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CIR vs Philippine Global communications Inc

1. Respondent, a corporation engaged in telecommunications, filed its Annual Income
Tax Return for taxable ear 1!!" on 1# April 1!!1.
$. On 22 April 1992, the BIR sent a letter to respondent requesting the latter to present for
examination certain records and documents, ut respondent failed to present an!
%. &n $$ April 1!!', respondent received a (ormal Assessment )otice dated 1' April
1!!', for deficienc income tax in the total amount of P11*,$+1,,+$."". %
'. Respondent filed $ formal protest letters against Assessment )otice letter and
re-uested for the cancellation of the tax assessment, .hich the alleged .as invalid
for lac/ of factual and legal basis. '
#. #IR denied"
,. &n 1# )ovember $""$, respondent filed a Petition for Revie. .ith the CTA. After
due notice and hearing, the CTA rendered a 0ecision in favor of respondent on !
1une $""'. , The CTA ruled on the primar issue of prescription and found it
unnecessar to decide the issues on the validit and propriet of the assessment. It
decided that the protest letters filed b the respondent cannot constitute a re-uest
for reinvestigation, hence, the cannot toll the running of the prescriptive period to
collect the assessed deficienc income tax. + Thus, since more than three ears had
lapsed from the time .as issued in 1!!', the CIR2s right to collect the same has
prescribed in conformit .ith 3ection $,! of the )ational Internal Revenue Code of
1!++ * 4Tax Code of 1!++5.
1" $O% the right to collect of the deficienc! tax ! the #IR has alread! prescried
2" $hat is the purpose of statue of limitation
1" 'es, The la. prescribed a period of three ears from the date the return .as
actuall filed or from the last date prescribed b la. for the filing of such return,
.hichever came later, .ithin .hich the 6IR ma assess a national internal revenue
tax. 1% 7o.ever, the la. increased the prescriptive period to assess or to begin a
court proceeding for the collection .ithout an assessment to ten ears .hen a false
or fraudulent return .as filed .ith the intent of evading the tax or .hen no return
.as filed at all. 1' In such cases, the ten8ear period began to run onl from the date
of discover b the 6IR of the falsit, fraud or omission.
If the 6IR issued this assessment .ithin the three8ear period or the ten8ear period,
.hichever .as applicable, the la. provided another three ears after the assessment for the
collection of the tax due thereon through the administrative process of distraint and9or lev
or through :udicial proceedings. 1# The three8ear period for collection of the assessed tax
began to run on the date the assessment notice had been released, mailed or sent b the
6IR. 1,
The assessment, in this case, .as presumabl issued on 1' April 1!!' since the respondent
did not dispute the CIR2s claim. Therefore, the 6IR had until 1% April 1!!+. 7o.ever, as
there .as no ;arrant of 0istraint and9or <ev served on the respondents nor an :udicial
proceedings initiated b the 6IR, the earliest attempt of the 6IR to collect the tax due
based on this assessment .as .hen it filed its in CTA Case )o. ,#,* on ! 1anuar
$""%, .hich .as several ears beond the three8ear prescriptive period. Thus, the CIR is
no. prescribed from collecting the assessed tax.
The provisions on prescription in the assessment and collection of national internal revenue
taxes became la. upon the recommendation of the tax commissioner of the Philippines.
The report submitted b the tax commission clearl states that these provisions on
prescription should be enacted to benefit and protect taxpaers=
>nder the former la., the right of the Government to collect the tax does not prescribe.
7o.ever, in fairness to the taxpaer, the Government should be estopped from collecting
the tax .here it failed to ma/e the necessar investigation and assessment .ithin # ears
after the filing of the return and .here it failed to collect the tax .ithin # ears from the
date of assessment thereof. 1ust as the government is interested in the stabilit of its
collections, so also are the taxpaers entitled to an assurance that the .ill not be sub:ected
to further investigation for tax purposes after the expiration of a reasonable period of time.
