SECOND DIVISION

G.R. No. 185371               December 8, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
METRO STAR SUPERAMA, INC., Respondent.

DECISION

MENDOZA, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court filed by the petitioner
Commissioner of Internal Revenue (CIR) seeks to reverse and set aside the 1] September 16, 2008
Decision1 of the Court of Tax Appeals En Banc (CTA-En Banc), in C.T.A. EB No. 306 and 2] its
November 18, 2008 Resolution2 denying petitioner’s motion for reconsideration.

The CTA-En Banc affirmed in toto the decision of its Second Division (CTA-Second Division) in CTA
Case No. 7169 reversing the February 8, 2005 Decision of the CIR which assessed respondent
Metro Star Superama, Inc. (Metro Star) of deficiency value-added tax and withholding tax for the
taxable year 1999.

Based on a Joint Stipulation of Facts and Issues3 of the parties, the CTA Second Division
summarized the factual and procedural antecedents of the case, the pertinent portions of which
read:

Petitioner is a domestic corporation duly organized and existing by virtue of the laws of the Republic
of the Philippines, x x x.

On January 26, 2001, the Regional Director of Revenue Region No. 10, Legazpi City, issued Letter
of Authority No. 00006561 for Revenue Officer Daisy G. Justiniana to examine petitioner’s books of
accounts and other accounting records for income tax and other internal revenue taxes for the
taxable year 1999. Said Letter of Authority was revalidated on August 10, 2001 by Regional Director
Leonardo Sacamos.

For petitioner’s failure to comply with several requests for the presentation of records and Subpoena
Duces Tecum, [the] OIC of BIR Legal Division issued an Indorsement dated September 26, 2001
informing Revenue District Officer of Revenue Region No. 67, Legazpi City to proceed with the
investigation based on the best evidence obtainable preparatory to the issuance of assessment
notice.

On November 8, 2001, Revenue District Officer Socorro O. Ramos-Lafuente issued a Preliminary

15-day Letter, which petitioner received on November 9, 2001. The said letter stated that a post
audit review was held and it was ascertained that there was deficiency value-added and withholding
taxes due from petitioner in the amount of ₱ 292,874.16.

On April 11, 2002, petitioner received a Formal Letter of Demand dated April 3, 2002 from Revenue
District No. 67, Legazpi City, assessing petitioner the amount of Two Hundred Ninety Two Thousand
Eight Hundred Seventy Four Pesos and Sixteen Centavos (₱292,874.16.) for deficiency value-
added and withholding taxes for the taxable year 1999, computed as follows:
 ASSESSMENT NOTICE NO. 067-99-003-579-072

VALUE ADDED TAX

Gross Sales ₱1,697,718.90

Output Tax ₱ 154,338.08
Less: Input Tax _____________
VAT Payable ₱ 154,338.08
Add: 25% Surcharge ₱ 38,584.54
20% Interest 79,746.49
Compromise Penalty
Late Payment ₱16,000.00
Failure to File VAT returns 2,400.00 18,400.00 136,731.01
TOTAL ₱ 291,069.09
WITHHOLDING TAX
Compensation 2,772.91
Expanded 110,103.92
Total Tax Due ₱ 112,876.83
Less: Tax Withheld 111,848.27
Deficiency Withholding Tax ₱ 1,028.56
Add: 20% Interest p.a. 576.51
Compromise Penalty 200.00
TOTAL ₱ 1,805.07
*Expanded Withholding Tax ₱1,949,334.25 x 5% 97,466.71
Film Rental 10,000.25 x 10% 1,000.00
Audit Fee 193,261.20 x 5% 9,663.00
Rental Expense 41,272.73 x 1% 412.73
Security Service 156,142.01 x 1% 1,561.42
Service Contractor ₱ 110,103.92
Total
SUMMARIES OF DEFICIENCIES
VALUE ADDED TAX ₱ 291,069.09
WITHHOLDING TAX 1,805.07
TOTAL ₱ 292,874.16
Subsequently, Revenue District Office No. 67 sent a copy of the Final Notice of Seizure dated May
12, 2003, which petitioner received on May 15, 2003, giving the latter last opportunity to settle its
deficiency tax liabilities within ten (10) [days] from receipt thereof, otherwise respondent BIR shall be
constrained to serve and execute the Warrants of Distraint and/or Levy and Garnishment to enforce
collection.

On February 6, 2004, petitioner received from Revenue District Office No. 67 a Warrant of Distraint
and/or Levy No. 67-0029-23 dated May 12, 2003 demanding payment of deficiency value-added tax
and withholding tax payment in the amount of ₱292,874.16.

On July 30, 2004, petitioner filed with the Office of respondent Commissioner a Motion for
Reconsideration pursuant to Section 3.1.5 of Revenue Regulations No. 12-99.

On February 8, 2005, respondent Commissioner, through its authorized representative, Revenue

Regional Director of Revenue Region 10, Legaspi City, issued a Decision denying petitioner’s
Motion for Reconsideration. Petitioner, through counsel received said Decision on February 18,
2005.

x x x.

Denying that it received a Preliminary Assessment Notice (PAN) and claiming that it was not
accorded due process, Metro Star filed a petition for review 4 with the CTA. The parties then
stipulated on the following issues to be decided by the tax court:

1. Whether the respondent complied with the due process requirement as provided under
the National Internal Revenue Code and Revenue Regulations No. 12-99 with regard to the
issuance of a deficiency tax assessment;

1.1 Whether petitioner is liable for the respective amounts of ₱291,069.09 and
₱1,805.07 as deficiency VAT and withholding tax for the year 1999;

1.2. Whether the assessment has become final and executory and demandable for
failure of petitioner to protest the same within 30 days from its receipt thereof on April
11, 2002, pursuant to Section 228 of the National Internal Revenue Code;

2. Whether the deficiency assessments issued by the respondent are void for failure to state
the law and/or facts upon which they are based.

2.2 Whether petitioner was informed of the law and facts on which the assessment is
made in compliance with Section 228 of the National Internal Revenue Code;

3. Whether or not petitioner, as owner/operator of a movie/cinema house, is subject to VAT

on sales of services under Section 108(A) of the National Internal Revenue Code;

4. Whether or not the assessment is based on the best evidence obtainable pursuant to
Section 6(b) of the National Internal Revenue Code.

The CTA-Second Division found merit in the petition of Metro Star and, on March 21, 2007, rendered
a decision, the decretal portion of which reads:
WHEREFORE, premises considered, the Petition for Review is hereby GRANTED. Accordingly, the
assailed Decision dated February 8, 2005 is hereby REVERSED and SET ASIDE and respondent is
ORDERED TO DESIST from collecting the subject taxes against petitioner.

The CTA-Second Division opined that "[w]hile there [is] a disputable presumption that a mailed letter
[is] deemed received by the addressee in the ordinary course of mail, a direct denial of the receipt of
mail shifts the burden upon the party favored by the presumption to prove that the mailed letter was
indeed received by the addressee."5 It also found that there was no clear showing that Metro Star
actually received the alleged PAN, dated January 16, 2002. It, accordingly, ruled that the Formal
Letter of Demand dated April 3, 2002, as well as the Warrant of Distraint and/or Levy dated May 12,
2003 were void, as Metro Star was denied due process.6

The CIR sought reconsideration7 of the decision of the CTA-Second Division, but the motion was
denied in the latter’s July 24, 2007 Resolution. 8

Aggrieved, the CIR filed a petition for review9 with the CTA-En Banc, but the petition was dismissed
after a determination that no new matters were raised. The CTA-En Banc disposed:

WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and DISMISSED
for lack of merit. Accordingly, the March 21, 2007 Decision and July 27, 2007 Resolution of the CTA
Second Division in CTA Case No. 7169 entitled, "Metro Star Superama, Inc., petitioner vs.
Commissioner of Internal Revenue, respondent" are hereby AFFIRMED in toto.

SO ORDERED.

The motion for reconsideration10 filed by the CIR was likewise denied by the CTA-En Banc in its
November 18, 2008 Resolution.11

The CIR, insisting that Metro Star received the PAN, dated January 16, 2002, and that due process
was served nonetheless because the latter received the Final Assessment Notice (FAN), comes now
before this Court with the sole issue of whether or not Metro Star was denied due process.

The general rule is that the Court will not lightly set aside the conclusions reached by the CTA which,
by the very nature of its functions, has accordingly developed an exclusive expertise on the
resolution unless there has been an abuse or improvident exercise of authority. 12 In Barcelon, Roxas
Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of Internal Revenue, 13 the
Court wrote:

Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the
highest respect. In Sea-Land Service Inc. v. Court of Appeals [G.R. No. 122605, 30 April 2001, 357
SCRA 441, 445-446], this Court recognizes that the Court of Tax Appeals, which by the very nature
of its function is dedicated exclusively to the consideration of tax problems, has necessarily
developed an expertise on the subject, and its conclusions will not be overturned unless there has
been an abuse or improvident exercise of authority. Such findings can only be disturbed on appeal if
they are not supported by substantial evidence or there is a showing of gross error or abuse on the
part of the Tax Court. In the absence of any clear and convincing proof to the contrary, this Court
must presume that the CTA rendered a decision which is valid in every respect.

On the matter of service of a tax assessment, a further perusal of our ruling in Barcelon is
instructive, viz:
Jurisprudence is replete with cases holding that if the taxpayer denies ever having received an
assessment from the BIR, it is incumbent upon the latter to prove by competent evidence that such
notice was indeed received by the addressee. The onus probandi was shifted to respondent to prove
by contrary evidence that the Petitioner received the assessment in the due course of mail. The
Supreme Court has consistently held that while a mailed letter is deemed received by the addressee
in the course of mail, this is merely a disputable presumption subject to controversion and a direct
denial thereof shifts the burden to the party favored by the presumption to prove that the mailed
letter was indeed received by the addressee (Republic vs. Court of Appeals, 149 SCRA 351). Thus
as held by the Supreme Court in Gonzalo P. Nava vs. Commissioner of Internal Revenue, 13 SCRA
104, January 30, 1965:

"The facts to be proved to raise this presumption are (a) that the letter was properly addressed with
postage prepaid, and (b) that it was mailed. Once these facts are proved, the presumption is that the
letter was received by the addressee as soon as it could have been transmitted to him in the
ordinary course of the mail. But if one of the said facts fails to appear, the presumption does not lie.
(VI, Moran, Comments on the Rules of Court, 1963 ed, 56-57 citing Enriquez vs. Sunlife Assurance
of Canada, 41 Phil 269)."

x x x. What is essential to prove the fact of mailing is the registry receipt issued by the Bureau of
Posts or the Registry return card which would have been signed by the Petitioner or its authorized
representative. And if said documents cannot be located, Respondent at the very least, should have
submitted to the Court a certification issued by the Bureau of Posts and any other pertinent
document which is executed with the intervention of the Bureau of Posts. This Court does not put
much credence to the self serving documentations made by the BIR personnel especially if they are
unsupported by substantial evidence establishing the fact of mailing. Thus:

"While we have held that an assessment is made when sent within the prescribed period, even if
received by the taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259,
May 27, 1959), this ruling makes it the more imperative that the release, mailing or sending of the
notice be clearly and satisfactorily proved. Mere notations made without the taxpayer’s intervention,
notice or control, without adequate supporting evidence cannot suffice; otherwise, the taxpayer
would be at the mercy of the revenue offices, without adequate protection or defense." (Nava vs.
CIR, 13 SCRA 104, January 30, 1965).

x x x.

The failure of the respondent to prove receipt of the assessment by the Petitioner leads to the
conclusion that no assessment was issued. Consequently, the government’s right to issue an
assessment for the said period has already prescribed. (Industrial Textile Manufacturing Co. of the
Phils., Inc. vs. CIR CTA Case 4885, August 22, 1996). (Emphases supplied.)

The Court agrees with the CTA that the CIR failed to discharge its duty and present any evidence to
show that Metro Star indeed received the PAN dated January 16, 2002. It could have simply
presented the registry receipt or the certification from the postmaster that it mailed the PAN, but
failed. Neither did it offer any explanation on why it failed to comply with the requirement of service
of the PAN. It merely accepted the letter of Metro Star’s chairman dated April 29, 2002, that stated
that he had received the FAN dated April 3, 2002, but not the PAN; that he was willing to pay the tax
as computed by the CIR; and that he just wanted to clarify some matters with the hope of lessening
its tax liability.

This now leads to the question: Is the failure to strictly comply with notice requirements prescribed
under Section 228 of the National Internal Revenue Code of 1997 and Revenue Regulations (R.R.)
No. 12-99 tantamount to a denial of due process? Specifically, are the requirements of due process
satisfied if only the FAN stating the computation of tax liabilities and a demand to pay within the
prescribed period was sent to the taxpayer?

The answer to these questions require an examination of Section 228 of the Tax Code which reads:

SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his
findings: provided, however, that a preassessment notice shall not be required in the following
cases:

(a) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return; or

(b) When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or

(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and automatically
applied the same amount claimed against the estimated tax liabilities for the taxable quarter
or quarters of the succeeding taxable year; or

(d) When the excise tax due on exciseable articles has not been paid; or

(e) When the article locally purchased or imported by an exempt person, such as, but not
limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or
transferred to non-exempt persons.

The taxpayers shall be informed in writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void.

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 thirty (30) days from receipt of the said decision, or from
the lapse of one hundred eighty (180)-day period; otherwise, the decision shall become final,
executory and demandable. (Emphasis supplied).

Indeed, Section 228 of the Tax Code clearly requires that the taxpayer must first be informed that he
is liable for deficiency taxes through the sending of a PAN. He must be informed of the facts and the
law upon which the assessment is made. The law imposes a substantive, not merely a formal,
requirement. To proceed heedlessly with tax collection without first establishing a valid assessment
is evidently violative of the cardinal principle in administrative investigations - that taxpayers should
be able to present their case and adduce supporting evidence. 14

This is confirmed under the provisions R.R. No. 12-99 of the BIR which pertinently provide:

SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment. —

3.1 Mode of procedures in the issuance of a deficiency tax assessment:

3.1.1 Notice for informal conference. — The Revenue Officer who audited the taxpayer's
records shall, among others, state in his report whether or not the taxpayer agrees with his
findings that the taxpayer is liable for deficiency tax or taxes. If the taxpayer is not amenable,
based on the said Officer's submitted report of investigation, the taxpayer shall be informed,
in writing, by the Revenue District Office or by the Special Investigation Division, as the case
may be (in the case Revenue Regional Offices) or by the Chief of Division concerned (in the
case of the BIR National Office) of the discrepancy or discrepancies in the taxpayer's
payment of his internal revenue taxes, for the purpose of "Informal Conference," in order to
afford the taxpayer with an opportunity to present his side of the case. If the taxpayer fails to
respond within fifteen (15) days from date of receipt of the notice for informal conference, he
shall be considered in default, in which case, the Revenue District Officer or the Chief of the
Special Investigation Division of the Revenue Regional Office, or the Chief of Division in the
National Office, as the case may be, shall endorse the case with the least possible delay to
the Assessment Division of the Revenue Regional Office or to the Commissioner or his duly
authorized representative, as the case may be, for appropriate review and issuance of a
deficiency tax assessment, if warranted.

3.1.2 Preliminary Assessment Notice (PAN). — If after review and evaluation by the
Assessment Division or by the Commissioner or his duly authorized representative, as the
case may be, it is determined that there exists sufficient basis to assess the taxpayer for any
deficiency tax or taxes, the said Office shall issue to the taxpayer, at least by registered mail,
a Preliminary Assessment Notice (PAN) for the proposed assessment, showing in detail, the
facts and the law, rules and regulations, or jurisprudence on which the proposed assessment
is based (see illustration in ANNEX A hereof). If the taxpayer fails to respond within fifteen
(15) days from date of receipt of the PAN, he shall be considered in default, in which case, a
formal letter of demand and assessment notice shall be caused to be issued by the said
Office, calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable
penalties.

3.1.3 Exceptions to Prior Notice of the Assessment. — The notice for informal conference
and the preliminary assessment notice shall not be required in any of the following cases, in
which case, issuance of the formal assessment notice for the payment of the taxpayer's
deficiency tax liability shall be sufficient:

(i) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax appearing on the face of the tax return filed by the taxpayer;
or

(ii) When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent; or

(iii) When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and
 automatically applied the same amount claimed against the estimated tax liabilities
for the taxable quarter or quarters of the succeeding taxable year; or

(iv) When the excise tax due on excisable articles has not been paid; or

(v) When an article locally purchased or imported by an exempt person, such as, but
not limited to, vehicles, capital equipment, machineries and spare parts, has been
sold, traded or transferred to non-exempt persons.

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 of demand calling for payment of the taxpayer's 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 (see illustration in ANNEX B hereof).

The same shall be sent to the taxpayer only by registered mail or by personal delivery.

If sent by personal delivery, the taxpayer or his duly authorized representative shall acknowledge
receipt thereof in the duplicate copy of the letter of demand, showing the following: (a) His name; (b)
signature; (c) designation and authority to act for and in behalf of the taxpayer, if acknowledged
received by a person other than the taxpayer himself; and (d) date of receipt thereof.

x x x.

