Reuben Cir

7/29/2019 Reuben Cir

1/21

CIR v. Julieta Ariete

Apr 16, 1999: Respondent offered compromise, but it was denied by BIR.

Respondent filed petition for review with CTA.

Jan 15, 2002: CTA rendered decision cancelling deficiencyassessments. MR filed by CIR but denied by CTA.

Petitioner appealed to CA.

June 14, 2004: CA affirmed CTAs decision.

Petitioner filed appeal to SC.

ISSUE:

Is the recording in the Official Registry Book of the BIR of the

information filed by informer a mandatory requirement before

taxpayer may be excluded from coverage of VAP?

SC DECISION:

Yes. Where the language of the law is clear and unequivocal, it must

be given its literal application and applied without interpretation. CIR v. Julieta Ariete

RMO 59-97, 60-97, and 63-97 consistently provided that persons under

investigation as a result of verified information filed by an informer under

Sec 281 of the NIRC, and duly recorded in the Official Registry Book of the

Bureau before the date of availment under VAP are excluded from the

coverage of the VAP. This denotes that in addition to the filing of verified

information, the same should also be duly recorded in the ORB of BIR. The

conjunctive word and is not without legal significance. It means in addition

to. The word and, whether it is used to connect words, phrases or full

sentences, must be accepted as binding together and as relating to one

another. It implies conjunction or union.

This interpretation is bolstered by the fact that BIR issued RR 18-2005 and

reiterated the same provision in the implementation of the Enhanced VAP. When a tax provision speaks unequivocably, it is not the province of a Court

to scan its wisdom or its policy. The more correct course of dealing with a

question of construction is to take the words exactly what they say.

Findings of facts of the CTA are final and binding upon the SC, specially if

these are similar findings of the CA, which is the final arbiter of questions of

fact.FINAL ASSESSMENT NOTICE

ESSENTIAL REQUIREMENTS

There is an assessment. FAN (BIR FORM 17.08) contains name,

address, and TIN; kind of tax; period covered; basic tax and penalties;

date tax must be paid, while demand letter explains basis of

assessment. Must state facts, law, or jurisprudence; otherwise, assessment is void

A. Pre-Subic Enron Power Corp (up to 2008)

Taxpayer was fairly informed since it was able to categorically explain how

assessment came about (Toledo Power Co. vs. CIR)

PAN has audit sheet but did not explain how assessment was arrived.

Demand letter did not contain the information on law and facts (HPCO

Agridev Corp vs. CIR)

B. Subic Enron Power Corp v. CIR (Jan, 2009): Basis is stated in the FAN.

Signed by the Commissioner or his authorized representative

Issued within the prescriptive period under the law or the extended

period agreed upon between the parties

Served by personal delivery or by registered mail to the proper person

FAN is covered by a validly issued letter of authority


2/21

CIR vs PRIMETOWN PROPERTY GROUP,INC.,

CORONA,J.:

This petition for review on certiorari[1]seeks to set aside the August 1, 2003 decision[2]of the Court

of Appeals (CA) in CA-G.R. SP No. 64782 and its February 9, 2004 resolution denying reconsideration.[3]

On March 11, 1999, Gilbert Yap, vice chair of respondent Primetown Property Group, Inc., applied

for the refund or credit of income tax rsespondent paid in 1997. In Yap's letter to petitioner revenue

district officer Arturo V. Parcero of Revenue District No. 049 (Makati) of the Bureau of Internal Revenue

(BIR),[4] he explained that the increase in the cost of labor and materials and difficulty in obtaining

financing for projects and collecting receivables caused the real estate industry to slowdown.[5]As a

consequence, while business was good during the first quarter of 1997, respondent suffered losses

amounting to P71,879,228 that year.[6]

According to Yap, because respondent suffered losses, it was not liable for income

taxes.[7]

Nevertheless, respondent paid its quarterly corporate income tax and remitted creditable

withholding tax from real estate sales to the BIR in the total amount of P26,318,398.32.[8]

Therefore,

respondent was entitled to tax refund or tax credit.[9]On May 13, 1999, revenue officer Elizabeth Y. Santos required respondent to submit additional

documents to support its claim.[10]Respondent complied but its claim was not acted upon. Thus, on April

14, 2000, it filed a petition for review[11]in the Court of Tax Appeals (CTA).

On December 15, 2000, the CTA dismissed the petition as it was filed beyond the two-year

prescriptive period for filing a judicial claim for tax refund or tax credit.[12]It invoked Section 229 of the

National Internal Revenue Code (NIRC):

Sec. 229. Recovery of Taxes Erroneously or Illegally Collected. -- No suit or proceeding shall be

maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have

been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected

without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected,

until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceedingmay be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the

date of payment of the tax or penalty regardless of any supervening cause that may arise after

payment: Provided, however, That the Commissioner may, even without a claim therefor, refund or

credit any tax, where on the face of the return upon which payment was made, such payment appears

clearly to have been erroneously paid. (emphasis supplied)

The CTA found that respondent filed its final adjusted return on April 14, 1998. Thus, its right to

claim a refund or credit commenced on that date.[13]

The tax court applied Article 13 of the Civil Code which states:

Art. 13. When the law speaks of years, months, days or nights, it shall be understood that years

are of three hundred sixty-five days each; months, of thirty days; days, of twenty-four hours, and nights

from sunset to sunrise.

If the months are designated by their name, they shall be computed by the number of days

which they respectively have.

In computing a period, the first day shall be excluded, and the last included. (emphasis supplied)

Thus, according to the CTA, the two-year prescriptive period under Section 229 of the NIRC for

the filing of judicial claims was equivalent to 730 days. Because the year 2000 was a leap year,

respondent's petition, which was filed 731 days[14]

after respondent filed its final adjusted return, was

filed beyond the reglementary period.[15]

Respondent moved for reconsideration but it was denied.[16]Hence, it filed an appeal in the CA.[17]

On August 1, 2003, the CA reversed and set aside the decision of the CTA.[18]It ruled that Article 13

of the Civil Code did not distinguish between a regular year and a leap year. According to the CA:

The rule that a year has 365 days applies, notwithstanding the fact that a particular year is a leapyear.[19]

In other words, even if the year 2000 was a leap year, the periods covered by April 15, 1998 to

April 14, 1999 and April 15, 1999 to April 14, 2000 should still be counted as 365 days each or a total of

730 days. A statute which is clear and explicit shall be neither interpreted nor construed.[20]

Petitioners moved for reconsideration but it was denied.[21]

Thus, this appeal.
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Petitioners contend that tax refunds, being in the nature of an exemption, should be strictly

construed against claimants.[22]

Section 229 of the NIRC should be strictly appliedagainst respondent

inasmuch as it has been consistently held that the prescriptive period (for the filing of tax refunds and

tax credits) begins to run on the day claimants file their final adjusted returns.[23]

Hence, the claim

should have been filed on or before April 13, 2000 or within 730 days, reckoned from the time

respondent filed its final adjusted return.

The conclusion of the CA that respondent filed its petition for review in the CTA within the two-

year prescriptive period provided in Section 229 of the NIRC is correct. Its basis, however, is not.

The rule is that the two-year prescriptive period is reckoned from the filing of the final adjusted

return.[24] But how should the two-year prescriptive period be computed?