4?ol. II, Report of the Tax Commission of the Philippines, pp. %$18%$$5. 1+
2" (urpose of the statute of )imitation
1. Prescription in the assessment and in the collection of taxes is provided b the
<egislature for the benefit of both the Government and the taxpaer@ for the
Government for the purpose of expediting the collection of taxes, so that the agenc
charged .ith the assessment and collection ma not tarr too long or indefinitel to
the pre:udice of the interests of the Government, .hich needs taxes to run it@ and
for the taxpaer so that .ithin a reasonable time after filing his return, he ma
/no. the amount of the assessment he is re-uired to pa, .hether or not such
assessment is .ell founded and reasonable so that he ma either pa the amount of
the assessment or contest its validit in court . . . . It .ould surel be pre:udicial to
the interest of the taxpaer for the Government collecting agenc to undul dela
the assessment and the collection because b the time the collecting agenc finall
gets around to ma/ing the assessment or ma/ing the collection, the taxpaer ma
then have lost his papers and boo/s to support his claim and contest that of the
Government, and .hat is more, the tax is in the meantime accumulating interest
.hich the taxpaer eventuall has to pa. 3IcA70
$. In Republic of the Philippines v. AblaBa, 1! this Court emphaticall explained that
the statute of limitations of actions for the collection of taxes is :ustified b the need
to protect la.8abiding citiBens from possible harassment=
The la. prescribing a limitation of actions for the collection of the income tax is
beneficial both to the Government and to its citiBens@ to the Government because
tax officers .ould be obliged to act promptl in the ma/ing of assessment, and to
citiBens because after the lapse of the period of prescription citiBens .ould have a
feeling of securit against unscrupulous tax agents .ho .ill find an excuse to
inspect the boo/s of taxpaers, not to determine the latter2s real liabilit, but to ta/e
advantage of ever opportunit to molest, peaceful, la.8abiding citiBens. ;ithout
such legal defense taxpaers .ould furthermore be under obligation to /eep
their boo/s and /eep them open for inspection sub:ect to harassment b
unscrupulous tax agents. The la. on prescription being a remedial measure should
be interpreted in a .a conducive to bringing about the beneficient purpose of
affording protection to the taxpaer .ithin the contemplation of the Commission
.hich recommended the approval of the la..
And again in the recent case Ban* of the (hilippine Islands +" #ommissioner of Internal
Re+enue, 2, this #ourt, 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 taxpaer, it principall intends
to afford protection to the taxpaer against unreasonable investigation. The
indefinite extension of the period for assessment is unreasonable because it deprives
the said taxpaer of the assurance that he .ill no longer be sub:ected to further
investigation for taxes after the expiration of a reasonable period of time.
-an .uan +s %AB)/
1" 0anufacturing #o" 1 a dul! registered manufacturer of cigarettes 1 as*ed the
#ommissioner2s permission to sell 3,, oins of cigarette paper to Imperial" -he
permit 4as forth4ith granted"
2" On 5ul! 26, 1972, in the course of a routine in+estigation conducted ! the Bureau of
Internal Re+enue 1 a representati+e of Imperial denied that the latter had recei+ed
said 3,, oins of cigarette paper" Thereupon, the Commissioner assessed against
the Canufacturing Co. the sum of P1$*,*"" one for P+$,'#" and the other for
P1$*,*"", .ith costs.
6" -he first represents specific taxes allegedl! due for the quantit! of cigarettes that
could ha+e een produced out of 6,, oins of cigarette paper disposed of !
Imperial -oacco #ompan! 1 hereinafter referred to as Imperial 1 of 4hich -an
.uan is one of the principal partners, 4hereas the second constitutes the specific
taxes allegedl! due on the cigarettes that could ha+e een manufactured out of the
3,, oins of cigarette paper said to ha+e een purchased ! Imperial from the
(hilippine #igarette 0anufacturing #o", Inc", hereinafter referred to as the
0anufacturing #o"
8" &n (ebruar !, 1!#%, Padua conveed to the Commissioner his 4Padua2s5
intention to appeal to the conference staff. -he appeal 4as gi+en due course on
Feruar! 1,, 1976, and 4as set for the hearing efore said conference staff on 0arch
6 and 61, 1976" (adua too* part at the hearing on 0arch 6, ut, nood! appeared on
ehalf of Imperial at the hearing on 0arch 61 ,1976, despite the promise made !