From the provision quoted above, it is clear that the sending of a PAN to taxpayer to inform him of
the assessment made is but part of the "due process requirement in the issuance of a deficiency tax
assessment," the absence of which renders nugatory any assessment made by the tax authorities.
The use of the word "shall" in subsection 3.1.2 describes the mandatory nature of the service of a
PAN. The persuasiveness of the right to due process reaches both substantial and procedural rights
and the failure of the CIR to strictly comply with the requirements laid down by law and its own rules
is a denial of Metro Star’s right to due process.15 Thus, for its failure to send the PAN stating the facts
and the law on which the assessment was made as required by Section 228 of R.A. No. 8424, the
assessment made by the CIR is void.

The case of CIR v. Menguito16 cited by the CIR in support of its argument that only the non-service of
the FAN is fatal to the validity of an assessment, cannot apply to this case because the issue therein
was the non-compliance with the provisions of R. R. No. 12-85 which sought to interpret Section 229
of the old tax law. RA No. 8424 has already amended the provision of Section 229 on protesting an
assessment. The old requirement of merely notifying the taxpayer of the CIR’s findings was changed
in 1998 to informing the taxpayer of not only the law, but also of the facts on which an assessment
would be made. Otherwise, the assessment itself would be invalid. 17 The regulation then, on the
other hand, simply provided that a notice be sent to the respondent in the form prescribed, and that
no consequence would ensue for failure to comply with that form. 1avvphi1

The Court need not belabor to discuss the matter of Metro Star’s failure to file its protest, for it is
well-settled that a void assessment bears no fruit.18

It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of
property without due process of law.19 In balancing the scales between the power of the State to tax
and its inherent right to prosecute perceived transgressors of the law on one side, and the
constitutional rights of a citizen to due process of law and the equal protection of the laws on the
other, the scales must tilt in favor of the individual, for a citizen’s right is amply protected by the Bill
of Rights under the Constitution. Thus, while "taxes are the lifeblood of the government," the power
to tax has its limits, in spite of all its plenitude. Hence in Commissioner of Internal Revenue v. Algue,
Inc.,20 it was said –

Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. On the other hand, such collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile
the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of
taxation, which is the promotion of the common good, may be achieved.

x x x           x x x          x x x

It is said that taxes are what we pay for civilized society. Without taxes, the government would be
paralyzed for the lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one’s hard-earned income to taxing authorities, every person who is
able to must contribute his share in the running of the government. The government for its part is
expected to respond in the form of tangible and intangible benefits intended to improve the lives of
the people and enhance their moral and material values. This symbiotic relationship is the rationale
of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those
in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his
succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate x x x that the law has not been observed. 21 (Emphasis supplied).

WHEREFORE, the petition is DENIED.

SO ORDERED.
 SECOND DIVISION

G.R. No. L-66160 May 21, 1990

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
UNION SHIPPING CORPORATION and THE COURT OF TAX APPEALS, respondents.

Artemio M. Lobrin for private respondent.

PARAS, J.:

This is a petition for review on certiorari of the December 9, 1983 decision * of the Court of Tax Appeals in CTA Case No. 2989 reversing the
Commissioner of Internal Revenue.

In a letter dated December 27, 1974 (Exhibit "A") herein petitioner Commissioner of Internal
Revenue assessed against Yee Fong Hong, Ltd. and/or herein private respondent Union Shipping
Corporation, the total sum of P583,155.22 as deficiency income taxes due for the years 1971 and
1972. Said letter was received on January 4, 1975, and in a letter dated January 10, 1975 (Exhibit
"B"), received by petitioner on January 13, 1975, private respondent protested the assessment.

Petitioner, without ruling on the protest, issued a Warrant of Distraint and Levy (Exhibit "C"), which
was served on private respondent's counsel, Clemente Celso, on November 25, 1976.

In a letter dated November 27, 1976 (Exhibit "D"), received by petitioner on November 29, 1976
(Exhibit "D-1") private respondent reiterated its request for reinvestigation of the assessment and for
the reconsideration of the summary collection thru the Warrant of Distraint and Levy.

Petitioner, again, without acting on the request for reinvestigation and reconsideration of the Warrant
of Distraint and Levy, filed a collection suit before Branch XXI of the then Court of First Instance of
Manila and docketed as Civil Case No. 120459 against private respondent. Summons (Exhibit "E")
in the said collection case was issued to private respondent on December 28, 1978.

On January 10, 1979, private respondent filed with respondent court its Petition for Review of the
petitioner's assessment of its deficiency income taxes in a letter dated December 27, 1974, docketed
therein as CTA Case No. 2989 (Rollo, pp. 44-49), wherein it prays that after hearing, judgment be
rendered holding that it is not liable for the payment of the income tax herein involved, or which may
be due from foreign shipowner Yee Fong Hong, Ltd.; to which petitioner filed his answer on March
29, 1979 (Rollo, pp. 50-53).

Respondent Tax Court, in a decision dated December 9, 1983, ruled in favor of private respondent
—

WHEREFORE, the decision of the Commissioner of Internal Revenue appealed

from, assessing against and demanding from petitioner the payment of deficiency
income tax, inclusive of 50% surcharge, interest and compromise penalties, in the
amounts of P73,958.76 and P583,155.22 for the years 1971 and 1972, respectively,
is reversed.
Hence, the instant petition.

The Second Division of this Court, after the filing of the required pleadings, in a resolution dated
January 28, 1985, resolved to give due course to the petition, and directed petitioner therein, to file
his brief (Rollo, p. 145). In compliance, petitioner filed his brief on May 10, 1985 (Rollo, p. 151).
Respondents, on the other hand, filed their brief on June 6, 1985 (Rollo, p. 156).

The main issues in this case are: (a) on the procedural aspect, whether or not the Court of Tax
Appeals has jurisdiction over this case and (b) on the merits, whether or not Union Shipping
Corporation acting as a mere "husbanding agent" of Yee Fong Hong Ltd. is liable for payment of
taxes on the gross receipts or earnings of the latter.

The main thrust of this petition is that the issuance of a warrant of distraint and levy is proof of the
finality of an assessment because it is the most drastic action of all media of enforcing the collection
of tax, and is tantamount to an outright denial of a motion for reconsideration of an assessment.
Among others, petitioner contends that the warrant of distraint and levy was issued after respondent
corporation filed a request for reconsideration of subject assessment, thus constituting petitioner's
final decision in the disputed assessments (Brief for petitioner, pp. 9 and 12).

Petitioner argues therefore that the period to appeal to the Court of Tax Appeals commenced to run
from receipt of said warrant on November 25, 1976, so that on January 10, 1979 when respondent
corporation sought redress from the Tax Court, petitioner's decision has long become final and
executory.

On this issue, this Court had already laid down the dictum that the Commissioner should always
indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of
the disputed assessment.

Specifically, this Court ruled:

. . . we deem it appropriate to state that the Commissioner of Internal Revenue

should always indicate to the taxpayer in clear and unequivocal language whenever
his action on an assessment questioned by a taxpayer constitutes his final
determination on the disputed assessment, as contemplated by sections 7 and 11 of
Republic Act 1125, as amended. On the basis of this statement indubitably showing
that the Commissioner's communicated action is his final decision on the contested
assessment, the aggrieved taxpayer would then be able to take recourse to the tax
court at the opportune time. Without needless difficulty, the taxpayer would be able to
determine when his right to appeal to the tax court accrues. This rule of conduct
would also obviate all desire and opportunity on the part of the taxpayer to
continually delay the finality of the assessment — and, consequently, the collection
of the amount demanded as taxes — by repeated requests for recomputation and
reconsideration. On the part of the Commissioner, this would encourage his office to
conduct a careful and thorough study of every questioned assessment and render a
correct and definite decision thereon in the first instance. This would also deter the
Commissioner from unfairly making the taxpayer grope in the dark and speculate as
to which action constitutes the decision appealable to the tax court. Of greater
import, this rule of conduct would meet a pressing need for fair play, regularity, and
orderliness in administrative action. (Surigao Electric Co., Inc. v. C.T.A., 57 SCRA
523, 528, [1974]).
There appears to be no dispute that petitioner did not rule on private respondent's motion for
reconsideration but contrary to the above ruling of this Court, left private respondent in the dark as to
which action of the Commissioner is the decision appealable to the Court of Tax Appeals. Had he
categorically stated that he denies private respondent's motion for reconsideration and that his
action constitutes his final determination on the disputed assessment, private respondent without
needless difficulty would have been able to determine when his right to appeal accrues and the
resulting confusion would have been avoided.

Much later, this Court reiterated the above-mentioned dictum in a ruling applicable on all fours to the
issue in the case at bar, that the reviewable decision of the Bureau of Internal Revenue is that
contained in the letter of its Commissioner, that such constitutes the final decision on the matter
which may be appealed to the Court of Tax Appeals and not the warrants of distraint (Advertising
Associates, Inc. v. Court of Appeals, 133 SCRA 769 [1984] emphasis supplied). It was likewise
stressed that the procedure enunciated is demanded by the pressing need for fair play, regularity
and orderliness in administrative action.

Under the circumstances, the Commissioner of Internal Revenue, not having clearly signified his
final action on the disputed assessment, legally the period to appeal has not commenced to run.
Thus, it was only when private respondent received the summons on the civil suit for collection of
deficiency income on December 28, 1978 that the period to appeal commenced to run.

The request for reinvestigation and reconsideration was in effect considered denied by petitioner
when the latter filed a civil suit for collection of deficiency income. So. that on January 10, 1979
when private respondent filed the appeal with the Court of Tax Appeals, it consumed a total of only
thirteen (13) days well within the thirty day period to appeal pursuant to Section 11 of R.A. 1125.

On the merits, it was found fully substantiated by the Court of Tax Appeals that, respondent
corporation is the husbanding agent of the vessel Yee Fong Hong, Ltd. as follows:

Coming to the second issue, petitioner contended and was substantiated by

satisfactory uncontradicted testimonies of Clemente Celso, Certified Public
Accountant, and Rodolfo C. Cabalquinto, President and General Manager, of
petitioner that it is actually and legally the husbanding agent of the vessel of Yee
Fong Hong, Ltd. as (1) it neither performed nor transacted any shipping business, for
and in representation, of Yee Fong Hong, Ltd. or its vessels or otherwise negotiated
or procured cargo to be loaded in the vessels of Yee Fong Hong, Ltd. (p. 21, t.s.n.,
July 16, 1980); (2) it never solicited or procured cargo or freight in the Philippines or
elsewhere for loading in said vessels of Yee Fong Hong, Ltd. (pp. 21 & 38, ibid.); (3)
it had not collected any freight income or receipts for the said Yee Fong Hong, Ltd.
(pp. 22 & 38, ibid; pp. 46 & 48, t.s.n., Nov. 14, 1980.); (4) it never had possession or
control, actual or constructive, over the funds representing payment by Philippine
shippers for cargo loaded on said vessels (pp. 21 & 38, ibid; p. 48, ibid); petitioner
never remitted to Yee Fong Hong, Ltd. any sum of money representing freight
incomes of Yee Fong Hong, Ltd. (p. 21, ibid.; p. 48, ibid); and (5) that the freight
payments made for cargo loaded in the Philippines for foreign destination were
actually paid directly by the shippers to the said Yee Fong Hong, Ltd. upon arrival of
the goods in the foreign ports. (Rollo, pp. 58-59).

On the same issue, the Commissioner of Internal Revenue Misael P. Vera, on query of respondent's
counsel, opined that respondent corporation being merely a husbanding agent is not liable for the
payment of the income taxes due from the foreign ship owners loading cargoes in the Philippines
(Rollo, p. 63; Exhibit "I", Rollo, pp. 64-66).
Neither can private respondent be liable for withholding tax under Section 53 of the Internal Revenue
Code since it is not in possession, custody or control of the funds received by and remitted to Yee
Fong Hong, Ltd., a non-resident taxpayer. As correctly ruled by the Court of Tax Appeals, "if an
individual or corporation like the petitioner in this case, is not in the actual possession, custody, or
control of the funds, it can neither be physically nor legally liable or obligated to pay the so-called
withholding tax on income claimed by Yee Fong Hong, Ltd." (Rollo, p. 67).

Finally, it must be stated that factual findings of the Court of Tax Appeals are binding on this Court
(Industrial Textiles Manufacturing Company of the Phil., Inc. (ITEMCOP) v. Commissioner of Internal
Revenue, et al. (136 SCRA 549 [1985]). It is well-settled that in passing upon petitions for review of
the decisions of the Court of Tax Appeals, this Court is generally confined to questions of law. The
findings of fact of said Court are not to be disturbed unless clearly shown to be unsupported by
substantial evidence (Commissioner of Internal Revenue v. Manila Machinery & Supply Company,
135 SCRA 8 [1985]).

A careful scrutiny of the records reveals no cogent reason to disturb the findings of the Court of Tax
Appeals.

PREMISES CONSIDERED, the instant petition is hereby DISMISSED and the assailed decision of
the Court of Tax Appeals is hereby AFFIRMED.

SO ORDERED.
 FIRST DIVISION

G.R. No. L-25289 June 28, 1974

SURIGAO ELECTRIC CO., INC., petitioner,

vs.
THE HONORABLE COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL
REVENUE, respondents.

David G. Nitafan for petitioner.

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete
and Special Attorney Franciso J. Malate, Jr. for respondents.

CASTRO, J.:p

The Court denies the present petition for review of the decision of the Court of Appeals dated October 1, 1965 in its CTA Case No. 1438,
which dismissed the appeal filed by the petitioner Surigao Electric Company, Inc. with the tax court on August 1, 1963 on the ground that it
was time-barred.

In November 1961 the petitioner Surigao Electric Co., Inc., grantee of a legislative electric franchise,
received a warrant of distraint and levy to enforce the collection from "Mainit Electric" of a deficiency
franchise tax plus surcharge in the total amount of P718.59. In a letter to the Commissioner of
Internal Revenue, the petitioner contested this warrant, stating that it did not have a franchise in
Mainit, Surigao.

Thereafter the Commissioner, by letter dated April 2, 1961, advised the petitioner to take up the
matter with the General Auditing Office, enclosing a copy of the 4th Indorsement of the Auditor
General dated November 23, 1960. This indorsement indicated that the petitioner's liability for
deficiency franchise tax for the period from September 1947 to June 1959 was P21,156.06,
excluding surcharge. Subsequently, in a letter to the Auditor General dated August 2, 1962, the
petitioner asked for reconsideration of the assessment, admitting liability only for the 2% franchise
tax in accordance with its legislative franchise and not at the higher rate of 5% imposed by section
259 of the National Internal Revenue Code, as amended, which latter rate the Auditor General used
as basis in computing the petitioner's deficiency franchise tax.

An exchange of correspondence between the petitioner, on the one hand, and the Commissioner
and the Auditor General, on the other, ensued, all on the matter of the petitioner's liability for
deficiency franchise tax.

The controversy culminated in a revised assessment dated April 29, 1963 (received by the petitioner
on May 8, 1963) in the amount of P11,533.53, representing the petitioner's deficiency franchise-tax
and surcharges thereon for the period from April 1, 1956 to June 30, 1959. The petitioner then
requested a recomputation of the revised assessment in a letter to the Commissioner dated June 6,
1963 (sent by registered mail on June 7, 1963). The Commissioner, however, in a letter dated June
28, 1963 (received by the petitioner on July 16, 1963), denied the request for recomputation.
On August 1, 1963 the petitioner appealed to the Court of Tax Appeals. The tax court dismissed the
appeal on October 1, 1965 on the ground that the appeal was filed beyond the thirty-day period of
appeal provided by section 11 of Republic Act 1125.

Hence, the present recourse.

The case at bar raises only one issue: whether or not the petitioner's appeal to the Court of Tax
Appeals was time-barred. The parties disagree on which letter of the Commissioner embodies the
decision or ruling appealable to the tax court.

A close reading of the numerous letters exchanged between the petitioner and the Commissioner
clearly discloses that the letter of demand issued by the Commissioner on April 29, 1963 and
received by the petitioner on May 8, 1963 constitutes the definite determination of the petitioner's
deficiency franchise tax liability or the decision on the disputed assessment and, therefore, the
decision appealable to the tax court. This letter of April 29, 1963 was in response to the
communications of the petitioner, particularly the letter of August 2, 1962 wherein it assailed the 4th
Indorsement's data and findings on its deficiency, franchise tax liability computed at 5% (on the
ground that its franchise precludes the imposition of a rate higher than the 2% fixed in its legislative
franchise), and the letter of April 24, 1963 wherein it again questioned the assessment and
requested for a recomputation (on the ground that the Government could make an assessment only
for the period from May 29, 1956 to June 30, 1959). Thus, as early as August 2, 1962, the petitioner
already disputed the assessment made by the Commissioner.

Moreover, the letter of demand dated April 29, 1963 unquestionably constitutes the final action taken
by the Commissioner on the petitioner's several requests for reconsideration and recomputation. In
this letter, the Commissioner not only in effect demanded that the petitioner pay the amount of
P11,533.53 but also gave warning that in the event it failed to pay, the said Commissioner would be
constrained to enforce the collection thereof by means of the remedies provided by law. The tenor of
the letter, specifically, the statement regarding the resort to legal remedies, unmistakably indicates
the final nature of the determination made by the Commissioner of the petitioner's deficiency
franchise tax liability.