As already quoted, Article 13 of the Civil Code provides that when the law speaks of a year, it is

understood to be equivalent to 365 days. In National Marketing Corporation v. Tecson,[25]we ruled that

a year is equivalent to 365 days regardless of whether it is a regular year or a leap year.[26]

However, in 1987, EO[27]

292 or the Administrative Code of 1987 was enacted. Section 31, Chapter

VIII, Book I thereof provides:

Sec. 31. Legal Periods. Year shall be understood to be twelve calendar months; month of

thirty days, unless it refers to a specific calendar month in which case it shall be computed according to

the number of days the specific month contains; day, to a day of twenty-four hours and; night fromsunrise to sunset. (emphasis supplied)

A calendar month is a month designated in the calendar without regard to the number of days

it may contain.[28] It is the period of time running from the beginning of a certain numbered day up to,

but not including, the corresponding numbered day of the next month, and if there is not a sufficient

number of days in the next month, then up to and including the last day of that month.[29]To illustrate,

one calendar month from December 31, 2007 will be from January 1, 2008 to January 31, 2008; one

calendar month from January 31, 2008 will be from February 1, 2008 until February 29, 2008.[30]

A law may be repealed expressly (by a categorical declaration that the law is revoked and

abrogated by another) or impliedly (when the provisions of a more recent law cannot be reasonably

reconciled with the previous one).[31]

Section 27, Book VII (Final Provisions) of the Administrative Code

of 1987 states:Sec. 27. Repealing clause. All laws, decrees, orders, rules and regulation, or portions thereof,

inconsistent with this Code are hereby repealed or modified accordingly.

A repealing clause like Sec. 27 above is not an express repealing clause because it fails to identify

or designate the laws to be abolished.[32]

Thus, the provision above onlyimpliedlyrepealedall laws

inconsistent with the Administrative Code of 1987.

Implied repeals, however, are not favored. An implied repeal must have been clearly and

unmistakably intended by the legislature. The test is whether the subsequent law encompasses entirely

the subject matter of the former law and they cannot be logically or reasonably reconciled.[33]

Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of

1987 deal with the same subject matter the computation of legal periods. Under the Civil Code, a

year is equivalentto 365 days whether it be a regular year or a leap year. Under the Administrative Code

of 1987, however, a year is composed of 12 calendar months. Needless to state, under the

Administrative Code of 1987, the number of days is irrelevant.

There obviously exists a manifest incompatibility in the manner of computing legal periods under

the Civil Code and the Administrative Code of 1987. For this reason, we hold that Section 31, Chapter

VIII, Book I of the Administrative Code of 1987, being the more recent law, governs the computation of

legal periods. Lex posteriori derogat priori.

Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this case, the two-

year prescriptive period (reckoned from the time respondent filed its final adjusted return[34]on April 14,

1998) consisted of 24 calendar months, computed as follows:
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Year

1

1st

calendar

month

April 15, 1998 to May 14, 1998

2nd

calendar

month

May 15, 1998 to June 14, 1998

3rd

calendar

month

June 15, 1998 to July 14, 1998

4th

calendar

month

July 15, 1998 to August 14, 1998

5th

calendar

month

August 15, 1998 to September 14,

1998

6th

calendar

month

September 15,

1998

to October 14, 1998

7th

calendar

month

October 15, 1998 to November 14, 1998

8th

calendar

month

November 15,

1998

to December 14, 1998

9th

calendar

month

December 15,

1998

to January 14, 1999

10th

calendar

month

January 15, 1999 to February 14, 1999

11th

calendar

month

February 15, 1999 to March 14, 1999

12th

calendar

month

March 15, 1999 to April 14, 1999

Year

2

13th

calendar

month

April 15, 1999 to May 14, 1999

14th

calendar

month

May 15, 1999 to June 14, 1999

15th

calendar

month

June 15, 1999 to July 14, 1999

16th

calendarmonth

July 15, 1999 to August 14, 1999

17th

calendar

month

August 15, 1999 to September 14,

1999

18th

calendar

month

September 15,

1999

to October 14, 1999

19th

calendar

month

October 15, 1999 to November 14, 1999

20th

calendar

month

November 15,

1999

to December 14, 1999

21st

calendar

month

December 15,

1999

to January 14, 2000

22nd

calendar

month

January 15, 2000 to February 14, 2000

23rd

calendar

month

February 15, 2000 to March 14, 2000

24th

calendar

month

March 15, 2000 to April 14, 2000

We therefore hold that respondent's petition (filed on April 14, 2000) was filed on the last day of

the 24th

calendar month from the day respondent filed its final adjusted return. Hence, it was filed

within the reglementary period.

Accordingly, the petition is hereby DENIED. The case is REMANDED to the Court of Tax Appeals

which is ordered to expeditiously proceed to hear C.T.A. Case No. 6113 entitled Primetown Property

Group, Inc. v. Commissioner of Internal Revenue and Arturo V. Parcero.

No costs.


5/21

ESTATE OF THE LATEJULIANADIEZ VDA. DE GABRIEL,petitioner,

vs.

COMMISSIONER OFINTERNALREVENUE, respondent.

D E C I S I O N

YNARES-SANTIAGO, J.:

This petition for review on certiorariassails the decision of the Court of Appeals in CA-G.R. CV

No. 09107, dated September 30, 2002,1 which reversed the November 19, 1995 Order of Regional Trial

Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, entitled Testate Estate of Juliana Diez Vda.

De Gabriel. The petition was filed by the Estate of the Late Juliana Diez Vda. De Gabriel, represented by

Prudential Bank as its duly appointed and qualified Administrator.

As correctly summarized by the Court of Appeals, the relevant facts are as follows:

During the lifetime of the decedent, Juliana Vda. De Gabriel, her business affairs were managed

by the Philippine Trust Company (Philtrust). The decedent died on April 3, 1979. Two days after her

death, Philtrust, through its Trust Officer, Atty. Antonio M. Nuyles, filed herIncome Tax Returnfor 1978.

The return did not indicate that the decedent had died.

On May 22, 1979, Philtrust also filed a verified petition for appointment as Special Administrator with

the Regional Trial Court of Manila, Branch XXXVIII, docketed as Sp. Proc. No. R-82-6994. The court a quoappointed one of the heirs as Special Administrator. Philtrusts motion for reconsideration was denied

by theprobate court.

On January 26, 1981, the court a quo issued an Order relieving Mr. Diez of his appointment, and

appointed Antonio Lantin to take over as Special Administrator. Subsequently, on July 30, 1981, Mr.

Lantin was also relieved of his appointment, and Atty. Vicente Onosa was appointed in his stead.

In the meantime, the Bureau of Internal Revenue conducted an administrative investigation on the

decedentstaxliability and found a deficiencyincome taxfor the year 1977 in the amount of

P318,233.93. Thus, on November 18, 1982, the BIR sent by registered mail a demand letter and

Assessment Notice No. NARD-78-82-00501 addressed to the decedent c/o Philippine Trust Company,

Sta. Cruz, Manila which was the address stated in her 1978 Income Tax Return. No response was made

by Philtrust. The BIR was not informed that the decedent had actually passed away.In an Order dated September 5, 1983, the court a quo appointed Antonio Ambrosio as the

Commissioner and Auditor Tax Consultant of the Estate of the decedent.

On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of distraint

and levy to enforce collection of the decedents deficiency income tax liability, which were served upon

her heir, Francisco Gabriel. On November 22, 1984, respondent filed a Motion for Allowance of Claim

and for an Order of Payment of Taxes with the court a quo. On January 7, 1985, Mr. Ambrosio filed a

letter of protest with the Litigation Division of the BIR, which was not acted upon because the

assessment notice had allegedly become final, executory and incontestable.