(adua to then produce some documents"
7" -an .uan could not e located, ho4e+er, until April 6,, 1973, 4hen the
corresponding assessment notice 4as deli+ered to him" &n Ca ,, 1!#*, the
Commissioner issued a .arrant of distraint against the properties of Tan Guan
9" &n Ca +, 1!#*, Civil Case of the Court of (irst Instance of RiBal .as filed b
the Government to recover from Tan Guan the aforementioned sums of P+$,'#"
and P1$*,*"", as specific taxes on cigarettes" Aout a 4ee* later, or on 0a! 17,
1973, Imperial as*ed the #ommissioner a rehearing, ut, efore this request could e
acted upon, -an .uan filed a petition for re+ie4 4ith the #ourt of -ax Appeals 4hich,
in due course, rendered the appealed decision in fa+or of the .o+ernment" &ence, this
:" -he main defense set up ! -an .uan is that of prescription of action" $ith respect to
the assessment for (:2,87,, he maintains that the same 4as made on 5anuar! 21,
1976, 4hereas, the aforementioned ci+il action for the reco+er! of said sum and that
of (123,3,, 4as filed on 0a! :, 1973, or e!ond the prescripti+e period of fi+e ;7<
!ears 4hich, -an .uan maintains, is applicale thereto"
$O% the right to collect of the aforementioned amount ! the #IR has alread! prescried
%o, It should be noted, ho.ever that the running of said period .as interrupted on
(ebruar !, 1!#%, .hen Imperial, appealed the disputed assessment to the conference staff
and that, on Ca *, 1!#%, the Commissioner reiterated the demand for the pament of said
sum of P+$,'#" 4less P1,""" paid on (ebruar $", 1!#%5 in addition to P1",""" as
compromise penalt. Accordingl, from Ca *, 1!#% to Ca +, 1!#*, .hen the civil action
.as commenced, less than five 4#5 ears had elapsed.
Coreover, the prescriptive period of five 4#5 ears applies onl .hen a return is filed. %
DIn the case of a false of fraudulent return .ith intent to evade tax or of a failure to file a
return, the tax ma be assessed, or a proceeding in court for the collection of such tax ma
be begun .ithout assessment, at an time .ithin ten ears after the discover of the falsit,
fraud, or omission.D
In 6isaa <and Transportation Co. v. Collector of Internal Revenue and Collector of
Internal Revenue v. 6isaa <and Transportation Co., # .e held that this provision applies
.henever a return is not filed, .hether it is re-uired or not. 3ince, the civil action for the
recover of P+$,'#" and P1$*,*"" .as commenced on Ca +, 1!#!, or long before the
expiration of the aforementioned period of ten 41"5 ears, it is clear that the plea of
prescription cannot be sustained.
Repulic +s )im de 'u
1. Appellee Rita <im de Eu filed her earl income tax returns from 1!'* through
1!#%. The 6ureau of Internal Revenue assessed the taxes due on each return, and
appellee paid them accordingl.
2" &n 1ul 1+, 1!#, the 6ureau issued to appellee deficienc income tax assessments
for the ears 1!'# to 1!#% in the total amount of P$$,'#".#". 3he protested the
assessments and re-uested a reinvestigation.
%. &n August %", 1!#, she signed a D.aiverD of the statute of limitations under the Tax
Code as a condition to the reinvestigation re-uested. Thereafter, or on 1ul 1*, 1!#*,
the 6ureau issued to her income tax assessment notices for the ears 1!'* to 1!#%,
totalling P%#,%+!.,%. This last assessment, li/e the one issued in 1!#,, covered not
onl the basic deficienc income taxes, but also #"F thereof as surcharge. >pon
appellee2s failure to pa, an action for collection .as filed against her in the Court of
(irst Instance of Cotabato on Ca 11, 1!#!.