The foregoing-view accords with settled jurisprudence — and this despite the fact that nothing in
Republic Act 1125,  as amended, even remotely suggests the element truly determinative of the
1

appealability to the Court of Appeals of a ruling of the Commissioner of Internal Revenue. Thus, this
Court has considered the following communications sent by the Commissioner to taxpayers as
embodying rulings appealable to the tax court: (a) a letter which stated the result of the investigation
requested by the taxpayer and the consequent modification of the assessment;  (b) letter which
2

denied the request of the taxpayer for the reconsideration cancellation, or withdrawal of the original
assessment;  (c) a letter which contained a demand on the taxpayer for the payment of the revised
3

or reduced assessment;  and (d) a letter which notified the taxpayer of a revision of previous
4

assessments. 5

To sustain the petitioner's contention that the Commissioner's letter of June 28, 1963 denying its
request for further amendment of the revised assessment constitutes the ruling appealable to the tax
court and that the thirty-day period should, therefore, be counted from July 16, 1963, the day it
received the June 28, 1963 letter, would, in effect, leave solely to the petitioner's will the
determination of the commencement of the statutory thirty-day period, and place the petitioner —
and for that matter, any taxpayer — in a position, to delay at will and on convenience the finality of a
tax assessment. This absurd interpretation espoused by the petitioner would result in grave
detriment to the interests of the Government, considering that taxes constitute its life-blood and their
prompt and certain availability is an imperative need. 6
The revised assessment embodied in the Commissioner's letter dated April 29, 1963 being, in legal
contemplation, the final ruling reviewable by the tax court, the thirty-day appeal period should be
counted from May 8, 1963 (the day the petitioner received a copy of the said letter). From May 8,
1963 to June 7, 1963 (the day the petitioner, by registered mail, sent to the Commissioner its letter
of June 6, 1963 requesting for further recomputation of the amount demanded from it) saw the lapse
of thirty days. The June 6, 1963 request for further recomputation, partaking of a motion for
reconsideration, tolled the running of the thirty-day period from June 7, 1963 (the day the petitioner
sent its letter by registered mail) to July 16, 1963 (the day the petitioner received the letter of the
Commissioner dated June 28, 1963 turning down its request). The prescriptive period commenced
to run again on July 16, 1963. The petitioner filed its petition for review with the tax court on August
1, 1963 — after the lapse of an additional sixteen days. The petition for review having been filed
beyond the thirty-day period, we rule that the Court of Tax Appeals correctly dismissed the same.

The thirty-day period prescribed by section 11 of Republic Act 1125, as amended, within which a
taxpayer adversely affected by a decision of the Commissioner of Internal Revenue should file his
appeal with the tax court, is a jurisdictional requirement,  and the failure of a taxpayer to lodge his
7

appeal within the prescribed period bars his appeal and renders the questioned decision final and
executory. 8

Prescinding from all the foregoing, we deem it appropriate to state that the Commissioner of Internal
Revenue should always indicate to the taxpayer in clear and unequivocal language whenever his
action on an assessment questioned by a taxpayer constitutes his final determination on the
disputed assessment, as contemplated by sections 7 and 11 of Republic Act 1125, as amended. On
the basis of this indicium indubitably showing that the Commissioner's communicated action is his
final decision on the contested assessment, the aggrieved taxpayer would then be able to take
recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer would be
able to determine when his right to appeal to the tax court accrues. This rule of conduct would also
obviate all desire and opportunity on the part of the taxpayer to continually delay the finality of the
assessment — and, consequently, the collection of the amount demanded as taxes — by repeated
requests for recomputation and reconsideration. On the part of the Commissioner, this would
encourage his office to conduct a careful and thorough study of every questioned assessment and
render a correct and definite decision thereon in the first instance. This would also deter the
Commissioner from unfairly making the taxpayer grope in the dark and speculate as to which action
constitutes the decision appealable to the tax court. Of greater import, this rule of conduct would
meet a pressing need for fair play, regularity, and orderliness in administrative action.

ACCORDINGLY, the decision of the Court of Tax Appeals dated October 1, 1965 is affirmed, at
petitioner's cost.

Makalintal, C.J, Makasiar, Esguerra and Muñoz Palma, JJ., concur.

G.R. No. 148380 December 9, 2005

OCEANIC WIRELESS NETWORK, INC., Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, THE COURT OF TAX APPEALS, and THE COURT
OF APPEALS, Respondents.

DECISION

AZCUNA, J.:

This is a Petition for Review on Certiorari seeking to reverse and set aside the Decision of the Court
of Appeals dated October 31, 2000, and its Resolution dated May 3, 2001, in "Oceanic Wireless
Network, Inc. v. Commissioner of Internal Revenue" docketed as CA-G.R. SP No. 35581, upholding
the Decision of the Court of Tax Appeals dismissing the Petition for Review in CTA Case No. 4668
for lack of jurisdiction.

Petitioner Oceanic Wireless Network, Inc. challenges the authority of the Chief of the Accounts
Receivable and Billing Division of the Bureau of Internal Revenue (BIR) National Office to decide
and/or act with finality on behalf of the Commissioner of Internal Revenue (CIR) on protests against
disputed tax deficiency assessments.

The facts of the case are as follows:

On March 17, 1988, petitioner received from the Bureau of Internal Revenue (BIR) deficiency tax
assessments for the taxable year 1984 in the total amount of ₱8,644,998.71, broken down as
follows:

Kind of Tax Assessment No. Amount

Deficiency Income Tax FAR-4-1984-88-001130 ₱8,381,354.00

Penalties for late payment FAR-4-1984-88-001131 3,000.00

of income and failure to

file quarterly returns

Deficiency Contractor’s FAR-4-1984-88-001132 29,849.06

Tax

Deficiency Fixed Tax FAR-4--88-001133 12,083.65

Deficiency Franchise Tax FAR-4—84-88-001134 ___227,712.00

T o t a l -------- ₱8,644,998.71

Petitioner filed its protest against the tax assessments and requested a reconsideration or
cancellation of the same in a letter to the BIR Commissioner dated April 12, 1988.
Acting in behalf of the BIR Commissioner, then Chief of the BIR Accounts Receivable and Billing
Division, Mr. Severino B. Buot, reiterated the tax assessments while denying petitioner’s request for
reinvestigation in a letter  dated January 24, 1991, thus:
1 

"Note: Your request for re-investigation has been denied for failure to submit the necessary
supporting papers as per endorsement letter from the office of the Special Operation Service dated
12-12-90."

Said letter likewise requested petitioner to pay the total amount of ₱8,644,998.71 within ten (10)
days from receipt thereof, otherwise the case shall be referred to the Collection Enforcement
Division of the BIR National Office for the issuance of a warrant of distraint and levy without further
notice.

Upon petitioner’s failure to pay the subject tax assessments within the prescribed period, the
Assistant Commissioner for Collection, acting for the Commissioner of Internal Revenue, issued the
corresponding warrants of distraint and/or levy and garnishment. These were served on petitioner on
October 10, 1991 and October 17, 1991, respectively. 2

On November 8, 1991, petitioner filed a Petition for Review with the Court of Tax Appeals (CTA) to
contest the issuance of the warrants to enforce the collection of the tax assessments. This was
docketed as CTA Case No. 4668.

The CTA dismissed the petition for lack of jurisdiction in a decision dated September 16, 1994,
declaring that said petition was filed beyond the thirty (30)-day period reckoned from the time when
the demand letter of January 24, 1991 by the Chief of the BIR Accounts Receivable and Billing
Division was presumably received by petitioner, i.e., "within a reasonable time from said date in the
regular course of mail pursuant to Section 2(v) of Rule 131 of the Rules of Court." 3

The decision cited Surigao Electric Co., Inc. v. Court of Tax Appeals wherein this Court considered a
4 

mere demand letter sent to the taxpayer after his protest of the assessment notice as the final
decision of the Commissioner of Internal Revenue on the protest. Hence, the filing of the petition on
November 8, 1991 was held clearly beyond the reglementary period. 5

The court a quo likewise stated that the finality of the denial of the protest by petitioner against the
tax deficiency assessments was bolstered by the subsequent issuance of the warrants of distraint
and/or levy and garnishment to enforce the collection of the deficiency taxes. The issuance was not
barred by prescription because the mere filing of the letter of protest by petitioner which was given
due course by the Bureau of Internal Revenue suspended the running of the prescription period as
expressly provided under the then Section 224 of the Tax Code:

SEC. 224. Suspension of Running of the Statute of Limitations. – The running of the Statute of
Limitations provided in Section 203 and 223 on the making of assessment and the beginning of
distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be
suspended for the period during which the Commissioner is prohibited from making the assessment
or beginning distraint or levy or a proceeding in court and for sixty (60) days thereafter; when the
taxpayer requests for a reinvestigation which is granted by the Commissioner; when the taxpayer
cannot be located in the address given by him in the return files upon which a tax is being assessed
or collected: Provided, That if the taxpayer inform the Commissioner of any change of address, the
running of the statute of limitations will not be suspended; when the warrant of distraint and levy is
duly served upon the taxpayer, his authorized representative, or a member of his household with
sufficient discretion, and no property could located; and when the taxpayer is out of the
Philippines.  (Underscoring supplied.)
6 
Petitioner filed a Motion for Reconsideration arguing that the demand letter of January 24, 1991
cannot be considered as the final decision of the Commissioner of Internal Revenue on its protest
because the same was signed by a mere subordinate and not by the Commissioner himself. 7

With the denial of its motion for reconsideration, petitioner consequently filed a Petition for Review
with the Court of Appeals contending that there was no final decision to speak of because the
Commissioner had yet to make a personal determination as regards the merits of petitioner’s case. 8

The Court of Appeals denied the petition in a decision dated October 31, 2000, the dispositive
portion of which reads:

"WHEREFORE, the petition is DISMISSED for lack of merit.

SO ORDERED."

Petitioner’s Motion for Reconsideration was likewise denied in a resolution dated May 3, 2001.

Hence, this petition with the following assignment of errors: 9

THE HONORABLE RESPONDENT CA ERRED IN FINDING THAT THE DEMAND LETTER

ISSUED BY THE (THEN) ACCOUNTS RECEIVABLE/BILLING DIVISION OF THE BIR NATIONAL
OFFICE WAS THE FINAL DECISION OF THE RESPONDENT CIR ON THE DISPUTED
ASSESSMENTS, AND HENCE CONSTITUTED THE DECISION APPEALABLE TO THE
HONORABLE RESPONDENT CTA; AND,

II

THE HONORABLE RESPONDENT CA ERRED IN DECLARING THAT THE DENIAL OF THE

PROTEST OF THE SUBJECT ALLEGED DEFICIENCY TAX ASSESSMENTS HAD LONG
BECOME FINAL AND EXECUTORY FOR FAILURE OF THE PETITIONER TO INSTITUTE THE
APPEAL FROM THE DEMAND LETTER OF THE CHIEF OF THE ACCOUNTS
RECEIVABLE/BILLING DIVISION, BIR NATIONAL OFFICE, TO THE HONORABLE RESPONDENT
CTA, WITHIN THIRTY (30) DAYS FROM RECEIPT THEREOF.

Thus, the main issue is whether or not a demand letter for tax deficiency assessments issued and
signed by a subordinate officer who was acting in behalf of the Commissioner of Internal Revenue, is
deemed final and executory and subject to an appeal to the Court of Tax Appeals.

We rule in the affirmative.

A demand letter for payment of delinquent taxes may be considered a decision on a disputed or
protested assessment. The determination on whether or not a demand letter is final is conditioned
upon the language used or the tenor of the letter being sent to the taxpayer.

We laid down the rule that the Commissioner of Internal Revenue should always indicate to the
taxpayer in clear and unequivocal language what constitutes his final determination of the disputed
assessment, thus:
. . . we deem it appropriate to state that the Commissioner of Internal Revenue should always
indicate to the taxpayer in clear and unequivocal language whenever his action on an assessment
questioned by a taxpayer constitutes his final determination on the disputed assessment, as
contemplated by Sections 7 and 11 of Republic Act No. 1125, as amended. On the basis of his
statement indubitably showing that the Commissioner’s communicated action is his final decision on
the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax
court at the opportune time. Without needless difficulty, the taxpayer would be able to determine
when his right to appeal to the tax court accrues.

The rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to
continually delay the finality of the assessment – and, consequently, the collection of the amount
demanded as taxes – by repeated requests for recomputation and reconsideration. On the part of
the Commissioner, this would encourage his office to conduct a careful and thorough study of every
questioned assessment and render a correct and definite decision thereon in the first instance. This
would also deter the Commissioner from unfairly making the taxpayer grope in the dark and
speculate as to which action constitutes the decision appealable to the tax court. Of greater import,
this rule of conduct would meet a pressing need for fair play, regularity, and orderliness in
administrative action. 10

In this case, the letter of demand dated January 24, 1991, unquestionably constitutes the final action
taken by the Bureau of Internal Revenue on petitioner’s request for reconsideration when it
reiterated the tax deficiency assessments due from petitioner, and requested its payment. Failure to
do so would result in the "issuance of a warrant of distraint and levy to enforce its collection without
further notice." In addition, the letter contained a notation indicating that petitioner’s request for
11 

reconsideration had been denied for lack of supporting documents.

The above conclusion finds support in Commissioner of Internal Revenue v. Ayala Securities
Corporation, where we held:
12 

The letter of February 18, 1963 (Exh. G), in the view of the Court, is tantamount to a denial of the
reconsideration or [respondent corporation’s]…protest o[f] the assessment made by the petitioner,
considering that the said letter [was] in itself a reiteration of the demand by the Bureau of Internal
Revenue for the settlement of the assessment already made, and for the immediate payment of the
sum of P758,687.04 in spite of the vehement protest of the respondent corporation on April 21,
1961. This certainly is a clear indication of the firm stand of petitioner against the reconsideration of
the disputed assessment…This being so, the said letter amount[ed] to a decision on a disputed or
protested assessment, and, there, the court a quo did not err in taking cognizance of this case.

Similarly, in Surigao Electric Co., Inc v. Court of Tax Appeals, and in CIR v. Union Shipping
13 

Corporation, we held:
14 

". . . In this letter, the commissioner not only in effect demanded that the petitioner pay the amount of
₱11,533.53 but also gave warning that in the event it failed to pay, the said commissioner would be
constrained to enforce the collection thereof by means of the remedies provided by law. The tenor of
the letter, specifically the statement regarding the resort to legal remedies, unmistakably indicate[d]
the final nature of the determination made by the commissioner of the petitioner’s deficiency
franchise tax liability."

The demand letter received by petitioner verily signified a character of finality. Therefore, it was
tantamount to a rejection of the request for reconsideration. As correctly held by the Court of Tax
Appeals, "while the denial of the protest was in the form of a demand letter, the notation in the said
letter making reference to the protest filed by petitioner clearly shows the intention of the respondent
to make it as [his] final decision."
15

This now brings us to the crux of the matter as to whether said demand letter indeed attained finality
despite the fact that it was issued and signed by the Chief of the Accounts Receivable and Billing
Division instead of the BIR Commissioner.

The general rule is that the Commissioner of Internal Revenue may delegate any power vested upon
him by law to Division Chiefs or to officials of higher rank. He cannot, however, delegate the four
powers granted to him under the National Internal Revenue Code (NIRC) enumerated in Section 7.

As amended by Republic Act No. 8424, Section 7 of the Code authorizes the BIR Commissioner to
delegate the powers vested in him under the pertinent provisions of the Code to any subordinate
official with the rank equivalent to a division chief or higher, except the following:

(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;

(b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of
the Bureau;

(c) The power to compromise or abate under Section 204(A) and (B) of this Code, any tax
deficiency: Provided, however, that assessments issued by the Regional Offices involving basic
deficiency taxes of five hundred thousand pesos (P500,000) or less, and minor criminal violations as
may be determined by rules and regulations to be promulgated by the Secretary of Finance, upon
the recommendation of the Commissioner, discovered by regional and district officials, may be
compromised by a regional evaluation board which shall be composed of the Regional Director as
Chairman, the Assistant Regional Director, heads of the Legal, Assessment and Collection Divisions
and the Revenue District Officer having jurisdiction over the taxpayer, as members; and

(d) The power to assign or reassign internal revenue officers to establishments where articles
subject to excise tax are produced or kept.

It is clear from the above provision that the act of issuance of the demand letter by the Chief of the
Accounts Receivable and Billing Division does not fall under any of the exceptions that have been
mentioned as non-delegable.

Section 6 of the Code further provides:

"SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements
for Tax Administration and Enforcement. –

(A) Examination of Returns and Determination of Tax Due. - After a return has been filed as
required under the provisions of this Code, the Commissioner or his duly authorized
representative may authorize the examination of any taxpayer and the assessment of the correct
amount of tax; Provided, however, That failure to file a return shall not prevent the Commissioner
from authorizing the examination of any taxpayer.

The tax or any deficiency tax so assessed shall be paid upon notice and demand from
the Commissioner or from his duly authorized representative. . . ." (Emphasis supplied)
Thus, the authority to make tax assessments may be delegated to subordinate officers. Said
assessment has the same force and effect as that issued by the Commissioner himself, if not
reviewed or revised by the latter such as in this case. 16

A request for reconsideration must be made within thirty (30) days from the taxpayer’s receipt of the
tax deficiency assessment, otherwise, the decision becomes final, unappealable and therefore,
demandable. A tax assessment that has become final, executory and enforceable for failure of the
taxpayer to assail the same as provided in Section 228 can no longer be contested, thus:

"SEC. 228. Protesting of Assessment. – When the Commissioner or his duly authorized

representative finds that proper taxes should be assessed, he shall first notify the taxpayer of 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 (180) days from
submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to
the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of
the one hundred eighty (180) - day period; otherwise, the decision shall become final, executory and
demandable."