On May 16, 1985, petitioner, the Estate of the decedent, through Mr. Ambrosio, filed a formal

opposition to the BIRs Motion for Allowance of Claim based on the ground that there was no proper

service of the assessment and that the filing of the aforesaid claim had already prescribed. The BIR filed

its Reply, contending that service to Philippine Trust Company was sufficient service, and that the filing

of the claim against the Estate on November 22, 1984 was within the five-year prescriptive period for

assessment and collection of taxes under Section 318 of the 1977 National Internal Revenue Code

(NIRC).

On November 19, 1985, the court a quo issued an Order denying respondents claim against the

Estate,2

after finding that there was no notice of its tax assessment on the proper party.3

On July 2, 1986, respondent filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No.

09107,4 assailing the Order of theprobatecourt dated November 19, 1985. It was claimed that Philtrust,

in filing the decedents 1978 income tax return on April 5, 1979, two days after thetaxpayers death,

had constituted itself as the administrator of the estate of the deceased at least insofar as said return is

concerned.5 Citing Basilan Estate Inc. v. Commissioner of Internal Revenue,6 respondent argued that

the legal requirement of notice with respect to tax assessments7

requires merely that the Commissionerof Internal Revenue release, mail and send the notice of the assessment to the taxpayer at the address

stated in the return filed, but not that the taxpayer actually receive said assessment within the five-year

prescriptive period.8

Claiming that Philtrust had been remiss in not notifying respondent of the

decedents death, respondent therefore argued that the deficiency tax assessment had already become

final, executory and incontestable, and that petitioner Estate was liable therefor.


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On September 30, 2002, the Court of Appeals rendered a decision in favor of the respondent.

Although acknowledging that the bond of agency between Philtrust and the decedent was severed upon

the latters death, it was ruled that the administrator ofthe Estate had failed in its legal duty to inform

respondent of the decedents death, pursuant to Section 104 of the National Internal Revenue Code of

1977. Consequently, the BIRs service to Philtrust of the demand letter and Notice of Assessment was

binding upon the Estate, and, upon the lapse of the statutory thirty-day period to question this claim,

the assessment became final, executory and incontestable. The dispositive portion of said decision

reads:

WHEREFORE, finding merit in the appeal, the appealed decision is REVERSED AND SET ASIDE.

Another one is entered ordering the Administrator of the Estate to pay the Commissioner of Internal

Revenue the following:

a. The amount of P318,223.93, representing the deficiency income tax liability for the year 1978,

plus 20% interest per annum from November 2, 1982 up to November 2, 1985 and in addition thereto

10% surcharge on the basic tax of P169,155.34 pursuant to Section 51(e)(2) and (3) of the Tax Code as

amended by PD 69 and 1705; and

b. The costs of the suit.

SO ORDERED.9

Hence, the instant petition, raising the following issues:1. Whether or not the Court of Appeals erred in holding that the service of deficiency tax assessment

against Juliana Diez Vda. de Gabriel through the Philippine Trust Company was a valid service in order to

bind the Estate;

2. Whether or not the Court of Appeals erred in holding that the deficiency tax assessment and final

demand was already final, executory and incontestable.

Petitioner Estate denies that Philtrust had any legal personality to represent the decedent after her

death. As such, petitioner argues that there was no proper notice of the assessment which,

therefore, never became final, executory and incontestable.10

Petitioner further contends that

respondents failure to file its claim against the Estate within the proper period prescribed by the Rules

of Court is a fatal error, which forever bars its claim against the Estate.11

Respondent, on the other hand, claims that because Philtrust filed the decedents income taxreturn subsequent to her death, Philtrust was the de facto administrator of her Estate.

12Consequently,

when the Assessment Notice and demand letter dated November 18, 1982 were sent to Philtrust, there

was proper service on the Estate.13

Respondent further asserts that Philtrust had the legal obligation to

inform petitioner of the decedents death, which requirement is found in Section 104 of the NIRC of

1977.14

Since Philtrust did not, respondent contends that petitioner Estate should not be allowed to

profit from this omission.15Respondent further argues that Philtrusts failure to protest the

aforementioned assessment within the 30-day period provided in Section 319-A of the NIRC of 1977

meant that the assessment had already become final, executory and incontestable.16

The resolution of this case hinges on the legal relationship between Philtrust and the decedent, and, by

extension, between Philtrust and petitioner Estate. Subsumed under this primary issue is the sub-issue

of whether or not service on Philtrust of the demand letter and Assessment Notice No. NARD-78-82-

00501 was valid service on petitioner, and the issue of whether Philtrusts inaction thereon could bind

petitioner. If both sub-issues are answered in the affirmative, respondents contention as to the finality

of Assessment Notice No. NARD-78-82-00501 must be answered in the affirmative. This is because

Section 319-A of the NIRC of 1977 provides a clear 30-day period within which to protest an assessment.

Failure to file such a protest within said period means that the assessment ipso jure becomes final and

unappealable, as a consequence of which legal proceedings may then be initiated for collection thereof.

We find in favor of the petitioner.

The first point to be considered is that the relationship between the decedent and Philtrust was

one of agency, which is a personal relationship between agent and principal. Under Article 1919 (3) of

the Civil Code, death of the agent or principal automatically terminates the agency. In this instance, the

death of the decedent on April 3, 1979 automatically severed the legal relationship between her and

Philtrust, and such could not be revived by the mere fact that Philtrust continued to act as her agentwhen, on April 5, 1979, it filed her Income Tax Return for the year 1978.

Since the relationship between Philtrust and the decedent was automatically severed at the moment of

the Taxpayers death, none of Philtrusts acts or omissions could bind the estate of the Taxpayer. Service

on Philtrust of the demand letter and Assessment Notice No. NARD-78-82-00501 was improperly done.

It must be noted that Philtrust was never appointed as the administrator of the Estate of the decedent,

and, indeed, that the court a quo twice rejected Philtrusts motion to be thus appointed. As of


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November 18, 1982, the date of the demand letter and Assessment Notice, the legal relationship

between the decedent and Philtrust had already been non-existent for three years.

Respondent claims that Section 104 of the National Internal Revenue Code of 1977 imposed the legal

obligation on Philtrust to inform respondent of the decedents death. The said Section reads:

SEC. 104. Notice of death to be filed. In all cases of transfers subject to tax or where, though exempt

from tax, the gross value of the estate exceeds three thousandpesos, theexecutor, administrator, or

any of the legal heirs, as the case may be, within two months after the decedents death, or within a like

period after qualifying as such executor or administrator, shall give written notice thereof to the

Commissioner of Internal Revenue.

The foregoing provision falls in Title III, Chapter I of the National Internal Revenue Code of 1977,

or the chapter on Estate Tax, and pertains to all cases of transfers subject to tax or where the gross

value of the estate exceeds three thousand pesos. It has absolutely no applicability to a case for

deficiency income tax, such as the case at bar. It further lacks applicability since Philtrust was never the

executor, administrator of the decedents estate, and, as such, never had the legal obligation, based on

the above provision, to inform respondent of her death.

Although the administrator of the estate may have been remiss in his legal obligation to inform

respondent of the decedents death, the consequences thereof, as provided in Section 119 of the

National Internal Revenue Code of 1977, merely refer to the imposition of certain penal sanctions on theadministrator. These do not include the indefinite tolling of the prescriptive period for making deficiency

tax assessments, or the waiver of the notice requirement for such assessments.