'. Appeals, .hich for.arded the case to this Court, the issues involved being purel
#. Appellant claims that the court erred 415 in ruling that the deficienc income
taxes due from appellee for the ears 1!'*, 1!'! and 1!#" .ere not assessed on time@
and 4$5 in dismissing the case on the ground that the right of appellant to collect the
deficienc income tax assessments had alread prescribed.
$O% the #IR=s right to collect has alreathe prescription of 1, !ears
-A>A-IO%? (R/@#RI(-IO%? -/% '/AR (/RIOA -O #O))/#- -A> I% #A@/@ OF
FRABAB)/%- R/-BR%? FRABA 0B@- B/ (ROC/%" 1 For the ten !ear period of
limitation of assessment and collection of taxes under @ection 662 of the tax code to appl! it
is not enough that fraud is alleged in the complaint? it must e estalished" Fraud not ha+ing
een pro+en in the case at ar, the period of limitation 4as fi+e !ears from the filing of the
return, according to @ection 661 of the tax code"
The first issue raised b appellant is .hether or not the returns filed b appellee for the
ears 1!'* to 1!#% are false and fraudulent. Appellant maintains the are because the
earl net incomes reported in her returns are much less than as computed b the 6ureau,
and conse-uentl, under par 4a5, 3ection %%$ of the Tax Code, it has ten ears from the date
of the discover of the fraud or falsit, i.e., Ca $#, 1!##, .ithin .hich to assess the taxes or
to file a suit for collection .ithout assessment. And since, it is further contended, appellee
can no longer -uestion the correctness of the assessment in vie. of her failure to as/ the
Court of Tax Appeals to revie. the same, she should be ordered to pa the amounts being
But 4hile fraud is alleged in the complaint, the same has not een estalished" It is one thing to
sa! that the correctness of the last assessment made ! appellant, on 5ul! 13, 1973, ma! no
longer e challenged on the technical ground Dust stated and quite another thing to sa! that
appellee committed a delierate fraud in declaring smaller incomes for the !ears in 4hich she
filed her returns" Indeed the Bureau itself appears none too sure as to the real amounts of her net
incomes for those !ears" On three different occasions it arri+ed at three highl! different
computation" First, it accepted appellee2s !earl! statements of income from 1987 to 1976 and
assessed her a total tax of (2,:62"6:, 4hich she paid" -hen in 1979 the Bureau came up 4ith a
different set of figures for the same period, consideral! higher than those stated in the returns,
and using such figures as a asis assessed her deficienc! taxes in the total amount of (22,87,"7,"
Finall!, in 1973 the Bureau made another computation of appellee2s net income for the !ears
1983 to 1976, and assessed her deficienc! taxes in the sum of (67,6:9"96" %ote that the disparit!
et4een the 1979 and the 1973 assessments is reall! much greater than 4hat appears at first
glance, as the latter do not include the taxes corresponding to the !ears 1987, 1989 and 198:"
Attention ma! li*e4ise e dra4n to the fact that in paragraph 6 of the complaint appellant see*s
to collect from appellee the sum of (23"76, plus a surcharge of 7,E, as unpaid tax for the !ear
1983, not4ithstanding the fact admitted in the stipulation, that appellee filed her return for that
!ear and dul! paid the said amount"
Fraud not ha+ing een pro+en, the period of limitation for assessment or collection 4as fi+e
!ears from the filing of the return, according to @ection 661 of the tax code" -he right to assess or
collect the income taxes for the !ears 1983 to 197, had alread! prescried, therefore, 4hen the
Bureau of Internal Re+enue issued the deficienc! income tax assessments on 5ul! 1:, 1979"
IA"? IA"? -A>(A'/R2@ $AIC/R OF @-A-B-/ OF )I0I-A-IO%@ AO/@ %O- #OC/R
-A>/@ A)R/AA' (R/@#RIB/A" 1 -he 4ai+er of the statute of limitations executed ! the
taxpa!er cannot e deemed to include taxes alread! prescried" @uch agreement under @ection
662 ;< of the -ax #ode must e made efore, not after, the expiration of the original period" It
does not authoriFe extension once prescription has attached"
6" IA"? IA"? (/RIOA FOR #O))/#-IO% OF -A>/@ AF-/R A@@/@@0/%-" 1
Assessment and collection are t4o different processes" #ollection ma! e effected 4ithin fi+e
!ears after assessment or 4ithin the period for collection agreed upon in 4riting ! the
#ommission of Internal Re+enue and the taxpa!er efore the expiration of such fi+e !ear period"
Repulic +s RaFon
#IR +s #A and #arnation (hils"
1. &n 1anuar 1#, 1!*$, Carnation Phils. Inc. 4Carnation5, filed its Corporation
Annual Income Tax Return for taxable ear ending 3eptember %", 1!*1@ and its
Canufacturers9Producers Percentage Tax Return for the -uarter ending 3eptember
%", 1!*1.