Here, petitioner failed to avail of its right to bring the matter before the Court of Tax Appeals within
the reglementary period upon the receipt of the demand letter reiterating the assessed delinquent
taxes and denying its request for reconsideration which constituted the final determination by the
Bureau of Internal Revenue on petitioner’s protest. Being a final disposition by said agency, the
same would have been a proper subject for appeal to the Court of Tax Appeals.

The rule is that for the Court of Tax Appeals to acquire jurisdiction, an assessment must first be
disputed by the taxpayer and ruled upon by the Commissioner of Internal Revenue to warrant a
decision from which a petition for review may be taken to the Court of Tax Appeals. Where an
adverse ruling has been rendered by the Commissioner of Internal Revenue with reference to a
disputed assessment or a claim for refund or credit, the taxpayer may appeal the same within thirty
(30) days after receipt thereof.17

We agree with the factual findings of the Court of Tax Appeals that the demand letter may be
presumed to have been duly directed, mailed and was received by petitioner in the regular course of
the mail in the absence of evidence to the contrary. This is in accordance with Section 2(v), Rule 131
of the Rules of Court, and in this case, since the period to appeal has commenced to run from the
time the letter of demand was presumably received by petitioner within a reasonable time after
January 24, 1991, the period of thirty (30) days to appeal the adverse decision on the request for
reconsideration had already lapsed when the petition was filed with the Court of Tax Appeals only on
November 8, 1991. Hence, the Court of Tax Appeals properly dismissed the petition as the tax
delinquency assessment had long become final and executory.

WHEREFORE, premises considered, the Decision of the Court of Appeals dated October 31, 2000
and its Resolution dated May 3, 2001 in CA-G.R. SP No. 35581 are hereby AFFIRMED. The petition
is accordingly DENIED for lack of merit.

SO ORDERED.
 THIRD DIVISION

G.R. No. 105208 May 29, 1995

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE CO., THE COURT OF TAX APPEALS and THE
COURT OF APPEALS, respondents.

ROMERO, J.:

This is a petition for review on certiorari filed by petitioner, Commissioner of Internal Revenue, of the
Decision  dated March 26, 1992 of the Court of Appeals in CA-GR No. 26598, entitled
1

"Commissioner of Internal Revenue v. The Philippine American Life Insurance Co. & the Court of
Tax Appeals" affirming the decision of respondent Court of Tax Appeals which ordered the refund to
the Philippine American Life Insurance Co. (Philamlife) of the amount of P3,643,015.00 representing
excess corporate income taxes for the first and second quarters of 1983.

Private respondent filed a case before the Court of Tax Appeals (CTA) docketed as CTA Case No.
4018 entitled "The Philippine American Life Insurance Company versus Commissioner of Internal
Revenue."

On September 16, 1991, the CTA rendered a decision in the above-entitled case, the dispositive
portion of which states:

WHEREFORE, petitioner's claim for refund for P3,246,141.00 and P396,874.00

representing excess corporated income tax payments for the first and second
quarters of 1983, respectively, or a total of P3,643,015.00 is hereby GRANTED.
Accordingly, respondent Commissioner of Internal Revenue, is hereby ordered to
refund to petitioner Philippine American Life Insurance Company the total amount of
P3,643,015.00.

With respect to petitioner's claim for refund of P215,742.00 representing 1983

withholding taxes on rental income the same is hereby DENIED for failure to present
proof of actual-withholding and payment with the Bureau of Internal Revenue. No
costs.

The facts, uncontroverted by petitioner, are:

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

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

For the Third Quarter of 1983, private respondent declared a net taxable income of P2,515,671.00
and a tax due of P708,464.00. After crediting the amount of P3,899,525.00 it declared a refundable
amount of P3,158,061.00.
For its Fourth and final quarter ending December 31, private respondent suffered a loss and thereby
had no income tax liability. In the return for that quarter, it declared a refund of P3,991,841.00
representing the first and second quarterly payments: P215,742.00 as withholding taxes on rental
income for 1983 and P133,084.00 representing 1982 income tax refund applied as 1983 tax credit.

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

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

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

1982 income tax refundable

applied as tax credit P 133,084
1983 income tax refundable
applied as tax credit P 3,858,757
1984 tax credit on rental P 250,867

T o t a l P 4,242,708

Less: 1983 claim for

refund already
filed with the
BIR and the
CTA
(Case No. 3868) P 133,084
——————
Net Amount Refundable — P 4,109,624
===========

On January 2, 1986, private respondent filed a petition for review with the CTA, docketed as CTA
Case No. 4018 regarding its 1983 and 1984 claims for refund in the above-stated amount.

Later, it amended its petition by limiting its claim for refund to only P3,858,757.00 computed as
follows:

Calendar Year
Ending 12-31-83
Date Paid O.R. No. Amount Paid
First Quarter 5/30/83 B2269337 P3,246,141.00
Second Quarter 8/29/83 B1938178 396,874.00
1983 Withholding Tax on rental income 215,742.00
1983 Income Tax Refundable P3,858,757.00
The issue in this case is the reckoning date of the two-year prescriptive period provided in Section
230 of the National Internal Revenue Code (formerly Section 292) which states that:

Recovery of tax 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
excessive or in any manner wrongfully collected, until a claim for refund or credit has
been duly filed with the Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has been paid under protest or
duress.

In any case, no such suit or proceeding shall be begun after the expiration of two
years from the date of payment of the tax or penalty regardless of any supervening
cause that may arise after payment: Provided, however, That the Commissioner
may, even without a written claim therefor, refund or credit any tax, where on the
face of the return upon which payment was made, such payment appears clearly to
have been erroneously paid.

Forfeiture of refund. — A refund check or warrant issued in accordance with the

pertinent provisions of this Code which shall remain unclaimed or uncashed within
five (5) years from the date the said warrant or check was mailed or delivered shall
be forfeited in favor of the government and the amount thereof shall revert to the
General Fund.

Petitioner poses the following question: In a case such as this, where a corporate taxpayer
remits/pays to the BIR tax withheld on income for the first quarter but whose business operations
actually resulted in a loss for that year, as reflected in the Corporate Final Adjustment Return
subsequently filed with the BIR, should not the running of the prescriptive period commence from the
remittance/payment at the end of the first quarter of the tax withheld instead of from the filing of the
Final Adjustment Return?

In support of its contention, petitioner cites the case of Pacific Procon Ltd. v. Court of Tax Appeals,
et a1.  wherein the CTA denied therein petitioner's claim for refund after it construed Section 292
2

(now Section 230) of the NIRC to be mandatory and "not subject to any qualification," hence it
applies regardless of the conditions under which payment may have been made. The Tax Court
ruled:

Under Section 292 (formerly Section 306) of the National Internal Revenue Code, a
claim for refund of a tax alleged to have been erroneously or illegally collected shall
be filed with the Commissioner of Internal Revenue within two years from the date of
payment of the tax, and that no suit or proceeding for refund shall be begun after the
expiration of the said two-year period (Citation omitted). As a matter of fact, the said
section further provides that: . . . In any case, no such suit or proceeding shall be
begun after the expiration of two years from the date of payment of the tax or the
date of payment of the tax or penalty regardless of any supervening cause that may
arise after payment.

Petitioner states that the phrase "regardless of supervening cause that may arise after payment" is
an amendatory phrase under the said Section 292 which did not appear in Section 306 of the old
Tax Code before it was amended by Presidential Decree No. 69, which became effective January 1,
1973. Petitioner argues that the incorporation of the said phrase did away with any other
interpretation and, therefore, the reckoning period of prescription under Section 292 (now section
230) is from the date of payment of tax regardless of financial loss (the "supervening cause"). Thus,
the claim for refund of the amounts of P3,246,141.00 and P396,874.00 paid on May 30, 1983 and
August 29, 1983, respectively, has prescribed.

We find petitioner's contentions to be unmeritorious.

It is true that in the Pacific Procon case, we held that the right to bring an action for refund had
prescribed, the tax having been found to have been paid at the end of the first quarter when the
withholding tax corresponding thereto was remitted to the Bureau of Internal Revenue, not at the
time of filing of the Final Adjustment Return in April of the following year.

However, this case was overturned by the Court in Commissioner of Internal Revenue v. TMX Sales
Incorporated and the Court of Tax Appeals,  wherein we said:
3

. . . in resolving the instant case, it is necessary that we consider not only Section
292 (now Section 230) of the National Internal Revenue Code but also the other
provisions of the Tax Code, particularly Sections 84, 85 (now both incorporated as
Section 68), Section 86 (now Section 70) and Section 87 (now Section 69) on
Quarterly Corporate Income Tax Payment and Section 321 (now Section 232) on
keeping of books of accounts. All these provisions of the Tax Code should be
harmonized with each other.

Section 292 (now Section 230) stipulates that the two-year prescriptive period to claim refunds
should be counted from date of payment of the tax sought to be refunded. When applied to tax
payers filing income tax returns on a quarterly basis, the date of payment mentioned in Section 292
(now Section 230) must be deemed to be qualified by Sections 68 and 69 of the present Tax Code
which respectively provide:

Sec. 68 Declaration of Quarterly Income Tax. — Every corporation shall file in

duplicate a quarterly summary declaration of its gross income and deductions on a
cumulative basis for the preceding quarter or quarters upon which the income tax, as
provided in Title II of this Code shall be levied, collected and paid. The Tax so
computed shall be decreased by the amount of tax previously paid or assessed
during the preceding quarters and shall be paid not later than sixty (60) days from the
close of each of the first three (3) quarters of the taxable year.

Sec. 69. Final Adjustment Return. — Every corporation liable to tax under Section 24
shall file a final adjustment return covering the total net income for the preceding
calendar or fiscal year. If the sum of the quarterly tax payments made during the said
taxable year is not equal to the total tax due on the entire taxable net income of that
year the corporation shall either:

(a) Pay the excess still due; or

(b) Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to a refund of the excess estimated quarterly

income taxes paid, the refundable amount shown on its final adjustment return may
 be credited against the estimated quarterly income tax liabilities for the taxable
quarters of the succeeding taxable year.

It may be observed that although quarterly taxes due are required to be paid within sixty days from
the close of each quarter, the fact that the amount shall be deducted from the tax due for the
succeeding quarter shows that until a final adjustment return shall have been filed, the taxes paid in
the preceding quarters are merely partial taxes due from a corporation. Neither amount can serve as
the final figure to quantity what is due the government nor what should be refunded to the
corporation.

This interpretation may be gleaned from the last paragraph of Section 69 of the Tax Code which
provides that the refundable amount, in case a refund is due a corporation, is that amount which is
shown on its final adjustment return and not on its quarterly returns.

Therefore, when private respondent paid P3,246,141.00 on May 30, 1983, it would not have been
able to ascertain on that date, that the said amount was refundable. The same applies with cogency
to the payment of P396,874.00 on August 29, 1983.

Clearly, the prescriptive period of two years should commence to run only from the time that the
refund is ascertained, which can only be determined after a final adjustment return is accomplished.
In the present case, this date is April 16, 1984, and two years from this date would be April 16, 1986.
The record shows that the claim for refund was filed on December 10, 1985 and the petition for
review was brought before the CTA on January 2, 1986. Both dates are within the two-year
reglementary period. Private respondent being a corporation, Section 292 (now Section 230) cannot
serve as the sole basis for determining the two-year prescriptive period for refunds. As we have
earlier said in the TMX Sales case, Sections 68, 69, and 70 on Quarterly Corporate Income Tax
Payment and Section 321 should be considered in conjunction with it.

Moreover, even if the two-year period had already lapsed, the same is not jurisdictional  and may be
4

suspended for reasons of equity and other special circumstances. 5

Petitioner also raises the issue of whether or not private respondent has satisfactorily shown by
competent evidence that it is entitled to the amount sought to be refunded. This being a question of
fact, this Court is bound by the findings of the Court of Tax Appeals which has clearly established
the propriety of private respondent's claim for refund for excess 1983 quarterly income tax
payments. On the other hand, petitioner Commissioner of Internal Revenue has failed to present any
documentary or testimonial evidence in support of his case. Instead, he opted to postpone the
hearings several times and later chose to submit the case for decision on the basis of the records
and pleadings of instant case.

To repeat, we find that private respondent has presented sufficient evidence in support of its claim
for refund, whereas petitioner has failed to controvert the same adequately.

WHEREFORE, the instant petition is DISMISSED and the decision of the Court of Appeals is hereby
AFFIRMED in toto. No costs.

SO ORDERED.

THIRD DIVISION
G.R. No. 178788               September 29, 2010

UNITED AIRLINES, INC., Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

VILLARAMA, JR., J.:

Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, of the Decision1 dated July 5, 2007 of the Court of Tax Appeals En Banc (CTA En Banc)
in C.T.A. EB No. 227 denying petitioner’s claim for tax refund of ₱5.03 million.

The undisputed facts are as follows:

Petitioner United Airlines, Inc. is a foreign corporation organized and existing under the laws of the
State of Delaware, U.S.A., engaged in the international airline business.

Petitioner used to be an online international carrier of passenger and cargo, i.e., it used to operate
passenger and cargo flights originating in the Philippines. Upon cessation of its passenger flights in
and out of the Philippines beginning February 21, 1998, petitioner appointed a sales agent in the
Philippines -- Aerotel Ltd. Corp., an independent general sales agent acting as such for several
international airline companies.2 Petitioner continued operating cargo flights from the Philippines until
January 31, 2001.3

On April 12, 2002, petitioner filed with respondent Commissioner a claim for income tax refund,
pursuant to Section 28(A)(3)(a)4 of the National Internal Revenue Code of 1997 (NIRC) in relation to
Article 4(7)5 of the Convention between the Government of the Republic of the Philippines and the
Government of the United States of America with respect to Income Taxes (RP-US Tax Treaty).
Petitioner sought to refund the total amount of ₱15,916,680.69 pertaining to income taxes paid on
gross passenger and cargo revenues for the taxable years 1999 to 2001, which included the amount
of ₱5,028,813.23 allegedly representing income taxes paid in 1999 on passenger revenue from
tickets sold in the Philippines, the uplifts of which did not originate in the Philippines. Citing the
change in definition of Gross Philippine Billings (GPB) in the NIRC, petitioner argued that since it no
longer operated passenger flights originating from the Philippines beginning February 21, 1998, its
passenger revenue for 1999, 2000 and 2001 cannot be considered as income from sources within
the Philippines, and hence should not be subject to Philippine income tax under Article 9 6 of the RP-
US Tax Treaty.7

As no resolution on its claim for refund had yet been made by the respondent and in view of the two
(2)-year prescriptive period (from the time of filing the Final Adjustment Return for the taxable year
1999) which was about to expire on April 15, 2002, petitioner filed on said date a petition for review
with the Court of Tax Appeals (CTA).8

Petitioner asserted that under the new definition of GPB under the 1997 NIRC and Article 4(7) of the
RP-US Tax Treaty, Philippine tax authorities have jurisdiction to tax only the gross revenue derived
by US air and shipping carriers from outgoing traffic in the Philippines. Since the Bureau of Internal
Revenue (BIR) erroneously imposed and collected income tax in 1999 based on petitioner’s gross
passenger revenue, as beginning 1998 petitioner no longer flew passenger flights to and from the
Philippines, petitioner is entitled to a refund of such erroneously collected income tax in the amount
of ₱5,028,813.23.9

In its Decision10 dated May 18, 2006, the CTA’s First Division11 ruled that no excess or erroneously
paid tax may be refunded to petitioner because the income tax on GPB under Section 28(A)(3)(a) of
the NIRC applies as well to gross revenue from carriage of cargoes originating from the Philippines.
It agreed that petitioner cannot be taxed on its 1999 passenger revenue from flights originating
outside the Philippines. However, in reporting a cargo revenue of ₱740.33 million in 1999, it was
found that petitioner deducted two (2) items from its gross cargo revenue of ₱2.84 billion: ₱141.79
million as commission and ₱1.98 billion as other incentives of its agent. These deductions were
erroneous because the gross revenue referred to in Section 28(A)(3)(a) of the NIRC was total
revenue before any deduction of commission and incentives. Petitioner’s gross cargo revenue in
1999, being ₱2.84 billion, the GPB tax thereon was ₱42.54 million and not ₱11.1 million, the amount
petitioner paid for the reported net cargo revenue of ₱740.33 million. The CTA First Division further
noted that petitioner even underpaid its taxes on cargo revenue by ₱31.43 million, which amount
was much higher than the ₱5.03 million it asked to be refunded.

A motion for reconsideration was filed by petitioner but the First Division denied the same. It held
that petitioner’s claim for tax refund was not offset with its tax liability; that petitioner’s tax deficiency
was due to erroneous deductions from its gross cargo revenue; that it did not make an assessment
against petitioner; and that it merely determined if petitioner was entitled to a refund based on the
undisputed facts and whether petitioner had paid the correct amount of tax. 12

Petitioner elevated the case to the CTA En Banc which affirmed the decision of the First Division.

Hence, this petition anchored on the following grounds:

I. THE CTA EN BANC GROSSLY ERRED IN DENYING THE PETITIONER’S CLAIM FOR

REFUND OF ERRONEOUSLY PAID INCOME TAX ON GROSS PHILIPPINE BILLINGS
[GPB] BASED ON ITS FINDING THAT PETITIONER’S UNDERPAYMENT OF [₱31.43
MILLION] GPB TAX ON CARGO REVENUES IS A LOT HIGHER THAN THE GPB TAX OF
[₱5.03 MILLION] ON PASSENGER REVENUES, WHICH IS THE SUBJECT OF THE
INSTANT CLAIM FOR REFUND. THE DENIAL OF PETITIONER’S CLAIM ON SUCH
GROUND CLEARLY AMOUNTS TO AN OFF-SETTING OF TAX LIABILITIES, CONTRARY
TO WELL-SETTLED JURISPRUDENCE.