Thus, as of November 18, 1982, the date of the demand letter and Assessment Notice No. NARD-78-82-

00501, there was absolutely no legal obligation on the part of Philtrust to either (1) respond to the

demand letter and assessment notice, (2) inform respondent of the decedents death, or (3) inform

petitioner that it had received said demand letter and assessment notice. This lack of legal obligation

was implicitly recognized by the Court of Appeals, which, in fact, rendered its assailed decision on

grounds of equity.17

Since there was never any valid notice of this assessment, it could not have become final,

executory and incontestable, and, for failure to make the assessment within the five-year period

provided in Section 318 of the National Internal Revenue Code of 1977, respondents claim against thepetitioner Estate is barred. Said Section 18 reads:

SEC. 318. Period of limitation upon assessment and collection. Except as provided in the

succeeding section, internal revenue taxes shall be assessed within five years after the return was filed,

and no proceeding in court without assessment for the collection of such taxes shall be begun after the

expiration of such period. For the purpose of this section, a return filed before the last day prescribed by

law for the filing thereof shall be considered as filed on such last day: Provided, That this limitation shall

not apply to cases already investigated prior to the approval of this Code.

Respondent argues that an assessment is deemed made for the purpose of giving effect to such

assessment when the notice is released, mailed or sent to the taxpayer to effectuate the assessment,

and there is no legal requirement that the taxpayer actually receive said notice within the five-year

period.18

It must be noted, however, that the foregoing rule requires that the notice be sent to the

taxpayer, and not merely to a disinterested party. Although there is no specific requirement that the

taxpayer should receive the notice within the said period, due process requires at the very least that

such notice actually be received. In Commissioner of Internal Revenue v. Pascor Realty and

Development Corporation,19

we had occasion to say:

An assessment contains not only a computation of tax liabilities, but also a demand for payment

within a prescribed period. It also signals the time when penalties and interests begin to accrue against

the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it

must be served on and received by the taxpayer.

In Republic v. De le Rama,20 we clarified that, when an estate is under administration, notice

must be sent to the administrator of the estate, since it is the said administrator, as representative of

the estate, who has the legal obligation to pay and discharge all debts of the estate and to perform all

orders of the court. In that case, legal notice of the assessment was sent to two heirs, neither one ofwhom had any authority to represent the estate. We said:

The notice was not sent to the taxpayer for the purpose of giving effect to the assessment, and

said notice could not produce any effect. In the case of Bautista and Corrales Tan v. Collector of Internal

Revenue this Court had occasion to state that the assessment is deemed made when the notice to

this effect is released, mailed or sent to the taxpayer for the purpose of giving effect to said

assessment. It appearing that the person liable for the payment of the tax did not receive the


8/21

assessment, the assessment could not become final and executory. (Citations omitted, emphasis

supplied.)

In this case, the assessment was served not even on an heir of the Estate, but on a completely

disinterested third party. This improper service was clearly not binding on the petitioner.

By arguing that (1) the demand letter and assessment notice were served on Philtrust, (2) Philtrust was

remiss in its obligation to respond to the demand letter and assessment notice, (3) Philtrust was remiss

in its obligation to inform respondent of the decedents death, and (4) the assessment notice is

therefore binding on the Estate, respondent is arguing in circles. The most crucial point to be

remembered is that Philtrust had absolutely no legal relationship to the deceased, or to her Estate.

There was therefore no assessment served on the Estate as to the alleged underpayment of tax. Absent

this assessment, no proceedings could be initiated in court for the collection of said tax,21 and

respondents claim for collection, filed with the probate court only on November 22, 1984, was barred

for having been made beyond the five-year prescriptive period set by law.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No.

09107, dated September 30, 2002, is REVERSEDand SET ASIDE. The Order of the Regional Trial Court of

Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, dated November 19, 1985, which denied the claim of

the Bureau of Internal Revenue against the Estate of Juliana Diez Vda. De Gabriel for the deficiency

income tax of the decedent for the year 1977 in the amount of P318,223.93, is AFFIRMED.No pronouncement as to costs.


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G.R. No. 166387 January 19, 2009

COMMISSIONER OF INTERNAL REVENUE, Petitioners,

vs.

ENRON SUBIC POWERCORPORATION, Respondents.

R E S O L U T I O N

CORONA,J.:

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner

Commissioner of Internal Revenue (CIR) assails the November 24, 2004 decision1of the Court of Appeals

(CA) annulling the formal assessment notice issued by the CIR against respondent Enron Subic Power

Corporation (Enron) for failure to state the legal and factual bases for such assessment.

Enron, a domestic corporation registered with the Subic Bay Metropolitan Authority as a

freeport enterprise,2filed its annual income tax return for the year 1996 on April 12, 1997. It indicated a

net loss of P7,684,948. Subsequently, the Bureau of Internal Revenue, through a preliminary five-day

letter,3informed it of a proposed assessment of an alleged P2,880,817.25 deficiency income tax.

4Enron

disputed the proposed deficiency assessment in its first protest letter.5

On May 26, 1999, Enron received from the CIR a formal assessment notice6requiring it to pay

the alleged deficiency income tax of P2,880,817.25 for the taxable year 1996. Enron protested this

deficiency tax assessment.7Due to the non-resolution of its protest within the 180-day period, Enron filed a petition for

review in the Court of Tax Appeals (CTA). It argued that the deficiency tax assessment disregarded the

provisions of Section 228 of the National Internal Revenue Code (NIRC), as amended,8and Section 3.1.4

of Revenue Regulations (RR) No. 12-999by not providing the legal and factual bases of the assessment.

Enron likewise questioned the substantive validity of the assessment.10

In a decision dated September 12, 2001, the CTA granted Enrons petition and ordered the

cancellation of its deficiency tax assessment for the year 1996. The CTA reasoned that the assessment

notice sent to Enron failed to comply with the requirements of a valid written notice under Section 228

of the NIRC and RR No. 12-99. The CIRs motion for reconsideration of the CTA decision was denied in a

resolution dated November 12, 2001.

The CIR appealed the CTA decision to the CA but the CA affirmed it. The CA held that the auditworking papers did not substantially comply with Section 228 of the NIRC and RR No. 12-99 because

they failed to show the applicability of the cited law to the facts of the assessment. The CIR filed a

motion for reconsideration but this was deemed abandoned when he filed a motion for extension to file

a petition for review in this Court.

The CIR now argues that respondent was informed of the legal and factual bases of the

deficiency assessment against it.

We adopt in toto the findings of fact of the CTA, as affirmed by the CA. In Compagnie Financiere

Sucres et Denrees v. CIR,11we held:

We reiterate the well-established doctrine that as a matter of practice and principle, [we] will

not set aside the conclusion reached by an agency, like the CTA, especially if affirmed by the [CA]. By the

very nature of its function, it has dedicated itself to the study and consideration of tax problems and has

necessarily developed an expertise on the subject, unless there has been an abuse or improvident

exercise of authority on its part, which is not present here.

The CIR errs in insisting that the notice of assessment in question complied with the

requirements of the NIRC and RR No. 12-99.

A notice of assessment is:

[A] declaration of deficiency taxes issued to a [t]axpayer who fails to respond to a Pre-

Assessment Notice (PAN) within the prescribed period of time, or whose reply to the PAN was found to

be without merit. The Notice of Assessment shall inform the [t]axpayer of this fact, and that the report

of investigation submitted by the Revenue Officer conducting the audit shall be given due course.