$. &n &ctober 1%, 1!*,, Carch 1,, 1!*+ and Ca 1*, 1!*+, Carnation, through its
3enior ?ice President 1aime &. <ardiBabal, signed three separate 2.aivers of the
3tatute of <imitations >nder the )ational Internal Revenue Code2 .herein it=
6" 2" " " .aives the running of the prescriptive period provided for in sections %1* and
%1! and other related provisions of the )ational Internal Revenue Code and
consents to the assessment and collection of the taxes .hich ma be found due after
reinvestigation and reconsideration at an time before or after the lapse of the
period of limitations fixed b said sections %1* and %1! and other relevant provisions
of the )ational Internal Revenue Code, but not after 41% April 1!*+ for the earlier8
executed .aiver, or 1une 1', 1!*+ for the later .aiver, or 1ul %", 1!*+ for the
subse-uent .aiver, as the case ma be5. 7o.ever, the taxpaer 4petitioner herein5
does not .aive an prescription alread accrued in its favor.2
8" GThe .aivers .ere not signed b the 6IR Commissioner or an of his agents.
#. &n August #, 1!*+, Carnation received 6IR2s letter of demand dated 1ul $!, 1!*+
as/ing the said corporation to pa P1,''$,#*,.#, as deficienc income tax,
P1',1#$,,*%.*# as deficienc sales tax and P%,!%!,!1%."% as deficienc sales tax on
undeclared sales, all for the ear 1!*1. This demand letter .as accompanied b
assessment )otices
,. Carnation filed a protest
The pivot of in-uir here is .hether or not the three 4%5 .aivers signed b the private
respondent are valid and binding , as to toll the running of the prescriptive period for
assessment and not bar the Government from issuing sub:ect deficienc tax assessments.
The decision of the Court of Appeals affirming .hat the Court of Tax Appeals decided,
established that sub:ect assessments of 1ul $!, 1!*+ .ere issued outside the statutor
prescriptive period.
Carnation filed its annual income tax and percentage tax returns for the fiscal ear ending
3eptember %", 1!*1 on 1anuar 1#, 1!*$ * and )ovember $", 1!*1, ! respectivel. In
accordance .ith the above8-uoted provision of la., private respondent2s 1!*1 income and
sales taxes could have been validl assessed onl until 1anuar 1', 1!*+ and )ovember 1!,
1!*,, respectivel. 1" 7o.ever, Carnation2s income and sales taxes .ere assessed onl on
1ul $!, 1!*+, beond the five8ear prescriptive period. 11
Petitioner 6IR Commissioner contends that the .aivers signed b Carnation .ere valid
although not signed b the 6IR Commissioner because 4a5 .hen the 6IR agents9examiners
extended the period to audit and investigate Carnation2s tax returns, the 6IR gave its
implied consent to such .aivers@ 4b5 the signature of the Commissioner is a mere formalit
and the lac/ of it does not vitiate the binding effect of the .aivers@ and 4c5 that a .aiver is
not a contract but a unilateral act of renouncing one2s right to avail of the defense of
prescription and remains binding in accordance .ith the terms and conditions set forth in
the .aiver. 1$
Petitioner2s submission is inaccurate. The same tax code is clear on the matter
;e agree .ith the CTA in holding Dthese 2.aivers2 to be invalid and .ithout an binding
effect on petitioner 4Carnation5 for the reason that there .as no consent b the respondent
4Commissioner of Internal Revenue5.D
DThe ruling of the 3upreme Court in Collector of Internal Revenue vs. 3olano 1% is in
point, thus=
D. . . The onl agreement that could have suspended the running of the prescriptive period
for the collection of the tax in -uestion is, as correctl pointed out b the Court of Tax
Appeals, a .ritten agreement bet.een 3olano and the Collector, entered into before the
expiration of the five8ear prescriptive period, extending the limitation prescribed b la..D
D(or sure, no such .ritten agreement concerning the said three .aivers exists bet.een the
petitioner and private respondent Carnation.D 1'
#IR +s @u!oc
1. 3uoc Consolidated Cining Compan, a mining corporation operating before the
.ar, .as unable to file in 1!'$ its income tax return for the ear 1!'1 due to the last
.ar" After liberation, Congress enacted Common.ealth Act )o. +$$ .hich extended
the filing of tax returns for 1!'1 up to 0ecember %1, 1!'#.