II. THE DECISION OF THE CTA EN BANC VIOLATED PETITIONER’S RIGHT TO DUE

PROCESS.

III. THE CTA EN BANC ACTED IN EXCESS OF ITS JURISDICTION BY DENYING

PETITIONER’S CLAIM FOR REFUND OF ERRONEOUSLY PAID INCOME TAX ON
GROSS PHILIPPINE BILLINGS BASED ON ITS FINDING THAT PETITIONER
UNDERPAID GPB TAX ON CARGO REVENUES IN THE AMOUNT OF [₱31.43 MILLION]
FOR THE TAXABLE YEAR 1999.

IV. THE CTA EN BANC HAS NO AUTHORITY UNDER THE LAW TO MAKE ANY
ASSESSMENTS FOR DEFICIENCY TAXES. THE AUTHORITY TO MAKE ASSESSMENTS
FOR DEFICIENCY NATIONAL INTERNAL REVENUE TAXES IS VESTED BY THE 1997
NIRC UPON RESPONDENT.

V. ANY ASSESSMENT AGAINST PETITIONER FOR DEFICIENCY INCOME TAX FOR

THE TAXABLE YEAR 1999 IS ALREADY BARRED BY PRESCRIPTION.13
The main issue to be resolved is whether the petitioner is entitled to a refund of the amount of
₱5,028,813.23 it paid as income tax on its passenger revenues in 1999.

Petitioner argues that its claim for refund of erroneously paid GPB tax on off-line passenger
revenues cannot be denied based on the finding of the CTA that petitioner allegedly underpaid the
GPB tax on cargo revenues by ₱31,431,171.09, which underpayment is allegedly higher than the
GPB tax of ₱5,028,813.23 on passenger revenues, the amount of the instant claim. The denial of
petitioner’s claim for refund on such ground is tantamount to an offsetting of petitioner’s claim for
refund of erroneously paid GPB against its alleged tax liability. Petitioner thus cites the well-
entrenched rule in taxation cases that internal revenue taxes cannot be the subject of set-off or
compensation.14

According to petitioner, the offsetting of the liabilities is very clear in the instant case because the
amount of petitioner’s claim for refund of erroneously paid GPB tax of ₱5,028,813.23 for the taxable
year 1999 is being offset against petitioner’s alleged deficiency GPB tax liability on cargo revenues
for the same year, which was not even the subject of an investigation nor any valid assessment
issued by respondent against the petitioner. Under Section 228 15 of the NIRC, the "taxpayer shall be
informed in writing of the law and the facts on which the assessment is made; otherwise, the
assessment shall be void." This administrative process of issuing an assessment is part of
procedural due process enshrined in the 1987 Constitution. Records do not show that petitioner has
been assessed by the BIR for any deficiency GBP tax for 1999, nor was there any finding or
investigation being conducted by respondent of any liability of petitioner for GPB tax for the said
taxable period. Clearly, petitioner’s right to due process was violated. 16

Petitioner further argues that the CTA acted in excess of its jurisdiction because the exclusive
appellate jurisdiction of the CTA covers only decisions or inactions of the respondent in cases
involving disputed assessments. The CTA has effectively assessed petitioner with a ₱31.43 million
tax deficiency when it concluded that petitioner underpaid its GPB tax on cargo revenue. Since
respondent did not issue an assessment for any deficiency tax, the alleged deficiency tax on its
cargo revenue in 1999 cannot be considered a disputed assessment that may be passed upon by
the CTA. Petitioner stresses that the authority to issue an assessment for deficiency internal revenue
taxes is vested by law on respondent, not with the CTA.17

Lastly, petitioner argues that any assessment against it for deficiency income tax for taxable year
1999 is barred by prescription. Petitioner claims that the prescriptive period within which an
assessment for deficiency income tax may be made has prescribed on April 17, 2003, three (3)
years after it filed its 1999 tax return. 18

Respondent Commissioner maintains that the CTA acted within its jurisdiction in denying petitioner’s
claim for tax refund. It points out that the objective of the CTA’s determination of whether petitioner
correctly paid its GPB tax for the taxable year 1999 was to ascertain the latter’s entitlement to the
claimed refund and not for the purpose of imposing any deficiency tax. Hence, petitioner’s
arguments regarding the propriety of the CTA’s determination of its deficiency tax on its GPB for
gross cargo revenues for 1999 are clearly misplaced. 19

The petition has no merit.

As correctly pointed out by petitioner, inasmuch as it ceased operating passenger flights to or from
the Philippines in 1998, it is not taxable under Section 28(A)(3)(a) of the NIRC for gross passenger
revenues. This much was also found by the CTA. In South African Airways v. Commissioner of
Internal Revenue,20 we ruled that the correct interpretation of the said provisions is that, if an
international air carrier maintains flights to and from the Philippines, it shall be taxed at the rate of
2½% of its GPB, while international air carriers that do not have flights to and from the Philippines
but nonetheless earn income from other activities in the country will be taxed at the rate of 32% of
such income.

Here, the subject of claim for tax refund is the tax paid on passenger revenue for taxable year 1999
at the time when petitioner was still operating cargo flights originating from the Philippines although it
had ceased passenger flight operations. The CTA found that petitioner had underpaid its GPB tax for
1999 because petitioner had made deductions from its gross cargo revenues in the income tax
return it filed for the taxable year 1999, the amount of underpayment even greater than the refund
sought for erroneously paid GPB tax on passenger revenues for the same taxable period. Hence,
the CTA ruled petitioner is not entitled to a tax refund.

Petitioner’s arguments regarding the propriety of such determination by the CTA are misplaced.

Under Section 72 of the NIRC, the CTA can make a valid finding that petitioner made erroneous
deductions on its gross cargo revenue; that because of the erroneous deductions, petitioner reported
a lower cargo revenue and paid a lower income tax thereon; and that petitioner's underpayment of
the income tax on cargo revenue is even higher than the income tax it paid on passenger revenue
subject of the claim for refund, such that the refund cannot be granted.

Section 72 of the NIRC reads:

SEC. 72. Suit to Recover Tax Based on False or Fraudulent Returns. - When an assessment is
made in case of any list, statement or return, which in the opinion of the Commissioner was false or
fraudulent or contained any understatement or undervaluation, no tax collected under such
assessment shall be recovered by any suit, unless it is proved that the said list, statement or return
was not false nor fraudulent and did not contain any understatement or undervaluation; but this
provision shall not apply to statements or returns made or to be made in good faith regarding annual
depreciation of oil or gas wells and mines.

In the afore-cited case of South African Airways, this Court rejected similar arguments on the denial
of claim for tax refund, as follows:

Precisely, petitioner questions the offsetting of its payment of the tax under Sec. 28(A)(3)(a) with
their liability under Sec. 28(A)(1), considering that there has not yet been any assessment of their
obligation under the latter provision. Petitioner argues that such offsetting is in the nature of legal
compensation, which cannot be applied under the circumstances present in this case.

Article 1279 of the Civil Code contains the elements of legal compensation, to wit:

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be
of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

 (5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.

And we ruled in Philex Mining Corporation v. Commissioner of Internal Revenue, thus:

In several instances prior to the instant case, we have already made the pronouncement that taxes
cannot be subject to compensation for the simple reason that the government and the taxpayer are
not creditors and debtors of each other. There is a material distinction between a tax and debt.
Debts are due to the Government in its corporate capacity, while taxes are due to the Government in
its sovereign capacity. We find no cogent reason to deviate from the aforementioned distinction.

Prescinding from this premise, in Francia v. Intermediate Appellate Court, we categorically held that
taxes cannot be subject to set-off or compensation, thus:

We have consistently ruled that there can be no off-setting of taxes against the claims that the
taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that
the government owes him an amount equal to or greater than the tax being collected. The collection
of a tax cannot await the results of a lawsuit against the government.

The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v.
Commission on Audit, which reiterated that:

. . . a taxpayer may not offset taxes due from the claims that he may have against the government.
Taxes cannot be the subject of compensation because the government and taxpayer are not
mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off.

Verily, petitioner’s argument is correct that the offsetting of its tax refund with its alleged tax
deficiency is unavailing under Art. 1279 of the Civil Code.

Commissioner of Internal Revenue v. Court of Tax Appeals, however, granted the offsetting of a tax
refund with a tax deficiency in this wise:

Further, it is also worth noting that the Court of Tax Appeals erred in denying petitioner’s
supplemental motion for reconsideration alleging bringing to said court’s attention the existence of
the deficiency income and business tax assessment against Citytrust. The fact of such deficiency
assessment is intimately related to and inextricably intertwined with the right of respondent bank to
claim for a tax refund for the same year. To award such refund despite the existence of that
deficiency assessment is an absurdity and a polarity in conceptual effects. Herein private respondent
cannot be entitled to refund and at the same time be liable for a tax deficiency assessment for the
same year. 1avvphi1

The grant of a refund is founded on the assumption that the tax return is valid, that is, the facts
stated therein are true and correct. The deficiency assessment, although not yet final, created a
doubt as to and constitutes a challenge against the truth and accuracy of the facts stated in said
return which, by itself and without unquestionable evidence, cannot be the basis for the grant of the
refund.

Section 82, Chapter IX of the National Internal Revenue Code of 1977, which was the applicable law
when the claim of Citytrust was filed, provides that "(w)hen an assessment is made in case of any
list, statement, or return, which in the opinion of the Commissioner of Internal Revenue was false or
fraudulent or contained any understatement or undervaluation, no tax collected under such
assessment shall be recovered by any suits unless it is proved that the said list, statement, or return
was not false nor fraudulent and did not contain any understatement or undervaluation; but this
provision shall not apply to statements or returns made or to be made in good faith regarding annual
depreciation of oil or gas wells and mines."

Moreover, to grant the refund without determination of the proper assessment and the tax due would
inevitably result in multiplicity of proceedings or suits. If the deficiency assessment should
subsequently be upheld, the Government will be forced to institute anew a proceeding for the
recovery of erroneously refunded taxes which recourse must be filed within the prescriptive period of
ten years after discovery of the falsity, fraud or omission in the false or fraudulent return
involved. This would necessarily require and entail additional efforts and expenses on the part of the
Government, impose a burden on and a drain of government funds, and impede or delay the
collection of much-needed revenue for governmental operations.

Thus, to avoid multiplicity of suits and unnecessary difficulties or expenses, it is both logically
necessary and legally appropriate that the issue of the deficiency tax assessment against Citytrust
be resolved jointly with its claim for tax refund, to determine once and for all in a single proceeding
the true and correct amount of tax due or refundable.

In fact, as the Court of Tax Appeals itself has heretofore conceded, it would be only just and fair that
the taxpayer and the Government alike be given equal opportunities to avail of remedies under the
law to defeat each other’s claim and to determine all matters of dispute between them in one single
case. It is important to note that in determining whether or not petitioner is entitled to the refund of
the amount paid, it would [be] necessary to determine how much the Government is entitled to
collect as taxes. This would necessarily include the determination of the correct liability of the
taxpayer and, certainly, a determination of this case would constitute res judicata on both parties as
to all the matters subject thereof or necessarily involved therein. (Emphasis supplied.)

Sec. 82, Chapter IX of the 1977 Tax Code is now Sec. 72, Chapter XI of the 1997 NIRC. The above
pronouncements are, therefore, still applicable today.

Here, petitioner’s similar tax refund claim assumes that the tax return that it filed was correct. Given,
however, the finding of the CTA that petitioner, although not liable under Sec. 28(A)(3)(a) of the
1997 NIRC, is liable under Sec. 28(A)(1), the correctness of the return filed by petitioner is now put
in doubt. As such, we cannot grant the prayer for a refund. 21 (Additional emphasis supplied.)

In the case at bar, the CTA explained that it merely determined whether petitioner is entitled to a
refund based on the facts. On the assumption that petitioner filed a correct return, it had the right to
file a claim for refund of GPB tax on passenger revenues it paid in 1999 when it was not operating
passenger flights to and from the Philippines. However, upon examination by the CTA, petitioner’s
return was found erroneous as it understated its gross cargo revenue for the same taxable year due
to deductions of two (2) items consisting of commission and other incentives of its agent. Having
underpaid the GPB tax due on its cargo revenues for 1999, petitioner is not entitled to a refund of its
GPB tax on its passenger revenue, the amount of the former being even much higher (₱31.43
million) than the tax refund sought (₱5.2 million). The CTA therefore correctly denied the claim for
tax refund after determining the proper assessment and the tax due. Obviously, the matter of
prescription raised by petitioner is a non-issue. The prescriptive periods under Sections 203 22 and
22223 of the NIRC find no application in this case.

We must emphasize that tax refunds, like tax exemptions, are construed strictly against the taxpayer
and liberally in favor of the taxing authority.24 In any event, petitioner has not discharged its burden of
proof in establishing the factual basis for its claim for a refund and we find no reason to disturb the
ruling of the CTA. It has been a long-standing policy and practice of the Court to respect the
conclusions of quasi-judicial agencies such as the CTA, a highly specialized body specifically
created for the purpose of reviewing tax cases.25

WHEREFORE, we DENY the petition for lack of merit and AFFIRM the Decision dated July 5, 2007
of the Court of Tax Appeals En Banc in C.T.A. EB No. 227.

With costs against the petitioner.

SO ORDERED.

THIRD DIVISION
  

G.R. No. 128315 June 29, 1999

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
PASCOR REALTY AND DEVELOPMENT CORPORATION, ROGELIO A. DIO and VIRGINIA S.
DIO, respondents.

PANGANIBAN, J.:

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 protests 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. Accordingly, an affidavit, which was
executed by revenue officers stating the tax liabilities of a taxpayer and attached to a criminal
complaint for tax evasion, cannot be deemed an assessment that can be questioned before the
Court of Tax Appeals.

Statement of the Case

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court praying
for the nullification of the October 30, 1996
Decision   of the Court of Appeals   in CA-GR SP No. 40853, which effectively affirmed the January
1 2

25, 1996 Resolution   of the Court of Tax Appeals   CTA Case No. 5271. The CTA disposed as
3 4

follows:

WHEREFORE, finding [the herein petitioner's] "Motion to Dismiss" as

UNMERITORIOUS, the same is hereby DENIED. [The CIR] is hereby given a period
of thirty (30) days from receipt hereof to file her answer.

Petitioner also seeks to nullify the February 13, 1997 Resolution   of the Court of Appeals denying
5

reconsideration.

The Facts

As found by the Court of Appeals, the undisputed facts of the case are as follows:

It appears that by virtue of Letter of Authority No. 001198, then BIR Commissioner
Jose U. Ong authorized Revenue Officers Thomas T. Que, Sonia T. Estorco and
Emmanuel M. Savellano to examine the books of accounts and other accounting
records of Pascor Realty and Development Corporation. (PRDC) for the years
ending 1986, 1987 and 1988. The said examination resulted in a recommendation for
the issuance of an assessment in the amounts of P7,498,434.65 and P3,015,236.35
for the years 1986 and 1987, respectively.

On March 1, 1995, the Commissioner of Internal Revenue filed a criminal complaint

before the Department of Justice against the PRDC, its President Rogelio A. Dio,
and its Treasurer Virginia S. Dio, alleging evasion of taxes in the total amount of
P10,513,671 .00. Private respondents PRDC, et. al. filed an Urgent Request for
Reconsideration/Reinvestigation disputing the tax assessment and tax liability.

On March 23, 1995, private respondents received a subpoena from the DOJ in
connection with the criminal complaint filed by the Commissioner of Internal Revenue
(BIR) against them. 1âwphi1.nêt

In a letter dated May 17, 1995, the CIR denied the urgent request for
reconsideration/reinvestigation of the private respondents on the ground that no
formal assessment of the has as yet been issued by the Commissioner.

Private respondents then elevated the Decision of the CIR dated May 17, 1995 to the
Court of Tax Appeals on a petition for review docketed as CTA Case No. 5271 on
July 21, 1995. On September 6, 1995, the CIR filed a Motion to Dismiss the petition
on the ground that the CTA has no jurisdiction over the subject matter of the petition,
as there was no formal assessment issued against the petitioners. The CTA denied
the said motion to dismiss in a Resolution dated January 25, 1996 and ordered the
CIR to file an answer within thirty (30) days from receipt of said resolution. The CIR
received the resolution on January 31, 1996 but did not file an answer nor did she
move to reconsider the resolution.

Instead, the CIR filed this petition on June 7, 1996, alleging as grounds that:

Respondent Court of Tax Appeals acted with grave abuse of

discretion and without jurisdiction in considering the affidavit/report of
the revenue officer and the indorsement of said report to the
secretary of justice as assessment which may be appealed to the
Court of Tax Appeals;

Respondent Court Tax Appeals acted with grave abuse of discretion

in considering the denial by petitioner of private respondents' Motion
for Reconsideration as [a] final decision which may be appealed to
the Court of Tax Appeals.

In denying the motion to dismiss filed by the CIR, the Court of Tax Appeals stated:

We agree with petitioners' contentions, that the criminal complaint for

tax evasion is the assessment issued, and that the letter denial of
May 17, 1995 is the decision properly appealable to [u]s.
Respondent's ground of denial, therefore, that there was no formal
assessment issued, is untenable.