The formal letter of demand calling for payment of the taxpayers deficiency tax or taxes shall state the

fact, the law, rules and regulations or jurisprudence on which the assessment is based, otherwise the

formal letter of demand and the notice of assessment shall be void.(emphasis supplied)12

Section 228 of the NIRC provides that the taxpayer shall be informed in writing of the law and

the facts on which the assessment is made. Otherwise, the assessment is void. To implement the

provisions of Section 228 of the NIRC, RR No. 12-99 was enacted. Section 3.1.4 of the revenue regulation

reads:

3.1.4. Formal Letter of Demand and Assessment Notice. The formal letter of demand and

assessment notice shall be issued by the Commissioner or his duly authorized representative. The letter
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10/21

of demand calling for payment of the taxpayers deficiency tax or taxes shall state the facts, the law,

rules and regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of

demand and assessment notice shall be void. The same shall be sent to the taxpayer only by registered

mail or by personal delivery. xxx (emphasis supplied)

It is clear from the foregoing that a taxpayer must be informed in writing of the legal and factual

bases of the tax assessment made against him. The use of the word shall in these legal provisions

indicates the mandatory nature of the requirements laid down therein. We note the CTAs findings:

In [this] case, [the CIR] merely issued a formal assessment and indicated therein the supposed

tax, surcharge, interest and compromise penalty due thereon. The Revenue Officers of the [the CIR] in

the issuance of the Final Assessment Notice did not provide Enron with the written bases of the law and

facts on which the subject assessment is based. [The CIR] did not bother to explain how it arrived at such

an assessment. Moreso, he failed to mention the specific provision of the Tax Code or rules and

regulations which were not complied with by Enron.13

Both the CTA and the CA concluded that the deficiency tax assessment merely itemized the

deductions disallowed and included these in the gross income. It also imposed the preferential rate of

5% on some items categorized by Enron as costs. The legal and factual bases were, however, not

indicated.

The CIR insists that an examination of the facts shows that Enron was properly apprised of its taxdeficiency. During the pre-assessment stage, the CIR advised Enrons representative of the tax

deficiency, informed it of the proposed tax deficiency assessment through a preliminary five-day letter

and furnished Enron a copy of the audit working paper14allegedly showing in detail the legal and factual

bases of the assessment. The CIR argues that these steps sufficed to inform Enron of the laws and facts

on which the deficiency tax assessment was based.

We disagree. The advice of tax deficiency, given by the CIR to an employee of Enron, as well as

the preliminary five-day letter, were not valid substitutes for the mandatory notice in writing of the legal

and factual bases of the assessment. These steps were mere perfunctory discharges of the CIRs duties

in correctly assessing a taxpayer.15

The requirement for issuing a preliminary or final notice, as the case

may be, informing a taxpayer of the existence of a deficiency tax assessment is markedly different from

the requirement of what such notice must contain. Just because the CIR issued an advice, a preliminaryletter during the pre-assessment stage and a final notice, in the order required by law, does not

necessarily mean that Enron was informed of the law and facts on which the deficiency tax assessment

was made.

The law requires that the legal and factual bases of the assessment be stated in the formal letter

of demand and assessment notice. Thus, such cannot be presumed. Otherwise, the express provisions of

Article 228 of the NIRC and RR No. 12-99 would be rendered nugatory. The alleged factual bases in the

advice, preliminary letter and audit working papers did not suffice. There was no going around the

mandate of the law that the legal and factual bases of the assessment be stated in writing in the formal

letter of demand accompanying the assessment notice.

We note that the old law merely required that the taxpayer be notified of the assessment made

by the CIR. This was changed in 1998 and the taxpayer must now be informed not only of the law but

also of the facts on which the assessment is made.16Such amendment is in keeping with the

constitutional principle that no person shall be deprived of property without due process.17

In view of

the absence of a fair opportunity for Enron to be informed of the legal and factual bases of the

assessment against it, the assessment in question was void. We reiterate our ruling in Reyes v.

Almanzor, et al.:18

Verily, taxes are the lifeblood of the Government and so 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 the Government itself.

WHEREFORE, the petition is hereby DENIED. The November 24, 2004 decision of the Court of Appeals

isAFFIRMED.

No costs.
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ALLIED BANKING CORPORATION vs. COMMISSIONER OF INTERNALREVENUE- Formal Letter of Demand on Tax Assessment

FACTS:

Allied Banking Corporation received a PAN from the BIR which it timely

disputed. In response, the BIR issued a Formal Letter of Demand with

Assessment Notices. Instead of protesting the FAN, the petitioner filed a

Petition for Review with the CTA. The CTA dismissed the Petition stating

that it is neither the assessment nor the formal demand letter itself that is

appealable before it but instead it should be the decision of the CIR on the

disputed assessment

ISSUES:

Can the Formal Letter of Demand be construed as the final decision of the

CIR appealable to the CTA under Republic Act 9282?

HELD:

YES. This is considered an exception to the general rule on exhaustion ofadministrative remedies since the CIR is considered estopped from

claiming the same principle applies in its case. The tenor of the demand

letter is clear that the CIR had already made a final decision and that the

remedy of the Petitioner was to appeal the same within 30 days of receipt.

This can be gleaned from the use of the terms final decision and appeal

which were deemed unequivocal language pointing to the finality of the

decision. While the Court cited the rules relative to (a) protesting the FAN

and not the PAN and (b) counting the 30 day period to appeal to the CTA

from receipt of the decision of the CIR and not issuance of the assessment,this particular case was deemed a clear exception in view of the CIRs own

actions.


12/21

REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,

vs.

SANTIAGO GANCAYCO,

PAREDES,J.:

On June 13, 1946, appellee Santiago Gancayco was assessed by the Collector of Internal Revenue for

P11,203.19, for various taxes corresponding to the first quarter of the year 1946, and demand for the

payment of the same amount within five (5) days from receipt thereof was made. The assessment and

demand were made after Gancayco allegedly refused to produce his books of accounts and other

records. For failure to make payment, the Collector issued on September 6, 1946, a warrant of Distraint

and Levy, to enforce the same. The warrant was not served on Gancayco because his whereabouts could

not then be ascertained. The whereabouts of Gancayco remained unknown until October 13, 1947,

when he wrote the Collector a letter (Exh. "2" or "H") which contained, among others, the following:

... . It was only recently that I was reminded of my obligation to our Government and I found out after

consulting my records and other papers that it is not as high as P11,203.19.

x x x x x x x x x

I am ready and willing to pay the taxes due the Government but at the same time I hope you will not

collect what is not. Based on the foregoing facts and circumstances, I am requesting your consideration

to order another investigation and whatever is found to be legally due from me, I will not hesitatepaying it. ... .

In conclusion, permit me to reiterate my request for reinvestigation and I assure you that I will abide by

your decision on the matter and pay the taxes legally due from me.

The above letter was answered by the Collector of Internal Revenue on March 3, 1949, more than a year

later, wherein he stated that after a reinvestigation of the case, it was found out that the allegations in

the letter of October 13, 1947, were not supported by the evidence, with the exception of two items,

resulting in the revision of the assessment from P11,203.19 to P10,982.30, plus P100.00 as compromise

penalty.