$. Its records having been lost or destroed, the compan re-uested the Collector of
Internal Revenue to grant it an extension of time to file its return, .hich .as
granted until (ebruar 1#, 1!',, and the compan .as authoriBed to file its return
for 1!'1 on the basis of the best evidence obtainable.
%. -he compan! filed three income tax returns for the calendar !ear ending Aecemer 61,
1981" On Feruar! 12, 1989, it filed a tentati+e return as it had not !et completel!
reconstructed its records"
'. On %o+emer 23, 1989, it filed a second final return on the asis of the records it has
een ale to reconstruct at that time" On Feruar! 9, 198:, it filed its third amended final
return on the asis of the a+ailale records 4hich to that date it had een ale to
#. &n the basis of the second final return filed b the compan on )ovember $*, 1!',,
the Collector assessed against it the sum of P$*,$*!.!, as income tax for 1!'1, plus
P1,'1'.#" as # per cent surcharge and P%,%!'.*" as 1 per cent monthl interest from
Carch 1, 1!', to (ebruar $*, 1!'+, or a total of P%%,"!!.$,.
,. The assessment .as made on (ebruar 11, 1!'+. &n (ebruar $1, 1!'+, the
compan as/ed for an extension of at least one ear from (ebruar $*, 1!'+ .ithin
.hich to pa the amount assessed, reserving its right to -uestion the correctness of
the assessment. The Collector granted an extension of onl three months from
Carch $", 1!'+
+. The compan failed to pa the tax .ithin the period granted to it and so the
Collector sent to it a letter on )ovember $*, 1!#" demanding pament of the tax due
as assessed, plus surcharge and interest up to 0ecember %1, 1!#". &n April ,, 1!#1,
the compan as/ed for a reconsideration and reinvestigation of the assessment,
.hich .as granted, the case being assigned to another examiner, but the Collector
made another assessment against the compan in the sum of P%%,*$!.,,. This ne.
assessment .as made on Carch +, 1!#$. &n April 1*, 1!#$, the Collector revised this
last assessment and re-uired the compan to pa the sum of P$*,$*!.!, as income
tax, P1,'1'.#" as surcharge, P$",!%'.#+ as interest up to April %", 1!#$ and P'" as
*. ;ithin the reglementar period, the compan filed .ith the Court of Tax Appeals a
petition for revie. of this assessment made on 1ul $,, 1!## on the main ground
that the right of the Government to collect the tax has alread prescribed. After the
case .as heard, the court rendered its decision upholding this defense and,
accordingl, it set aside the ruling of the Collector of Internal Revenue. The
Collector interposed the present petition for revie..
;&) the right to collect has alread prescribed
Ees, 1" I%#O0/ -A>? #O))/#-IO%? (/RIOA OF )I0I-A-IO%? R//>A0I%A-IO% OR
R/I%C/@-I.A-IO% OF A@@/@@0/%- AO/@ %O- @B@(/%A (/RIOA OF )I0I-A-IO%?