It is the Court's honest belief, that the criminal case for tax evasion is already
anassessment. The complaint, more particularly, the Joint Affidavit of Revenue
Examiners Lagmay and Savellano attached thereto, contains the details of the
assessment like the kind and amount of tax due, and the period covered:

Petitioners are right, in claiming that the provisions of Republic Act No. 1125, relating
to exclusive appellate jurisdiction of this Court, do not, make any mention of "formal
assessment." The law merely states, that this Court has exclusive appellate
jurisdiction over decisions of the Commissioner of Internal Revenue on disputed
 assessments, and other matters arising under the National Internal Revenue Code,
other law or part administered by the Bureau of Internal Revenue Code.

As far as this Court is concerned, the amount and kind of tax due, and the period
covered, are sufficient details needed for an "assessment." These details are more
than complete, compared to the following definitions of the term as quoted
hereunder. Thus:

Assessment is laying a tax. Johnson City v. Clinchfield R. Co., 43 S.W. (2d) 386,
387, 163 Tenn. 332. (Words and Phrases, Permanent Edition, Vol. 4, p. 446).

The word assessment when used in connection with taxation, may have more than
one meaning. The ultimate purpose of an assessment to such a connection is to
ascertain the amount that each taxpayer is to pay. More commonly, the word
"assessment" means the official valuation of a taxpayer's property for purpose of
taxation. State v. New York, N.H. and H.R. Co. 22 A. 765, 768, 60 Conn. 326, 325.
(Ibid. p. 445)

From the above, it can be gleaned that an assessment simply states how much tax is
due from a taxpayer. Thus, based on these definitions, the details of the tax as given
in the Joint Affidavit of respondent's examiners, which was attached to the tax
evasion complaint, more than suffice to qualify as an assessment. Therefore, this
assessment having been disputed by petitioners, and there being a denial of their
letter disputing such assessment, this Court unquestionably acquired jurisdiction over
the instant petition for review.  6

As earlier observed, the Court of Appeals sustained the CTA and dismissed the petition.

Hence, this recourse to this Court. 7

Ruling of the Court of Appeals

The Court of Appeals held that the tax court committed no grave abuse of discretion in ruling that the
Criminal Complaint for tax evasion filed by the Commissioner of Internal Revenue with the
Department of Justice constituted an "assessment" of the tax due, and that the said assessment
could be the subject of a protest. By definition, an assessment is simply the statement of the details
and the amount of tax due from a taxpayer. Based on this definition, the details of the tax contained
in the BIR examiners' Joint Affidavit,   which was attached to the criminal Complaint, constituted an
8

assessment. Since the assailed Order of the CTA was merely interlocutory and devoid of grave
abuse of discretion, a petition for certiorari did not lie.

Issues

Petitioners submit for the consideration of this Court following issues:

(1) Whether or not the criminal complaint for tax evasion can be
construed as an assessment.

(2) Whether or not an assessment is necessary before criminal

charges for tax evasion may be instituted.
 (3) Whether or not the CTA can take cognizance of the case in the
absence of an assessment.  9

In the main, the Court will resolve whether the revenue officers' Affidavit-Report, which was attached
to criminal revenue Complaint filed the Department of Justice, constituted an assessment that could
be questioned before the Court of Tax Appeals.

The Court's Ruling

The petition is meritorious.

Main Issue: Assessment

Petitioner argues that the filing of the criminal complaint with the Department of Justice cannot in any
way be construed as a formal assessment of private respondents' tax liabilities. This position is
based on Section 205 of the National Internal Revenue Code   (NIRC), which provides that
10

remedies for the collection of deficient taxes may be by either civil or criminal action. Likewise,
petitioner cites Section 223(a) of the same Code, which states that in case of failure to file a return,
the tax may be assessed or a proceeding in court may be begun without assessment.

Respondents, on the other hand, maintain that an assessment is not an action or proceeding for the
collection of taxes, but merely a notice that the amount stated therein is due as tax and that the
taxpayer is required to pay the same. Thus, qualifying as an assessment was the BIR examiners'
Joint Affidavit, which contained the details of the supposed taxes due from respondent for taxable
years ending 1987 and 1988, and which was attached to the tax evasion Complaint filed with the
DOJ. Consequently, the denial by the BIR of private respondents' request for reinvestigation of the
disputed assessment is properly appealable to the CTA.

We agree with petitioner. Neither the NIRC nor the regulations governing the protest of
assessments   provide a specific definition or form of an assessment. However, the NIRC defines
11

the specific functions and effects of an assessment. To consider the affidavit attached to the
Complaint as a proper assessment is to subvert the nature of an assessment and to set a bad
precedent that will prejudice innocent taxpayers.

True, as pointed out by the private respondents, an assessment informs the taxpayer that he or she
has tax liabilities. But not all documents coming from the BIR containing a computation of the tax
liability can be deemed assessments.

To start with, an assessment must be sent to and received by a taxpayer, and must demand
payment of the taxes described therein within a specific period. Thus, the NIRC imposes a 25
percent penalty, in addition to the tax due, in case the taxpayer fails to pay deficiency tax within the
time prescribed for its payment in the notice of assessment. Likewise, an interest of 20 percent per
annum, or such higher rates as may be prescribed by rules and regulations, is to be collected form
the date prescribed for its payment until the full payment. 12

The issuance of an assessment is vital in determining, the period of limitation regarding its proper
issuance and the period within which to protest it. Section 203   of the NIRC provides that internal
13

revenue taxes must be assessed within three years from the last day within which to file the return.
Section 222,   on the other hand, specifies a period of ten years in case a fraudulent return with
14

intent to evade was submitted or in case of failure to file a return. Also, Section 228   of the same
15

law states that said assessment may be protested only within thirty days from receipt thereof.
Necessarily, the taxpayer must be certain that a specific document constitutes an assessment.
Otherwise, confusion would arise regarding the period within which to make an assessment or to
protest the same, or whether interest and penalty may accrue thereon.

It should also be stressed that the said document is a notice duly sent to the taxpayer. Indeed, an
assessment is deemed made only when the collector of internal revenue releases, mails or sends
such notice to the taxpayer. 16

In the present case, the revenue officers' Affidavit merely contained a computation of respondents'
tax liability. It did not state a demand or a period for payment. Worse, it was addressed to the justice
secretary, not to the taxpayers.

Respondents maintain that an assessment, in relation to taxation, is simply understood' to mean:

A notice to the effect that the amount therein stated is due as tax and a demand for
payment thereof.  17

Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for
the proper presentation of tax rolls. 
18

Even these definitions fail to advance private respondents' case. That the BIR examiners' Joint
Affidavit attached to the Criminal Complaint contained some details of the tax liabilities of private
respondents does not ipso facto make it an assessment. The purpose of the Joint Affidavit was
merely to support and substantiate the Criminal Complaint for tax evasion. Clearly, it was not meant
to be a notice of the tax due and a demand to the private respondents for payment thereof.

The fact that the Complaint itself was specifically directed and sent to the Department of Justice and
not to private respondents shows that the intent of the commissioner was to file a criminal complaint
for tax evasion, not to issue an assessment. Although the revenue officers recommended the
issuance of an assessment, the commissioner opted instead to file a criminal case for tax evasion.
What private respondents received was a notice from the DOJ that a criminal case for tax evasion
had been filed against them, not a notice that the Bureau of Internal Revenue had made an
assessment.

In addition, what private respondents sent to the commissioner was a motion for a reconsideration of
the tax evasion charges filed, not of an assessment, as shown thus:

This is to request for reconsideration of the tax evasion charges against my client, PASCOR Realty
and Development Corporation and for the same to be referred to the Appellate Division in order to
give my client the opportunity of a fair and objective hearing. 
19

Additional Issues:

Assessment Not

Necessary Before Filing of

Criminal Complaint

Private respondents maintain that the filing of a criminal complaint must be preceded by an
assessment. This is incorrect, because Section 222 of the NIRC specifically states that in cases
where a false or fraudulent return is submitted or in cases of failure to file a return such as this case,
proceedings in court may be commenced without an assessment. Furthermore, Section 205 of the
same Code clearly mandates that the civil and criminal aspects of the case may be pursued
simultaneously. In Ungab v. Cusi,  petitioner therein sought the dismissal of the criminal Complaints
20

for being premature, since his protest to the CTA had not yet been resolved. The Court held that
such protests could not stop or suspend the criminal action which was independent of the resolution
of the protest in the CTA. This was because the commissioner of internal revenue had, in such tax
evasion cases, discretion on whether to issue an assessment or to file a criminal case against the
taxpayer or to do both.

Private respondents insist that Section 222 should be read in relation to Section 255 of the
NLRC,   which penalizes failure to file a return. They add that a tax assessment should precede a
21

criminal indictment. We disagree. To reiterate, said Section 222 states that an assessment is not
necessary before a criminal charge can be filed. This is the general rule. Private respondents failed
to show that they are entitled to an exception. Moreover, the criminal charge need only be supported
by a prima facie showing of failure to file a required return. This fact need not be proven by an
assessment.

The issuance of an assessment must be distinguished from the filing of a complaint. Before an
assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The
taxpayer is then given a chance to submit position papers and documents to prove that the
assessment is unwarranted. If the commissioner is unsatisfied, an assessment signed by him or her
is then sent to the taxpayer informing the latter specifically and clearly that an assessment has been
made against him or her. In contrast, the criminal charge need not go through all these. The criminal
charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case had
been filed against him, not that the commissioner has issued an assessment. It must be stressed
that a criminal complaint is instituted not to demand payment, but to penalize the taxpayer for
violation of the Tax Code.

WHEREFORE, the petition is hereby GRANTED. The assailed Decision is REVERSED and SET
ASIDE. CTA Case No. 5271 is likewise DISMISSED. No costs.

SO ORDERED.

FIRST DIVISION
G.R. No. 162852             December 16, 2004

PHILIPPINE JOURNALISTS, INC., petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review filed by Philippine Journalists, Incorporated (PJI) assailing the
Decision of the Court of Appeals dated August 5, 2003, which ordered petitioner to pay the
1  2 

assessed tax liability of P111,291,214.46 and the Resolution dated March 31, 2004 which denied
3 

the Motion for Reconsideration.

The case arose from the Annual Income Tax Return filed by petitioner for the calendar year ended
December 31, 1994 which presented a net income of P30,877,387.00 and the tax due of
P10,807,086.00. After deducting tax credits for the year, petitioner paid the amount of
P10,247,384.00.

On August 10, 1995, Revenue District Office No. 33 of the Bureau of Internal Revenue (BIR) issued
Letter of Authority No. 87120 for Revenue Officer Federico de Vera, Jr. and Group Supervisor
4 

Vivencio Gapasin to examine petitioner’s books of account and other accounting records for internal
revenue taxes for the period January 1, 1994 to December 31, 1994.

From the examination, the petitioner was told that there were deficiency taxes, inclusive of
surcharges, interest and compromise penalty in the following amounts:

Value Added Tax P 229,527.90

Income Tax 125,002,892.95

Withholding Tax 2,748,012.35

Total P 127,980,433.20

In a letter dated August 29, 1997, Revenue District Officer Jaime Concepcion invited petitioner to
send a representative to an informal conference on September 15, 1997 for an opportunity to object
and present documentary evidence relative to the proposed assessment. On September 22, 1997,
petitioner’s Comptroller, Lorenza Tolentino, executed a "Waiver of the Statute of Limitation Under
the National Internal Revenue Code (NIRC)". The document "waive[d] the running of the prescriptive
5 

period provided by Sections 223 and 224 and other relevant provisions of the NIRC and consent[ed]
to the assessment and collection of taxes which may be found due after the examination at any time
after the lapse of the period of limitations fixed by said Sections 223 and 224 and other relevant
provisions of the NIRC, until the completion of the investigation".
6
On July 2, 1998, Revenue Officer De Vera submitted his audit report recommending the issuance of
an assessment and finding that petitioner had deficiency taxes in the total amount of
P136,952,408.97. On October 5, 1998, the Assessment Division of the BIR issued Pre-Assessment
Notices which informed petitioner of the results of the investigation. Thus, BIR Revenue Region No.
6, Assessment Division/Billing Section, issued Assessment/Demand No. 33-1-000757-94 on 7 

December 9, 1998 stating the following deficiency taxes, inclusive of interest and compromise
penalty:

Income Tax P108,743,694.88

Value Added Tax 184,299.20

Expanded Withholding 2,363,220.38

Tax

Total P111,291,214.46

On March 16, 1999, a Preliminary Collection Letter was sent by Deputy Commissioner Romeo S.
Panganiban to the petitioner to pay the assessment within ten (10) days from receipt of the letter. On
November 10, 1999, a Final Notice Before Seizure was issued by the same deputy commissioner
8 

giving the petitioner ten (10) days from receipt to pay. Petitioner received a copy of the final notice
on November 24, 1999. By letters dated November 26, 1999, petitioner asked to be clarified how the
tax liability of P111,291,214.46 was reached and requested an extension of thirty (30) days from
receipt of the clarification within which to reply.9

The BIR received a follow-up letter from the petitioner asserting that its (PJI) records do not show
receipt of Tax Assessment/Demand No. 33-1-000757-94. Petitioner also contested that the
10 

assessment had no factual and legal basis. On March 28, 2000, a Warrant of Distraint and/or Levy
No. 33-06-046 signed by Deputy Commissioner Romeo Panganiban for the BIR was received by
11 

the petitioner.

Petitioner filed a Petition for Review with the Court of Tax Appeals (CTA) which was amended on
12 

May 12, 2000. Petitioner complains: (a) that no assessment or demand was received from the BIR;
(b) that the warrant of distraint and/or levy was without factual and legal bases as its issuance was
premature; (c) that the assessment, having been made beyond the 3-year prescriptive period, is null
and void; (d) that the issuance of the warrant without being given the opportunity to dispute the same
violates its right to due process; and (e) that the grave prejudice that will be sustained if the warrant
is enforced is enough basis for the issuance of the writ of preliminary injunction.

On May 14, 2002, the CTA rendered its decision, to wit:13 

As to whether or not the assessment notices were received by the petitioner, this Court rules
in the affirmative.

To disprove petitioner’s allegation of non-receipt of the aforesaid assessment notices,

respondent presented a certification issued by the Post Master of the Central Post Office,
Manila to the effect that Registered Letter No. 76134 sent by the BIR, Region No. 6, Manila
on December 15, 1998 addressed to Phil. Journalists, Inc. at Journal Bldg., Railroad St.,
Manila was duly delivered to and received by a certain Alfonso Sanchez, Jr. (Authorized
Representative) on January 8, 1999. Respondent also showed proof that in claiming
Registered Letter No. 76134, Mr. Sanchez presented three identification cards, one of which
is his company ID with herein petitioner.

However, as to whether or not the Waiver of the Statute of Limitations is valid and binding on
the petitioner is another question. Since the subject assessments were issued beyond the
three-year prescriptive period, it becomes imperative on our part to rule first on the validity of
the waiver allegedly executed on September 22, 1997, for if this court finds the same to be
ineffective, then the assessments must necessarily fail.

After carefully examining the questioned Waiver of the Statute of Limitations, this Court
considers the same to be without any binding effect on the petitioner for the following
reasons:

The waiver is an unlimited waiver. It does not contain a definite expiration date. Under RMO
No. 20-90, the phrase indicating the expiry date of the period agreed upon to assess/collect
the tax after the regular three-year period of prescription should be filled up…

Secondly, the waiver failed to state the date of acceptance by the Bureau which under the
aforequoted RMO should likewise be indicated…

Finally, petitioner was not furnished a copy of the waiver. It is to be noted that under RMO
No. 20-90, the waiver must be executed in three (3) copies, the second copy of which is for
the taxpayer. It is likewise required that the fact of receipt by the taxpayer of his/her file copy
be indicated in the original copy. Again, respondent failed to comply.

It bears stressing that RMO No. 20-90 is directed to all concerned internal revenue officers.
The said RMO even provides that the procedures found therein should be strictly followed,
under pain of being administratively dealt with should non-compliance result to prescription
of the right to assess/collect…

Thus, finding the waiver executed by the petitioner on September 22, 1997 to be suffering
from legal infirmities, rendering the same invalid and ineffective, the Court finds
Assessment/Demand No. 33-1-000757-94 issued on December 5, 1998 to be time-barred.
Consequently, the Warrant of Distraint and/or Levy issued pursuant thereto is considered
null and void.

WHEREFORE, in view of all the foregoing, the instant Petition for Review is
hereby GRANTED. Accordingly, the deficiency income, value-added and expanded
withholding tax assessments issued by the respondent against the petitioner on December
9, 1998, in the total amount of P111,291,214.46 for the year 1994 are hereby
declared CANCELLED, WITHDRAWN and WITH NO FORCE AND EFFECT. Likewise,
Warrant of Distraint and/or Levy No. 33-06-046 is hereby declared NULL and VOID.
 SO ORDERED. 14

After the motion for reconsideration of the Commissioner of Internal Revenue was denied by the
CTA in a Resolution dated August 2, 2002, an appeal was filed with the Court of Appeals on August
12, 2002.

In its decision dated August 5, 2003, the Court of Appeals disagreed with the ruling of the CTA, to
wit:

… The petition for review filed on 26 April 2000 with CTA was neither timely filed nor the
proper remedy. Only decisions of the BIR, denying the request for reconsideration or
reinvestigation may be appealed to the CTA. Mere assessment notices which have become
final after the lapse of the thirty (30)-day reglementary period are not appealable. Thus, the
CTA should not have entertained the petition at all.