Under date of March 14, 1949, Gancayco sent another letter to the Collector, claiming that all his

documents and records were being sorted out, in the course of which, he found additional evidence

relating to the taxes being collected and asking for some time to prepare and submit such evidence. Inresponse to this letter, the Deputy Collector advised appellee on March 17, that he was given until April

1, 1949. One day before the dateline, or on March 31, 1949, Gancayco wrote the Collector, stating:

I am happy to inform you that I have now in my possession the books and documents that will support

my objections to the taxes assessed against me. These evidences will prove the following:

1. That I purchased these surplus goods not in my own behalf but in the capacity of an agent or co-buyer

of third persons. In this connection, I have copies of the legal papers which show the names of those

persons numbering more than seventy in all and the particular items acquired by them. After my

purchase, all these equipments passed directly to the hands of third persons and were registered in

their names. As an intermediary therefore, it would not be fair to levy the taxes assessed on such

equipments against me. The ones who should be liable for such obligations are these third persons who

acquired the true ownership of those equipments from the Foreign Liquidation Office through my

intercession.

2. I did not actually gain such estimated twenty (20%) percent profit as assessed. My books and

documents will bear me out that while it is true that I gained in some of my transactions, my profits did

not exceed 20%. In the majority of cases, my deals were on even terms if not on a losing basis.

The books and papers that I am ready to present are quite voluminous. I believe it would be for the

convenience of all parties concerned if your office should order a reinvestigation of my case. All these

evidences are now ready for the inspection of the investigator that you may send. I have also the names

and addresses of all the third persons who are the true owners of those equipments.1wph1.t

I therefore request that a thorough reinvestigation of my case be ordered and I am willing to abide by

whatever the outcome of the same maybe after a careful study of all the evidences.

Nothing in the record would show that action was taken in connection with the above letter. Manifestly,

no reinvestigation was conducted or a review of the evidence offered by appellee was made by theCollector or any of his agents or representatives. On May 17, 1960, however, more than ten (10) years

after the above letter of Gancayco, the Collector wrote appellee, saying:

Your repeated request for the cancellation of said assessments on the ground that the right of this

Office to collect the tax has already prescribed is not sustained by law nor judicial precedents.


13/21

Recently, the Supreme Court held in the case, entitled "Collector of Internal Revenue vs. Suyoc

Consolidated Mining Co., Inc.", G.R. No. L-11527, that the statute of limitations is suspended upon the

request of the taxpayer for reinvestigation or reconsideration of its tax liability.

x x x x x x x x x

Your contention that you purchased the surplus goods from the Foreign Liquidation Office as an agent or

co-buyer of third persons and not in your own behalf, is not borne out by the findings of the

reinvestigation.

In view thereof, it is requested that the amounts of P10,370.19 and P612.11 be paid to the City

Treasurer of Manila, within ten (10) days from receipt hereof; otherwise, judicial action will be instituted

against you without further notice.

Appellee Gancayco must have failed to pay the amount in question, because, on July 19, 1960, the case

at bar was presented with the CFI of Manila.

On August 3, 1960, Gancayco moved to dismiss the complaint on the ground of prescription, invoking

Sec. 332 of the Revenue Code, which provides that court proceedings for the collection of taxes must be

instituted within five (5) years after the assessment was made. Here, the original assessment was made

on June 13, 1946 and the revised assessment on March 3, 1949. An opposition to the motion to dismiss

was supposedly made (we do not find it in the record) and the lower court, on September 30, 1960,

denied the motion in an order of the following tenor:Acting on Defendant's motion for dismissal, considering the reasons adduced in support thereof and the

opposition thereto, the Court denies the motion for lack of merit, on the authority ofCollector of

Internal Revenue v. Suyoc Consolidated Mining Co. Inc., G.R. L-11527 promulgated November 25,

1958; Republic of the Philippines v. Luis G. Abraza, G.R. L-14519, promulgated July 26, 1960.

A motion to reconsider the above order was denied for lack of merit, on September 3, 1960.

In Answer to the complaint, after the customary admissions and denials, Gancayco interposed the

following special and affirmative defenses, to wit:

8. That over five years from the date of the assessment had elapsed before the complaint was filed, and

hence, the plaintiff is barred by the statute of limitations from enforcing collection thru judicial action;

9. That the alleged assessment against the defendant is erroneous and illegal as the same was arrived at

without referring to the books and records and inspite of the fact that the same were at the disposal ofthe Collector.

In sustaining the defense of prescription, the lower court stated:

Under the evidence, it appears that the final assessment made by Commissioner of Internal Revenue

covering the sales tax due from the defendant for the first quarter of 1946 was made on May 17, 1960,

more than five years from the date of the original assessment made on June 13, 1946, or from March 3,

1949 when the Collector of Internal Revenue made his revised assessment (Exh. 3 or 1). It is true that

defendant requested for a reinvestigation and reconsideration based on additional records and evidence

by letters dated March 14 and 31, 1949 (Exhs. 5 and 6) ; however, the collector gave defendant

untilApril 1, 1949only within which to submit the aforementioned evidence, upon the expiration of

which without ouch evidence being presented, it became the duty of the Collector to reiterate its revised

assessment, Exhibit 3, and prosecute court action within five years thereafter. This is an imperative duty

imposed upon the Collector, which he failed to discharge. Indeed, no action was taken in the tax case

until May 17, 1960, or after the lapse of more than 11 years from the request for reinvestigation.

However broad and wide the powers and discretion of the Collector (now Commissioner), to allow him

to delay action without justifiable reason beyond the five-year period would run counter to the letter,

spirit and purpose of the statute of limitations regarding taxes. ... .

x x x x x x x x x

It results that the f filing of the action on July 19, 1960 comes too late it being based on the final

assessment dated May 17, 1960 after the action has long prescribed. The case ofCollector vs. Suyoc

Consolidated Mining Co., G.R. L-11527 promulgated November 25, 1952 does not improve plaintiff's

position due to factual differences between that case and the present case. There in there were several

requests for reconsideration and reinvestigation conducted by the taxpayer including an appeal to the

conference in the Bureau of Internal Revenue.While the assessment of March 3, 1949 has become anal for lack of appeal to the Court of Tax Appeals,

the defense of prescription is not barred in a court proceeding for collection, as here.

The observations land conclusions of the lower court are well taken. Under the circumstances stated

and found in the decision, it is evident that the right of the State to collect the taxes due from appellee

has prescribed. Whether the computation of time starts from June 13, 1946 or March 3, 1949, the filing

of the tax collection case on July 19, 1960, is far beyond the period. While it is true that or, March 31,


14/21

1949, appellee Gancayco requested a thorough reinvestigation of this case, he, at the same time, placed

at the disposal of the Collector all the evidence he had for such purpose. Apparently, the Collector

ignored the request, for the records and documents were not at all examined. 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 from April 1,

1949. The very letter of the Collector to appellee on May 17, 1960, indicated that the latter had been

asking for the cancellation of the assessments in question due to prescription, which only goes to show

that in the interim, no action had been taken by the Collector on the request for re-examination of the

documents appellee had placed under the Collector's disposal. Sec. 332 of the Revenue Code, among

others, provides:

(c) Where the assessment of any internal revenue tax has been made within the period of limitation

above prescribed such tax may be collected by distraint or levy or by a proceeding in court, but only if

begun (1)within five years after the assessment of the tax, ... . (Emphasis supplied).

Obviously, the five-year period had long lapsed when the case at bar was instituted.

The Solicitor General further argues that even if the five-year period had lapsed, still the case at bar was

properly instituted, because the extra-judicial demands upon the appellee tolled the prescriptive period,citing in support thereof provisions of the Civil Code and cases.