/>#/(-IO%@" 1 A mere request for reexamination or rein+estigation of assessment ma! not
suspend the running of the period of limitation for in such a case there is need of a 4ritten
agreement to extend the period et4een the #ollector and the taxpa!er" -here are cases,
ho4e+er, 4here a taxpa!er ma! e pre+ented from setting up the defense of prescription e+en if
he has not pre+iousl! 4ai+ed it in 4riting as 4hen ! his repeated requests or positi+e acts the
.o+ernment has een, for good reasons, persuaded to postpone collection to ma*e himself feel
that the demand 4as not unreasonale or that no harassment or inDustice is meant ! the
.o+ernment" And 4hen such situation comes to pass there are authorities that hold, ased on
4eight! reasons, that such an attitude or eha+ior should not e countenanced if onl! to protect
the interest of the .o+ernment"
2" IA"? IA"? IA"? .OC/R%0/%-2@ A#-IO% $I-&&/)A A- -A>(A'/R2@ R/HB/@-?
/@-O((/)" 1 &e 4ho pre+ents a thing from eing done ma! not a+ail himself of the nonI
performance 4hich he has himself occasioned, for the la4 sa!s to him in effect Gthis is !our o4n
act and therefore !ou are not damnified"G ;R"&" @tearns #o" +s" B"@" :3 ) /d" 998:<" Or, as 4as
aptl! said, G-he tax could ha+e een collected, ut the go+ernment 4ithheld action at the specific
request of the plaintiff" -he plaintiff is no4 estopped and should not e permitted to raise the
defense of the statute of limitations"G ;%e4point #o" +s" B"@" ;AcI4is<, 68 Off" @upp" 733"<
CIR vs ;eth
1" (ri+ate respondent $!eth @uaco )aoratories, Inc" ;$!eth @uaco for re+it!< is a
domestic corporation engaged in the manufacture and sale of assorted pharmaceutical and
nutritional products"
2" B! +irtue of )etter of Authorit! dated 5une 1:, 19:8 issued ! then #ommissioner of
Internal Re+enue 0isael (" Cera, Re+enue /xaminer Aante Jaigting conducted an
in+estigation and examination of the oo*s of accounts of $!eth @uaco"
6" -he report disclosed that $!eth @uaco 4as pa!ing ro!alties to its foreign licensors as
4ell as remuneration for technical ser+ices to $!eth International )aoratories of
)ondon" $!eth @uaco 4as also found to ha+e declared cash di+idends on @eptemer 2:,
19:6 and these 4ere paid on Octoer 61, 19:6" &o4e+er, it allegedl! failed to remit
4ithholding tax at source for the fourth ;8th< quarter of 19:6 on accrued ro!alties,
remuneration for technical ser+ices and cash di+idends, resulting in a deficienc!
4ithholding tax at source in the aggregate amount of (6,1:3,998"17"
8" All these resulted in a deficienc! sales tax in the amount of (9,,377"21 and compromise
penalt! in the amount of (6,,",, or a total amount of (91,177"21" 6
7" #onsequentl!, the Bureau of Internal Re+enue assessed $!eth @uaco on the aforesaid tax
liailities in t4o ;2< notices dated Aecemer 19, 19:8 and Aecemer 1:, 19:8" -hese
assessment notices 4ere oth recei+ed ! $!eth @uaco on Aecemer 19, 19:8" 8
9" -hereafter, $!eth @uaco through its tax consultant @.C K #o", sent the Bureau of
Internal Re+enue t4o ;2< letters dated 5anuar! 1:, 19:7 and Feruar! 3, 19:7, protesting
the assessments and requesting their cancellation or 4ithdra4al on the ground that said
assessments lac*ed factual or legal asis"
:" -hereafter, $!eth @uaco filed a petition for re+ie4 in the #ourt of -ax Appeals on
5anuar! 13, 193,, pra!ing that petitioner e enDoined from enforcing the assessments !