… [T]he CTA found the waiver executed by Phil. Journalists to be invalid for the following
reasons: (1) it does not indicate a definite expiration date; (2) it does not state the date of
acceptance by the BIR; and (3) Phil. Journalist, the taxpayer, was not furnished a copy of the
waiver. These grounds are merely formal in nature. The date of acceptance by the BIR does
not categorically appear in the document but it states at the bottom page that the BIR
"accepted and agreed to:"…, followed by the signature of the BIR’s authorized
representative. Although the date of acceptance was not stated, the document was dated 22
September 1997. This date could reasonably be understood as the same date of acceptance
by the BIR since a different date was not otherwise indicated. As to the allegation that Phil.
Journalists was not furnished a copy of the waiver, this requirement appears ridiculous. Phil.
Journalists, through its comptroller, Lorenza Tolentino, signed the waiver. Why would it need
a copy of the document it knowingly executed when the reason why copies are furnished to
a party is to notify it of the existence of a document, event or proceeding? …

As regards the need for a definite expiration date, this is the biggest flaw of the decision. The
period of prescription for the assessment of taxes may be extended provided that the
extension be made in writing and that it be made prior to the expiration of the period of
prescription. These are the requirements for a valid extension of the prescriptive period. To
these requirements provided by law, the memorandum order adds that the length of the
extension be specified by indicating its expiration date. This requirement could be
reasonably construed from the rule on extension of the prescriptive period. But this
requirement does not apply in the instant case because what we have here is not an
extension of the prescriptive period but a waiver thereof. These are two (2) very different
things. What Phil. Journalists executed was a renunciation of its right to invoke the defense
of prescription. This is a valid waiver. When one waives the prescriptive period, it is no longer
necessary to indicate the length of the extension of the prescriptive period since the person
waiving may no longer use this defense.

WHEREFORE, the 02 August 2002 resolution and 14 May 2002 decision of the CTA are
hereby SET ASIDE. Respondent Phil. Journalists is ordered [to] pay its assessed tax liability
of P111,291,214.46.

SO ORDERED. 15
Petitioner’s Motion for Reconsideration was denied in a Resolution dated March 31, 2004. Hence,
this appeal on the following assignment of errors:

I.

The Honorable Court of Appeals committed grave error in ruling that it is outside the
jurisdiction of the Court of Tax Appeals to entertain the Petition for Review filed by the herein
Petitioner at the CTA despite the fact that such case inevitably rests upon the validity of the
issuance by the BIR of warrants of distraint and levy contrary to the provisions of Section
7(1) of Republic Act No. 1125.

II.

The Honorable Court of Appeals gravely erred when it ruled that failure to comply with the
provisions of Revenue Memorandum Order (RMO) No. 20-90 is merely a formal defect that
does not invalidate the waiver of the statute of limitations without stating the legal justification
for such conclusion. Such ruling totally disregarded the mandatory requirements of Section
222(b) of the Tax Code and its implementing regulation, RMO No. 20-90 which are
substantive in nature. The RMO provides that violation thereof subjects the erring officer to
administrative sanction. This directive shows that the RMO is not merely cover forms.

III.

The Honorable Court of Appeals gravely erred when it ruled that the assessment notices
became final and unappealable. The assessment issued is void and legally non-existent
because the BIR has no power to issue an assessment beyond the three-year prescriptive
period where there is no valid and binding waiver of the statute of limitation.

IV.

The Honorable Court of Appeals gravely erred when it held that the assessment in question
has became final and executory due to the failure of the Petitioner to protest the same.
Respondent had no power to issue an assessment beyond the three year period under the
mandatory provisions of Section 203 of the NIRC. Such assessment should be held void and
non-existent, otherwise, Section 203, an expression of a public policy, would be rendered
useless and nugatory. Besides, such right to assess cannot be validly granted after three
years since it would arise from a violation of the mandatory provisions of Section 203 and
would go against the vested right of the Petitioner to claim prescription of assessment.

V.

The Honorable Court of Appeals committed grave error when it HELD valid a defective
waiver by considering the latter a waiver of the right to invoke the defense of prescription
rather than an extension of the three year period of prescription (to make an assessment) as
provided under Section 222 in relation to Section 203 of the Tax Code, an interpretation that
is contrary to law, existing jurisprudence and outside of the purpose and intent for which they
were enacted. 16

We find merit in the appeal.

The first assigned error relates to the jurisdiction of the CTA over the issues in this case. The Court
of Appeals ruled that only decisions of the BIR denying a request for reconsideration or
reinvestigation may be appealed to the CTA. Since the petitioner did not file a request for
reinvestigation or reconsideration within thirty (30) days, the assessment notices became final and
unappealable. The petitioner now argue that the case was brought to the CTA because the warrant
of distraint or levy was illegally issued and that no assessment was issued because it was based on
an invalid waiver of the statutes of limitations.

We agree with petitioner. Section 7(1) of Republic Act No. 1125, the Act Creating the Court of Tax
Appeals, provides for the jurisdiction of that special court:

SEC. 7. Jurisdiction. – The Court of Tax Appeals shall exercise exclusive appellate
jurisdiction to review by appeal, as herein provided –

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

assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the National Internal Revenue Code or
other laws or part of law administered by the Bureau of Internal Revenue; (Emphasis
supplied).

The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the
Commissioner of Internal Revenue on matters relating to assessments or refunds. The second part
of the provision covers other cases that arise out of the NIRC or related laws administered by the
Bureau of Internal Revenue. The wording of the provision is clear and simple. It gives the CTA the
jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the
Waiver of Statute of Limitations was validly effected.

This is not the first case where the CTA validly ruled on issues that did not relate directly to a
disputed assessment or a claim for refund. In Pantoja v. David, we upheld the jurisdiction of the
17 

CTA to act on a petition to invalidate and annul the distraint orders of the Commissioner of Internal
Revenue. Also, in Commissioner of Internal Revenue v. Court of Appeals, the decision of the CTA
18 

declaring several waivers executed by the taxpayer as null and void, thus invalidating the
assessments issued by the BIR, was upheld by this Court.

The second and fifth assigned errors both focus on Revenue Memorandum Circular No. 20-90
(RMO No. 20-90) on the requisites of a valid waiver of the statute of limitations. The Court of
Appeals held that the requirements and procedures laid down in the RMO are only formal in nature
and did not invalidate the waiver that was signed even if the requirements were not strictly observed.

The NIRC, under Sections 203 and 222, provides for a statute of limitations on the assessment and
19 

collection of internal revenue taxes in order to safeguard the interest of the taxpayer against
unreasonable investigation. Unreasonable investigation contemplates cases where the period for
20 

assessment extends indefinitely because this deprives the taxpayer of the assurance that it will no
longer be subjected to further investigation for taxes after the expiration of a reasonable period of
time. As was held in Republic of the Phils. v. Ablaza: 21

The law prescribing a limitation of actions for the collection of the income tax is beneficial
both to the Government and to its citizens; to the Government because tax officers would be
obliged to act promptly in the making of assessment, and to citizens because after the lapse
of the period of prescription citizens would have a feeling of security against unscrupulous
tax agents who will always find an excuse to inspect the books of taxpayers, not to determine
the latter’s real liability, but to take advantage of every opportunity to molest peaceful, law-
 abiding citizens. Without such a legal defense taxpayers would furthermore be under
obligation to always keep their books and keep them open for inspection subject to
harassment by unscrupulous tax agents. The law on prescription being a remedial
measure should be interpreted in a way conducive to bringing about the beneficent
purpose of affording protection to the taxpayer within the contemplation of the
Commission which recommend the approval of the law. (Emphasis supplied)

RMO No. 20-90 implements these provisions of the NIRC relating to the period of prescription for the
assessment and collection of taxes. A cursory reading of the Order supports petitioner’s argument
that the RMO must be strictly followed, thus:

In the execution of said waiver, the following procedures should be followed:

1. The waiver must be in the form identified hereof. This form may be reproduced by the
Office concerned but there should be no deviation from such form. The phrase "but not
after __________ 19___" should be filled up…

2. …

Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or
the revenue official authorized by him, as hereinafter provided, shall sign the waiver
indicating that the Bureau has accepted and agreed to the waiver. The date of such
acceptance by the Bureau should be indicated…

3. The following revenue officials are authorized to sign the waiver.

A. In the National Office

3. Commissioner For tax cases

involving more than
P1M

B. In the Regional Offices

1. The Revenue District Officer with respect to tax cases still pending
investigation and the period to assess is about to prescribe regardless of
amount.

5. The foregoing procedures shall be strictly followed. Any revenue

official found not to have complied with this Order resulting in
prescription of the right to assess/collect shall be administratively dealt
with. (Emphasis supplied) 22

A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the
taxpayers’ right to security against prolonged and unscrupulous investigations and must therefore be
carefully and strictly construed. The waiver of the statute of limitations is not a waiver of the right to
23 
invoke the defense of prescription as erroneously held by the Court of Appeals. It is an agreement
between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due
is extended to a date certain. The waiver does not mean that the taxpayer relinquishes the right to
invoke prescription unequivocally particularly where the language of the document is equivocal. For
the purpose of safeguarding taxpayers from any unreasonable examination, investigation or
assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on
prescription, being a remedial measure, should be liberally construed in order to afford such
protection. As a corollary, the exceptions to the law on prescription should perforce be strictly
construed. RMO No. 20-90 explains the rationale of a waiver:
24 

... The phrase "but not after _________ 19___" should be filled up. This indicates the expiry
date of the period agreed upon to assess/collect the tax after the regular three-year period of
prescription. The period agreed upon shall constitute the time within which to effect the
assessment/collection of the tax in addition to the ordinary prescriptive
period. (Emphasis supplied)

As found by the CTA, the Waiver of Statute of Limitations, signed by petitioner’s comptroller on
September 22, 1997 is not valid and binding because it does not conform with the provisions of
RMO No. 20-90. It did not specify a definite agreed date between the BIR and petitioner, within
which the former may assess and collect revenue taxes. Thus, petitioner’s waiver became unlimited
in time, violating Section 222(b) of the NIRC.

The waiver is also defective from the government side because it was signed only by a revenue
district officer, not the Commissioner, as mandated by the NIRC and RMO No. 20-90. The waiver is
not a unilateral act by the taxpayer or the BIR, but is a bilateral agreement between two parties to
extend the period to a date certain. The conformity of the BIR must be made by either the
Commissioner or the Revenue District Officer. This case involves taxes amounting to more than One
Million Pesos (P1,000,000.00) and executed almost seven months before the expiration of the three-
year prescription period. For this, RMO No. 20-90 requires the Commissioner of Internal Revenue to
sign for the BIR.

The case of Commissioner of Internal Revenue v. Court of Appeals, dealt with waivers that were not
25 

signed by the Commissioner but were argued to have been given implied consent by the BIR. We
invalidated the subject waivers and ruled:

Petitioner’s submission is inaccurate…

The Court of Appeals itself also passed upon the validity of the waivers executed by
Carnation, observing thus:

We cannot go along with the petitioner’s theory. Section 319 of the Tax Code earlier
quoted is clear and explicit that the waiver of the five-year prescriptive period must
26 

be in writing and signed by both the BIR Commissioner and the taxpayer.

Here, the three waivers signed by Carnation do not bear the written consent of the
BIR Commissioner as required by law.
 We agree with the CTA in holding "these ‘waivers’ to be invalid and without any
binding effect on petitioner (Carnation) for the reason that there was no consent by
the respondent (Commissioner of Internal Revenue)."

For sure, no such written agreement concerning the said three waivers exists
between the petitioner and private respondent Carnation.

What is more, the waivers in question reveal that they are in no wise unequivocal, and
therefore necessitates for its binding effect the concurrence of the Commissioner of Internal
Revenue…. On this basis neither implied consent can be presumed nor can it be
contended that the waiver required under Sec. 319 of the Tax Code is one which is
unilateral nor can it be said that concurrence to such an agreement is a mere formality
because it is the very signatures of both the Commissioner of Internal Revenue and
the taxpayer which give birth to such a valid agreement. (Emphasis supplied)
27 

The other defect noted in this case is the date of acceptance which makes it difficult to fix with
certainty if the waiver was actually agreed before the expiration of the three-year prescriptive period.
The Court of Appeals held that the date of the execution of the waiver on September 22, 1997 could
reasonably be understood as the same date of acceptance by the BIR. Petitioner points out however
that Revenue District Officer Sarmiento could not have accepted the waiver yet because she was
not the Revenue District Officer of RDO No. 33 on such date. Ms. Sarmiento’s transfer and
assignment to RDO No. 33 was only signed by the BIR Commissioner on January 16, 1998 as
shown by the Revenue Travel Assignment Order No. 14-98. The Court of Tax Appeals noted in its
28 

decision that it is unlikely as well that Ms. Sarmiento made the acceptance on January 16, 1998
because "Revenue Officials normally have to conduct first an inventory of their pending papers and
property responsibilities."
29

Finally, the records show that petitioner was not furnished a copy of the waiver. Under RMO No. 20-
90, the waiver must be executed in three copies with the second copy for the taxpayer. The Court of
Appeals did not think this was important because the petitioner need not have a copy of the
document it knowingly executed. It stated that the reason copies are furnished is for a party to be
notified of the existence of a document, event or proceeding.

The flaw in the appellate court’s reasoning stems from its assumption that the waiver is a unilateral
act of the taxpayer when it is in fact and in law an agreement between the taxpayer and the BIR.
When the petitioner’s comptroller signed the waiver on September 22, 1997, it was not yet complete
and final because the BIR had not assented. There is compliance with the provision of RMO No. 20-
90 only after the taxpayer received a copy of the waiver accepted by the BIR. The requirement to
furnish the taxpayer with a copy of the waiver is not only to give notice of the existence of the
document but of the acceptance by the BIR and the perfection of the agreement.

The waiver document is incomplete and defective and thus the three-year prescriptive period was
not tolled or extended and continued to run until April 17, 1998. Consequently, the
Assessment/Demand No. 33-1-000757-94 issued on December 9, 1998 was invalid because it was
issued beyond the three (3) year period. In the same manner, Warrant of Distraint and/or Levy No.
33-06-046 which petitioner received on March 28, 2000 is also null and void for having been issued
pursuant to an invalid assessment.
WHEREFORE, premises considered, the instant petition for review is GRANTED. The Decision of
the Court of Appeals dated August 5, 2003 and its Resolution dated March 31, 2004
are REVERSED and SET ASIDE. The Decision of the Court of Tax Appeals in CTA Case No. 6108
dated May 14, 2002, declaring Warrant of Distraint and/or Levy No. 33-06-046 null and void,
is REINSTATED.

SO ORDERED.
 FIRST DIVISION

G.R. No. 167146             October 31, 2006

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
PHILIPPINE GLOBAL COMMUNICATION, INC., respondent.

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court, seeking to set aside
the en banc Decision of the Court of Tax Appeals (CTA) in CTA EB No. 37 dated 22 February
2005,1 ordering the petitioner to withdraw and cancel Assessment Notice No. 000688-80-7333
issued against respondent Philippine Global Communication, Inc. for its 1990 income tax deficiency.
The CTA, in its assailed en banc Decision, affirmed the Decision of the First Division of the CTA
dated 9 June 20042 and its Resolution dated 22 September 2004 in C.T.A. Case No. 6568.

Respondent, a corporation engaged in telecommunications, filed its Annual Income Tax Return for
taxable year 1990 on 15 April 1991. On 13 April 1992, the Commissioner of Internal Revenue (CIR)
issued Letter of Authority No. 0002307, authorizing the appropriate Bureau of Internal Revenue
(BIR) officials to examine the books of account and other accounting records of respondent, in
connection with the investigation of respondent’s 1990 income tax liability. On 22 April 1992, the BIR
sent a letter to respondent requesting the latter to present for examination certain records and
documents, but respondent failed to present any document. On 21 April 1994, respondent received
a Preliminary Assessment Notice dated 13 April 1994 for deficiency income tax in the amount
of P118,271,672.00, inclusive of surcharge, interest, and compromise penalty, arising from
deductions that were disallowed for failure to pay the withholding tax and interest expenses that
were likewise disallowed. On the following day, 22 April 1994, respondent received a Formal
Assessment Notice with Assessment Notice No. 000688-80-7333, dated 14 April 1994, for
deficiency income tax in the total amount of P118,271,672.00.3

On 6 May 1994, respondent, through its counsel Ponce Enrile Cayetano Reyes and Manalastas Law
Offices, filed a formal protest letter against Assessment Notice No. 000688-80-7333. Respondent
filed another protest letter on 23 May 1994, through another counsel Siguion Reyna Montecillo &
Ongsiako Law Offices. In both letters, respondent requested for the cancellation of the tax
assessment, which they alleged was invalid for lack of factual and legal basis. 4

On 16 October 2002, more than eight years after the assessment was presumably issued, the
Ponce Enrile Cayetano Reyes and Manalastas Law Offices received from the CIR a Final Decision
dated 8 October 2002 denying the respondent’s protest against Assessment Notice No. 000688-80-
7333, and affirming the said assessment in toto.5

On 15 November 2002, respondent filed a Petition for Review with the CTA. After due notice and
hearing, the CTA rendered a Decision in favor of respondent on 9 June 2004. 6 The CTA ruled on the
primary issue of prescription and found it unnecessary to decide the issues on the validity and
propriety of the assessment. It decided that the protest letters filed by the respondent cannot
constitute a request for reinvestigation, hence, they cannot toll the running of the prescriptive period
to collect the assessed deficiency income tax.7 Thus, since more than three years had lapsed from
the time Assessment Notice No. 000688-80-7333 was issued in 1994, the CIR’s right to collect the
same has prescribed in conformity with Section 269 of the National Internal Revenue Code of
19778 (Tax Code of 1977). The dispositive portion of this decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the petitioner.