The argument is untenable. This court said:

The only agreement that can suspend the running of the prescriptive period for the collection of taxes

by court action is a written agreement between the taxpayer and the Collector of Internal Revenue,

entered into before the expiration of the five-year prescriptive period of limitation prescribed by law.

(Coll. of Int. Rev. v. Solano, G.R. No. L-11475, July 31, 1958). (See also par. [b] Sec. 332, Revenue Code.)

Manifestly, therefore, the extra-judicial demands made, if any, did not serve to suspend or toll the

period of prescription, the provisions of the Civil Code notwithstanding. It should be noted, in this

connection, that the Internal Revenue Code being a special law, prevails over a general law.

WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as to costs.


15/21

Philippine Journalists Inc. v CIRG.R No. 162852December 15, 2004

Facts:

T h e R e v e n u e D i s t r i c t O f f i c e o f t h e B I R i s s u e d a l e t t e r o f

a u t h o r i t y f o r the examination of petitioner Philippine Journalists books of accounts.From theexamination, the petitioner was told that there were deficiency taxes, inclusiveof

surcharges, interest and compromise penalty. Then, petitioner, through

i tsC o m p t r o l l e r , L o r e n z a T o l e n t i n o , e x e c u t e d a w a i v e r o f s t a t u t e o f l i m i t a t

i on s p u r s u a n t t o S e c . 2 2 3 a n d S e c . 2 2 4 a n d c o n s e n t e d t o t h e a

s s e s s m e n t a n d collection of taxes which may be found due after the

examination at any timeafter the lapse of the period of limitations fixed by said

Sections 223 and

224a n d o t h e r r e l e v a n t p r o v i s i o n s o f t h e N I R C , u n t i l t h e c o m

p l e t i o n o f t h e investigation.Petitioner had a deficiency of P136,952,408.97. On

October 5, 1998, theAssessment Division of the BIR issued Pre-Assessment Notices which

informedpetitioner of the results of the investigation. A Final Notice Before Seizure

wass e n t t o t h e p e t i t i o n e r b u t t h e l a t t e r m e r e l y q u e s t i o n e d t h e a m

o u n t o f t h e deficiency and how the same was arrived.A Warrant of Distraint/Levy was

received by petitioner for the deficiency.Petitioner filed a Petition for Review with

t h e CT A , co n t en d i n g t h a t n o assessment was received by him; that the warrant of

distraint/levy was issuedprematurely; and that the assessment was made

b e y on d t h e 3 - ye a r p e r i o d . Regarding the assessment, the CTA ruled that the assessment

was sufficientlyproven by the receipts of the Post Master. As to the premature distraint/levy

andthe assessment made beyond the 3-year period, the CTA ruled in favor of

t hep e t i t i o n e r . T h e w a i v e r o f s t a t u t e o f l i m i t a t i o n s b y t h e p e t i t i o n e r w a s i

n va l id which resulted in the lapse of the 3 year period for assessment. Consequently,thepetition was granted, declaring the order for payment of deficiency tax nulland void. Th e C IR

f i led a mot ion for re c on s id era t ion b u t t h e s a me w a s d en ie d . Und au nt ed ,

the CIR filed an appeal with the CA. The CA reversed the ruling of the CTA, stating

that the waiver of limitations was valid and that the assessmentnotices was final and

executory. Hence, this appeal.

Issue:

W h e t h e r o r n o t t h e w a i v e r o f l i m i t a t i o n s w a s i n v a l i d , m a k i n

g t h e assessment beyond the 3 year period?

Held:

Yes, the court ruled that the waiver of limitation was invalid, makingthe assessment beyond

the allowable period of 3 years. The waiver of

t he s t a t u t e o f l i m i t a t i o n s i s n o t a w a i v e r o f t h e r i g h t t o i n v o k e t h e

d e f e n s e o f prescription as erroneously held by the Court of Appeals. It is an

agreementbetween the taxpayer and the BIR that the period to issue an

assessment andcollect the taxes due is extended to a date certain. The waiver does

not meanthat the taxpayer relinquishes the right to invoke prescription

unequivocallyparticularly where the language of the document is equivocal. For thepurposeof safeguarding taxpayers from any unreasonable examination, investigation

orassessment, our tax law provides a statute of limitations in the collection

of t a x e s . T h u s , t h e l a w o n p r e s c r i p t i o n , b e i n g a r e m e d i a l m e a s u r e , s h o u l d

b el i b e r a l l y c o n s t r u e d i n o r d e r t o a f f o r d s u c h p r o t e c t i o n . A s a c o r

o l l a r y , t h e exceptions to the law on prescription should perforce be strictly construed.


16/21

RCBC vs CIR 522 SCRA 144

Facts:

RCBC received a Formal Letter of Demand dated May 25, 2001 from the

respondent CIR for its taxliabilities particularly for Gross Onshore Tax in the amount ofP53,998,428.29 and Documentary

StampTa x for i t s Sp e c ia l Sa v in gs P la c emen t s in t h e a mou n t o f P46, 717,952 .

7 6 , f o r t h e t a x a b l e y e a r 1997.Petitioner filed a protest letter/request for

reconsideration/reinvestigation pursuant to Section 228 of the NIRC. As the protest was not

acted upon by the respondent, petitioner filed a petition for review withthe CTA for the

cancellation of the assessments. Respondent filed a motion to resolve first the issue of CTAs

jur isd ict ion, which wa s gran te d by the CTA in a Re so lu tion da te d Sept emb er 10 ,

2003.8 The petition for review was dismissed because it was filed beyond the 30-day period

following the lapse of180 days from petitioners submission of documents in support of its

protest, as provided under Section228 of the NIRC and Section 11 of R.A. No. 1125,

otherwise known as the Law Creating the Court of Tax Appeals. Petitioner did not file a

motion for reconsideration or an appeal to the CTA En Banc fromthe dismissal of its petition for

review. Consequently, the September 10, 2003 Resolution became finaland executory on

October 1, 2003 and Entry of Judgment was made on December 1, 2003.9

T h e r e a f t e r , r e s p o n d e n t s e n t a D e m a n d L e t t e r t o p e t i t i o n e r f o r t h e p

ayment of the deficiency taxassessments. On February 20, 2004, petitioner filed a

Petition for Relief from Judgment on the ground ofexcusable negligence of its counsels

secretary who allegedly misfiled and lost the September 10, 2003Re s o l u t i on . T h e C T A

S e c o n d D i v i s i o n s e t t h e c a s e f o r h e a r i n g o n A p r i l 2 , 2 0 0 4 1 1

d u r i n g w h i c h petitioners counsel was present.12

Respondent filed an Opposi tion1 3 while peti tioner submit ted itsManifestation andCounter-Motion. On May 3, 2004, the CTA Second Division rendered a Resolution15denying

petitioners Petition for Relief from Judgment. Petitioners motion

for reconsideration wasdenied in a Resolution dated November 5, 2004,16 hence it filed a

petition for review with the CTA EnBanc, docketed as C.T.A. EB No. 50, which affirmed

the assa ile d Resolu tions of the CTA Second Division in a Decision dated June 7, 2005.

