Central Bank of the Philippines, L-41480, April 30,1976, 70 SCRA 571; Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553; Auyong Hian vs. Court of Tax Appeals, 59 SCRA 110; Republic vs. Philippine Rabbit Bus Lines, Inc., 66 SCRA 553; Republic vs. Philippine Long Distance Telephone Company, L-18841, January 27, 1969, 26 SCRA 620; Zamora vs. CTA, L-23272, November 26, 1970, 36 SCRA 77; E. Rodriguez, Inc. vs. Collector of Internal Revenue, L- 23041, July 31, 1969, 28 SCRA 119.) As already shown, taxes may be collected even after the distribution of the estate of the decedent among his heirs (Government of the Philippines vs. Pamintuan, supra; Pineda vs. CFI of Tayabas, supra Clara Diluangco Palanca vs. CIR, G. R. No. L-16661, January 31, 1962).
Furthermore, as held in CIR vs. Pineda, supra, citing the last paragraph of Section 315 of the Tax Code payment of income tax shall be a lien in favor of the Government of the Philippines from the time the assessment was made by the CIR until paid with interests, penalties, etc. By virtue of such lien, this court held that the property of the estate already in the hands of an heir or transferee may be subject to the payment of the tax due the estate. A fortiori before the inheritance has passed to the heirs, the unpaid taxes due the decedent may be collected, even without its having been presented under Section 2 of Rule 86 of the Rules of Court. It may truly be said that until the property of the estate of the decedent has vested in the heirs, the decedent, represented by his estate, continues as if he were still alive, subject to the payment of such taxes as would be collectible from the estate even after his death. Thus in the case above cited, the income taxes sought to be collected were due from the estate, for the three years 1946, 1947 and 1948 following his death in May, 1945.
Even assuming arguendo that claims for taxes have to be filed within the time prescribed in Section 2, Rule 86 of the Rules of Court, the claim in question may be filed even after the expiration of the time originally fixed therein, as may be gleaned from the italicized portion of the Rule herein cited which reads:
Section 2. Time within which claims shall be filed. – In the notice provided in the preceding section, the court shall state the time for the filing of claims against the estate, which shall not be more than twelve (12) nor less than six (6) months after the date of the first publication of the notice. However, at any time before an order of distribution is entered, on application of a creditor who has failed to file his claim within the time previously limited the court may, for cause shown and on such terms as are equitable, allow such claim to be flied within a time not exceeding one (1) month. (Emphasis supplied)
In the instant case, petitioners filed an application (Motion for Allowance of Claim and for an Order of Payment of Taxes) which, though filed after the expiration of the time previously limited but before an order of the distribution is entered, should have been granted by the respondent court, in the absence of any valid ground, as none was shown, justifying denial of the motion, specially considering that it was for allowance of claim for taxes due from the estate, which in effect represents a claim of the people at large, the only reason given for the denial that the claim was filed out of the previously limited period, sustaining thereby private respondents’ contention, erroneously as has been demonstrated.
WHEREFORE, the order appealed from is reverse. Since the Tax Commissioner’s assessment in the total amount of P3,254.80 with 5% surcharge and 1% monthly interest as provided in the Tax Code is a final one and the respondent estate’s sole defense of prescription has been herein overruled, the Motion for Allowance of Claim is herein granted and respondent estate is ordered to pay and discharge the same, subject only to the limitation of the interest collectible thereon as provided by the Tax Code. No pronouncement as to costs.
SO ORDERED.
~~~Vera, et al. vs. Fernandez, et al. (G.R. No. L-31364, 30 March 1979, 1st Div., J. De Castro)
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An action to collect on bonds is separate and distinct from an action to collect taxes.
It should be recalled that the present action is essentially one to collect on the bonds which is an action separate and distinct from an action to collect taxes. Article 1144 of the Civil Code which provides that action upon a written contract, must be brought within ten (10) years from the time the right of action accrues, finds a fitting application (Rep. of the Phil. v. Xavier Gun Trading et al., G.R. No. L-17325; Rep. of the Phil. v. Dorego, et al., G.R. No. L-16594, both promulgated April 26, 1962). It appearing that said bonds were execute on June 12 and 29, 1946, the right of the government to collect amounts covered thereby, prescribed on June 12 and 29, 1956. The complaint was filed on February 18, 1953.
~~~Republic of the Philippines vs. Limaco & De Guzman Commercial Co., Inc., et al. (G.R. No. L13081, 31 August 1962, En Banc, J. Paredes)
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