reason of prescription and that the assessments e declared null and +oid for lac* of legal
and factual asis"
3" On Feruar! :, 193,, petitioner issued a 4arrant of distraint of personal propert! and
4arrant of le+! of real propert! against pri+ate respondent to enforce collection of the
deficienc! taxes"
9" On August 29, 1939, the #ourt of -ax Appeals rendered a decision enDoining the
#ommissioner of Internal Re+enue from collecting the deficienc! taxes
1," -he asis of the ao+e decision 4as the finding of the -ax #ourt that 4hile the
assessments for the deficienc! taxes 4ere made 4ithin the fi+eI!ear period of limitation,
the right of petitioner to collect the same has alread! prescried, in accordance 4ith
@ection 619 ;c< of the -ax #ode of 19::" -he said la4 pro+ides that an assessment of an!
internal re+enue tax 4ithin the fi+eI!ear period of limitation ma! e collected ! distraint
or le+! or ! a proceeding in court, ut onl! if egun 4ithin fi+e ;7< !ears after the
assessment of the tax"
;&) the right to collect b the CIR of the deficient tax has alread prescribed
)o, -he main thrust of petitioner for the allo4ance of this petition is that the fi+eI!ear
prescripti+e period pro+ided ! la4 to ma*e a collection ! distraint or le+! or ! a proceeding
in court has not !et prescried" Although he admits that more than fi+e ;7< !ears ha+e alread!
lapsed from the time the assessment notices 4ere recei+ed ! pri+ate respondent on Aecemer
19, 19:8 up to the time the 4arrants of distraint and le+! 4ere ser+ed on 0arch 12, 193,, he
a+ers that the running of the prescripti+e period 4as sta!ed or interrupted 4hen $!eth @uaco
protested the assessments" (etitioner argues that the protest letters sent ! @.C K #o" in ehalf
of $!eth @uaco dated 5anuar! 1:, 19:7 and Feruar! 3, 19:7, requesting for 4ithdra4al and
cancellation of the assessments 4ere actuall! requests for rein+estigation or reconsideration,
4hich could interrupt the running of the fi+eI!ear prescripti+e period"
$!eth @uaco, on the other hand, maintains the position that it ne+er as*ed for a rein+estigation
nor reconsideration of the assessments" $hat it requested 4as the cancellation and 4ithdra4al of
the assessments for lac* of legal and factual asis" -hus, its protest letters dated 5anuar! 1:, 19:7
and Feruar! 3, 19:7 did not suspend or interrupt the running of the fi+eI!ear prescripti+e
Thus, the pivotal issue in this case is .hether or not ;eth 3uaco sought reinvestigation or
reconsideration of the deficienc tax assessments issued b the 6ureau of Internal Revenue.
After carefull examining the records of the case, .e find that ;eth 3uaco admitted that
it .as see/ing reconsideration of the tax assessments as sho.n in a letter of 1ames A.
Gump, its President and General Canager, dated April $*, 1!+#.
Furthermore, 4hen $!eth @uaco thru its tax consultant @.C K #o" sent the letters protesting the
assessments, the Bureau of Internal Re+enue, 0anufacturing Audit Ai+ision, conducted a re+ie4
and rein+estigation of the assessments" -his fact 4as admitted ! $!eth @uaco thru its Finance
0anager in a letter dated 5ul! 1, 19:7 addressed to the #hief, -ax Accounts Ai+ision"
-hese letters of $!eth @uaco interrupted the running of the fi+eI!ear prescripti+e period to
collect the deficienc! taxes" -he Bureau of Internal Re+enue, after ha+ing re+ie4ed the records
of $!eth @uaco, in accordance 4ith its request for rein+estigation, rendered a final assessment"
-his final assessment issued ! then Acting #ommissioner Ruen B" Ancheta 4as dated
Aecemer 1,, 19:9 and recei+ed ! pri+ate respondent on 5anuar! 2, 193,, fixed its tax liailit!
at (1,9:6,112"39 as deficienc! 4ithholding tax at source and (91,177"21 as deficienc! sales tax"
It 4as onl! upon receipt ! $!eth @uaco of this final assessment that the fi+eI!ear prescripti+e
period started to run again"