Ruling:

As provided in Sec. 228, the failure of the taxpayer to appeal from an assessment on time

rendered theassessment final, executory and demandable. RCBC is precluded from disputing

the correctness of theassessment. While the right to appeal a decision of the

Commissioner of CTA is merely a statutoryremedy, nevertheless the requirement that it

must be brought within 30 days is jurisdictional. If a statutoryremedy provid es as a

condition precedent that the action to enforce it must be commenced within

a prescribed time, such requireme nt is jurisdictional and failure to comply

therewith may be raised in aMTD.


17/21

LASCONA LAND CO., INC.,Petitioner,

vs.

COMMISSIONER OF INTERNAL REVENUE,Respondent.

D E C I S I O N

PERALTA, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Courtseekingthe

reversal of the Decision1 dated October 25, 2005 and Resolution2 dated January 20, 2006 of the Court

of Appeals (CA) in CA-G.R. SP No. 58061 which set aside the Decision3 dated January 4, 2000 and

Resolution4 dated March 3, 2000 of the Court ofTaxAppeals (CTA) in C.T.A. Case No. 5777 and declared

AssessmentNoticeNo. 0000047-93-407 dated March 27, 1998 to be final, executory and demandable.

The facts, as culled from the records, are as follows:

On March 27, 1998, the Commissioner of Internal Revenue (CIR) issued Assessment Notice No. 0000047-

93-4075

against Lascona Land Co., Inc. (Lascona) informing the latter of its alleged deficiency income tax

for the year 1993 in the amount of P753,266.56.

Consequently, on April 20, 1998, Lascona filed a letter protest, but was denied by Norberto R. Odulio,

Officer-in-Charge (OIC), RegionalDirector, Bureau of Internal Revenue, Revenue Region No. 8, MakatiCity, in his Letter6 dated March 3, 1999, which reads, thus:

x x x x

Subject: LASCONA LAND CO., INC.

1993 Deficiency Income Tax

Madam,

Anent the 1993 tax case of subject taxpayer, please be informed that while we agree with the

arguments advanced in your letter protest, we regret, however, that we cannot give due course to your

request to cancel or set aside the assessment notice issued to your client for the reason that the case

was not elevated to the Court of Tax Appeals as mandated by the provisions of the last paragraph of

Section 228 of the Tax Code. By virtue thereof, the said assessment notice has become final, executory

and demandable.In view of the foregoing, please advise your client to pay its 1993 deficiency income tax liability in the

amount of P753,266.56.

x x x x (Emphasis ours)

On April 12, 1999, Lascona appealed the decision before the CTA and was docketed as C.T.A. Case No.

5777. Lascona alleged that the Regional Director erred in ruling that the failure to appeal to the CTA

within thirty (30) days from the lapse of the 180-day period rendered the assessment final and

executory.

The CIR, however, maintained that Lasconas failure to timely file an appeal with the CTA after the lapse

of the 180-day reglementary period provided under Section 228 of the National Internal Revenue Code

(NIRC) resulted to the finality of the assessment.

On January 4, 2000, the CTA, in its Decision,7

nullified the subject assessment. It held that in cases of

inaction by the CIR on the protested assessment, Section 228 of the NIRC provided two options for the

taxpayer: (1) appeal to the CTA within thirty (30) days from the lapse of the one hundred eighty (180)-

day period, or (2) wait until the Commissioner decides on his protest before he elevates the case.

The CIR moved for reconsideration. It argued that in declaring the subject assessment as final, executory

and demandable, it did so pursuant to Section 3 (3.1.5) of Revenue Regulations No. 12-99 dated

September 6, 1999 which reads, thus:

If the Commissioner or his duly authorized representative fails to act on the taxpayers protest within

one hundred eighty (180) days fromdateof submission, by the taxpayer, of the required documents in

support of his protest, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from

the lapse of the said 180-day period; otherwise, the assessment shall become final, executory and

demandable.

On March 3, 2000, the CTA denied the CIRs motion for reconsideration for lack of merit.8

The CTA heldthat Revenue Regulations No. 12-99 must conform to Section 228 of the NIRC. It pointed out that the

former spoke of an assessment becoming final, executory and demandable by reason of the inaction by

the Commissioner, while the latter referred to decisions becoming final, executory and demandable

should the taxpayer adversely affected by the decision fail to appeal before the CTA within the

prescribed period. Finally, it emphasized that in cases of discrepancy, Section 228 of the NIRC must

prevail over the revenue regulations.


18/21

Dissatisfied, the CIR filed an appeal before the CA.9

In the disputed Decision dated October 25, 2005, the Court of Appeals granted the CIRs petition and set

aside the Decision dated January 4, 2000 of the CTA and its Resolution dated March 3, 2000. It further

declared that the subject Assessment Notice No. 0000047-93-407 dated March 27, 1998 as final,

executory and demandable.

Lascona moved for reconsideration, but was denied for lack of merit.

Thus, the instant petition, raising the following issues:

I

THE HONORABLE COURT HAS, IN THE REVISED RULES OF COURT OF TAX APPEALS WHICH IT RECENTLY

PROMULGATED, RULED THAT AN APPEAL FROM THE INACTION OF RESPONDENT COMMISSIONER IS

NOT MANDATORY.

II

THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE ASSESSMENT HAS BECOME FINAL

AND DEMANDABLE BECAUSE, ALLEGEDLY, THE WORD DECISION IN THE LAST PARAGRAPH OF SECTION

228 CANNOT BE STRICTLY CONSTRUED AS REFERRING ONLY TO THE DECISION PER SEOF THE

COMMISSIONER, BUT SHOULD ALSO BE CONSIDERED SYNONYMOUS WITH AN ASSESSMENT WHICH HAS

BEEN PROTESTED, BUT THE PROTEST ON WHICH HAS NOT BEEN ACTED UPON BY THE COMMISSIONER.10

In a nutshell, the core issue to be resolved is: Whether the subject assessment has become final,executory and demandable due to the failure of petitioner to file an appeal before the CTA within thirty

(30) days from the lapse of the One Hundred Eighty (180)-day period pursuant to Section 228 of the

NIRC.

Petitioner Lascona, invoking Section 3,11 Rule 4 of the Revised Rules of the Court of Tax Appeals,

maintains that in case of inaction by the CIR on the protested assessment, it has the option to either: (1)

appeal to the CTA within 30 days from the lapse of the 180-day period; or (2) await the final decision of

the Commissioner on the disputed assessment even beyond the 180-day period in which case, the

taxpayer may appeal such final decision within 30 days from the receipt of the said decision. Corollarily,

petitioner posits that when the Commissioner failed to act on its protest within the 180-day period, it

had the option to await for the final decision of the Commissioner on the protest, which it did.

The petition is meritorious.Section 228 of the NIRC is instructional as to the remedies of a taxpayer in case of the inaction of the

Commissioner on the protested assessment, to wit:

SEC. 228. Protesting of Assessment. x x x

x x x x

Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required

to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized

representative shall issue an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or

reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may

be prescribed by implementing rules and regulations.

Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been

submitted; otherwise, the assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days

from submission of documents, the taxpayer adversely affected by the decision or inaction may

appeal to the Court of Tax Appeals within (30) days from receipt of the said decision, or from the lapse

of the one hundred eighty (180)-day period; otherwise the decision shall become final, executory and

demandable. (Emphasis supplied).

Respondent, however, insists that in case of the inaction by the Commissioner on the protested

assessment within the 180-day reglementary period, petitioner should have appealed the inaction to

the CTA. Respondent maintains that due to Lasconas failure to file an appeal with the CTA after the

lapse of the 180-day period, the assessment be

Documents

Reuben Cir