Accordingly, respondent’s Final Decision dated October 8, 2002 is hereby REVERSED and
SET ASIDE and respondent is hereby ORDERED to WITHDRAW and CANCEL Assessment
Notice No. 000688-80-7333 issued against the petitioner for its 1990 income tax deficiency
because respondent’s right to collect the same has prescribed. 9

The CIR moved for reconsideration of the aforesaid Decision but was denied by the CTA in a
Resolution dated 22 September 2004.10 Thereafter, the CIR filed a Petition for Review with the
CTA en banc, questioning the aforesaid Decision and Resolution. In its en banc Decision, the CTA
affirmed the Decision and Resolution in CTA Case No. 6568. The dispositive part reads:

WHEREFORE, premises considered, the Petition for Review is hereby DISMISSED for lack
of merit. Accordingly, the assailed Decision and Resolution in CTA Case No. 6568 are
hereby AFFIRMED in toto.11

Hence, this Petition for Review on Certiorari raising the following grounds:

THE COURT OF TAX APPEALS, SITTING EN BANC, COMMITTED REVERSIBLE ERROR

IN AFFIRMING THE ASSAILED DECISION AND RESOLUTION IN CTA CASE NO. 6568
DECLARING THAT THE RIGHT OF THE GOVERNMENT TO COLLECT THE DEFICIENCY
INCOME TAX FROM RESPONDENT FOR THE YEAR 1990 HAS PRESCRIBED

A. THE PRESCRIPTIVE PERIOD WAS INTERUPTED WHEN RESPONDENT

FILED TWO LETTERS OF PROTEST DISPUTING IN DETAIL THE DEFICIENCY
ASSESSMENT IN QUESTION AND REQUESTING THE CANCELLATION OF SAID
ASSESSMENT. THE TWO LETTERS OF PROTEST ARE, BY NATURE,
REQUESTS FOR REINVESTIGATION OF THE DISPUTED ASSESSMENT.

B. THE REQUESTS FOR REINVESTIGATION OF RESPONDENT WERE

GRANTED BY THE BUREAU OF INTERNAL REVENUE.12

This Court finds no merit in this Petition.

The main issue in this case is whether or not CIR’s right to collect respondent’s alleged deficiency
income tax is barred by prescription under Section 269(c) of the Tax Code of 1977, which reads:

Section 269. Exceptions as to the period of limitation of assessment and collection of taxes.

–xxx
 xxxx

c. Any internal revenue tax which has been assessed within the period of limitation above-
prescribed may be collected by distraint or levy or by a proceeding in court within three years
following the assessment of the tax.

The law prescribed a period of three years from the date the return was actually filed or from the last
date prescribed by law for the filing of such return, whichever came later, within which the BIR may
assess a national internal revenue tax.13 However, the law increased the prescriptive period to
assess or to begin a court proceeding for the collection without an assessment to ten years when a
false or fraudulent return was filed with the intent of evading the tax or when no return was filed at
all.14 In such cases, the ten-year period began to run only from the date of discovery by the BIR of
the falsity, fraud or omission.

If the BIR issued this assessment within the three-year period or the ten-year period, whichever was
applicable, the law provided another three years after the assessment for the collection of the tax
due thereon through the administrative process of distraint and/or levy or through judicial
proceedings.15 The three-year period for collection of the assessed tax began to run on the date the
assessment notice had been released, mailed or sent by the BIR.16

The assessment, in this case, was presumably issued on 14 April 1994 since the respondent did not
dispute the CIR’s claim. Therefore, the BIR had until 13 April 1997. However, as there was no
Warrant of Distraint and/or Levy served on the respondents nor any judicial proceedings initiated by
the BIR, the earliest attempt of the BIR to collect the tax due based on this assessment was when it
filed its Answer in CTA Case No. 6568 on 9 January 2003, which was several years beyond the
three-year prescriptive period. Thus, the CIR is now prescribed from collecting the assessed tax.

The provisions on prescription in the assessment and collection of national internal revenue taxes
became law upon the recommendation of the tax commissioner of the Philippines. The report
submitted by the tax commission clearly states that these provisions on prescription should be
enacted to benefit and protect taxpayers:

Under the former law, the right of the Government to collect the tax does not prescribe.
However, in fairness to the taxpayer, the Government should be estopped from collecting the
tax where it failed to make the necessary investigation and assessment within 5 years after
the filing of the return and where it failed to collect the tax within 5 years from the date of
assessment thereof. Just as the government is interested in the stability of its collections, so
also are the taxpayers entitled to an assurance that they will not be subjected to further
investigation for tax purposes after the expiration of a reasonable period of time. (Vol. II,
Report of the Tax Commission of the Philippines, pp. 321-322). 17

In a number of cases, this Court has also clarified that the statute of limitations on the collection of
taxes should benefit both the Government and the taxpayers. In these cases, the Court further
illustrated the harmful effects that the delay in the assessment and collection of taxes inflicts upon
taxpayers. In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,18 Justice
Montemayor, in his dissenting opinion, identified the potential loss to the taxpayer if the assessment
and collection of taxes are not promptly made.

Prescription in the assessment and in the collection of taxes is provided by the Legislature
for the benefit of both the Government and the taxpayer; for the Government for the purpose
of expediting the collection of taxes, so that the agency charged with the assessment and
collection may not tarry too long or indefinitely to the prejudice of the interests of the
 Government, which needs taxes to run it; and for the taxpayer so that within a reasonable
time after filing his return, he may know the amount of the assessment he is required to pay,
whether or not such assessment is well founded and reasonable so that he may either pay
the amount of the assessment or contest its validity in court x x x. It would surely be
prejudicial to the interest of the taxpayer for the Government collecting agency to unduly
delay the assessment and the collection because by the time the collecting agency finally
gets around to making the assessment or making the collection, the taxpayer may then have
lost his papers and books to support his claim and contest that of the Government, and what
is more, the tax is in the meantime accumulating interest which the taxpayer eventually has
to pay .

In Republic of the Philippines v. Ablaza,19 this Court emphatically explained that the statute of

limitations of actions for the collection of taxes is justified by the need to protect law-abiding citizens
from possible harassment:

The law prescribing a limitation of actions for the collection of the income tax is beneficial
both to the Government and to its citizens; to the Government because tax officers would be
obliged to act promptly in the making of assessment, and to citizens because after the lapse
of the period of prescription citizens would have a feeling of security against unscrupulous
tax agents who will always find an excuse to inspect the books of taxpayers, not to determine
the latter’s real liability, but to take advantage of every opportunity to molest, peaceful, law-
abiding citizens. Without such legal defense taxpayers would furthermore be under
obligation to always keep their books and keep them open for inspection subject to
harassment by unscrupulous tax agents. The law on prescription being a remedial measure
should be interpreted in a way conducive to bringing about the beneficient purpose of
affording protection to the taxpayer within the contemplation of the Commission which
recommended the approval of the law.

And again in the recent case Bank of the Philippine Islands v. Commissioner of Internal
Revenue,20 this Court, in confirming these earlier rulings, pronounced that:

Though the statute of limitations on assessment and collection of national internal revenue
taxes benefits both the Government and the taxpayer, it principally intends to afford
protection to the taxpayer against unreasonable investigation. The indefinite extension of the
period for assessment is unreasonable because it deprives the said taxpayer of the
assurance that he will no longer be subjected to further investigation for taxes after the
expiration of a reasonable period of time.

Thus, in Commissioner of Internal Revenue v. B.F. Goodrich, 21 this Court affirmed that the law on
prescription should be liberally construed in order to protect taxpayers and that, as a corollary, the
exceptions to the law on prescription should be strictly construed.

The Tax Code of 1977, as amended, provides instances when the running of the statute of
limitations on the assessment and collection of national internal revenue taxes could be suspended,
even in the absence of a waiver, under Section 271 thereof which reads:

Section 224. Suspension of running of statute. – The running of the statute of limitation provided in
Sections 268 and 269 on the making of assessments and the beginning of distraint or levy or a
proceeding in court for collection in respect of any deficiency, shall be suspended for the period
during which the Commissioner is prohibited from making the assessment or beginning distraint or
levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a
reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in
the address given by him in the return filed upon which a tax is being assessed or collected x x x.
(Emphasis supplied.)

Among the exceptions provided by the aforecited section, and invoked by the CIR as a ground for
this petition, is the instance when the taxpayer requests for a reinvestigation which is granted by the
Commissioner. However, this exception does not apply to this case since the respondent never
requested for a reinvestigation. More importantly, the CIR could not have conducted a
reinvestigation where, as admitted by the CIR in its Petition, the respondent refused to submit any
new evidence.

Revenue Regulations No. 12-85, the Procedure Governing Administrative Protests of Assessment of
the Bureau of Internal Revenue, issued on 27 November 1985, defines the two types of protest, the
request for reconsideration and the request for reinvestigation, and distinguishes one from the other
in this manner:

Section 6. Protest. - The taxpayer may protest administratively an assessment by filing a

written request for reconsideration or reinvestigation specifying the following particulars:

xxxx

For the purpose of protest herein—

(a) Request for reconsideration-- refers to a plea for a re-evaluation of an assessment on the

basis of existing records without need of additional evidence. It may involve both a question
of fact or of law or both.

(b) Request for reinvestigation—refers to a plea for re-evaluation of an assessment on the

basis of newly-discovered evidence or additional evidence that a taxpayer intends to present
in the investigation. It may also involve a question of fact or law or both.

The main difference between these two types of protests lies in the records or evidence to be
examined by internal revenue officers, whether these are existing records or newly discovered or
additional evidence. A re-evaluation of existing records which results from a request for
reconsideration does not toll the running of the prescription period for the collection of an assessed
tax. Section 271 distinctly limits the suspension of the running of the statute of limitations to
instances when reinvestigation is requested by a taxpayer and is granted by the CIR. The Court
provided a clear-cut rationale in the case of Bank of the Philippine Islands v. Commissioner of
Internal Revenue22 explaining why a request for reinvestigation, and not a request for
reconsideration, interrupts the running of the statute of limitations on the collection of the assessed
tax:

Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional

evidence, will take more time than a reconsideration of a tax assessment, which will be
limited to the evidence already at hand; this justifies why the former can suspend the running
of the statute of limitations on collection of the assessed tax, while the latter cannot.

In the present case, the separate letters of protest dated 6 May 1994 and 23 May 1994 are requests
for reconsideration. The CIR’s allegation that there was a request for reinvestigation is inconceivable
since respondent consistently and categorically refused to submit new evidence and cooperate in
any reinvestigation proceedings. This much was admitted in the Decision dated 8 October 2002
issued by then CIR Guillermo Payarno, Jr.
 In the said conference-hearing, Revenue Officer Alameda basically testified that Philcom,
despite repeated demands, failed to submit documentary evidences in support of its claimed
deductible expenses. Hence, except for the item of interest expense which was disallowed
for being not ordinary and necessary, the rest of the claimed expenses were disallowed for
non-withholding. In the same token, Revenue Officer Escober testified that upon his
assignment to conduct the re-investigation, he immediately requested the taxpayer to
present various accounting records for the year 1990, in addition to other documents in
relation to the disallowed items (p.171). This was followed by other requests for submission
of documents (pp.199 &217) but these were not heeded by the taxpayer. Essentially, he
stated that Philcom did not cooperate in his reinvestigation of the case.

In response to the testimonies of the Revenue Officers, Philcom thru Atty. Consunji,
emphasized that it was denied due process because of the issuance of the Pre-Assessment
Notice and the Assessment Notice on successive dates. x x x Counsel for the taxpayer even
questioned the propriety of the conference-hearing inasmuch as the only question to
resolved (sic) is the legality of the issuance of the assessment. On the disallowed items,
Philcom thru counsel manifested that it has no intention to present documents and/or
evidences allegedly because of the pending legal question on the validity of the
assessment.23

Prior to the issuance of Revenue Regulations No. 12-85, which distinguishes a request for
reconsideration and a request for reinvestigation, there have been cases wherein these two terms
were used interchangeably. But upon closer examination, these cases all involved a reinvestigation
that was requested by the taxpayer and granted by the BIR.

In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,24 the Court weighed the
considerable time spent by the BIR to actually conduct the reinvestigations requested by the
taxpayer in deciding that the prescription period was suspended during this time.

Because of such requests, several reinvestigations were made and a hearing was even held
by the Conference Staff organized in the collection office to consider claims of such nature
which, as the record shows, lasted for several months. After inducing petitioner to delay
collection as he in fact did, it is most unfair for respondent to now take advantage of such
desistance to elude his deficiency income tax liability to the prejudice of the Government
invoking the technical ground of prescription.

Although the Court used the term "requests for reconsideration" in reference to the letters sent by
the taxpayer in the case of Querol v. Collector of Internal Revenue,25 it took into account the
reinvestigation conducted soon after these letters were received and the revised assessment that
resulted from the reinvestigations.

It is true that the Collector revised the original assessment on February 9, 1955; and
appellant avers that this revision was invalid in that it was not made within the five-year
prescriptive period provided by law (Collector vs. Pineda, 112 Phil. 321). But that fact is that
the revised assessment was merely a result of petitioner Querol’s requests for
reconsideration of the original assessment, contained in his letters of December 14, 1951
and May 25, 1953. The records of the Bureau of Internal Revenue show that after receiving
the letters, the Bureau conducted a reinvestigation of petitioner’s tax liabilities, and, in fact,
sent a tax examiner to San Fernando, La Union, for that purpose; that because of the
examiner’s report, the Bureau revised the original assessment, x x x. In other words, the
reconsideration was granted in part, and the original assessment was altered. Consequently,
 the period between the petition for reconsideration and the revised assessment should be
subtracted from the total prescriptive period (Republic vs. Ablaza, 108 Phil 1105).

The Court, in Republic v. Lopez, 26 even gave a detailed accounting of the time the BIR spent for
each reinvestigation in order to deduct it from the five-year period set at that time in the statute of
limitations:

It is now a settled ruled in our jurisdiction that the five-year prescriptive period fixed by
Section 332(c) of the Internal Revenue Code within which the Government may sue to
collect an assessed tax is to be computed from the last revised assessment resulting from a
reinvestigation asked for by the taxpayer and (2) that where a taxpayer demands a
reinvestigation, the time employed in reinvestigating should be deducted from the total
period of limitation.

xxxx

The first reinvestigation was granted, and a reduced assessment issued on 29 May 1954,
from which date the Government had five years for bringing an action to collect.

The second reinvestigation was asked on 16 January 1956, and lasted until it was decided
on 22 April 1960, or a period of 4 years, 3 months, and 6 days, during which the limitation
period was interrupted.

The Court reiterated the ruling in Republic v. Lopez in the case of Commissioner of Internal
Revenue v. Sison,27 "that where a taxpayer demands a reinvestigation, the time employed in
reinvestigating should be deducted from the total period of limitation." Finally, in Republic v.
Arcache,28 the Court enumerated the reasons why the taxpayer is barred from invoking the defense
of prescription, one of which was that, "In the first place, it appears obvious that the delay in the
collection of his 1946 tax liability was due to his own repeated requests for reinvestigation and
similarly repeated requests for extension of time to pay."

In this case, the BIR admitted that there was no new or additional evidence presented. Considering
that the BIR issued its Preliminary Assessment Notice on 13 April 1994 and its Formal Assessment
Notice on 14 April 1994, just one day before the three-year prescription period for issuing the
assessment expired on 15 April 1994, it had ample time to make a factually and legally well-founded
assessment. Added to the fact that the Final Decision that the CIR issued on 8 October 2002 merely
affirmed its earlier findings, whatever examination that the BIR may have conducted cannot possibly
outlast the entire three-year prescriptive period provided by law to collect the assessed tax, not to
mention the eight years it actually took the BIR to decide the respondent’s protest. The factual and
legal issues involved in the assessment are relatively simple, that is, whether certain income tax
deductions should be disallowed, mostly for failure to pay withholding taxes. Thus, there is no
reason to suspend the running of the statute of limitations in this case.

The distinction between a request for reconsideration and a request for reinvestigation is significant.
It bears repetition that a request for reconsideration, unlike a request for reinvestigation, cannot
suspend the statute of limitations on the collection of an assessed tax. If both types of protest can
effectively interrupt the running of the statute of limitations, an erroneous assessment may never
prescribe. If the taxpayer fails to file a protest, then the erroneous assessment would become final
and unappealable.29 On the other hand, if the taxpayer does file the protest on a patently erroneous
assessment, the statute of limitations would automatically be suspended and the tax thereon may be
collected long after it was assessed. Meanwhile the interest on the deficiencies and the surcharges
continue to accumulate. And for an unrestricted number of years, the taxpayers remain uncertain
and are burdened with the costs of preserving their books and records. This is the predicament that
the law on the statute of limitations seeks to prevent.

The Court, in sustaining for the first time the suspension of the running of the statute of limitations in
cases where the taxpayer requested for a reinvestigation, gave this justification:

A taxpayer may be prevented from setting up the defense of prescription even if he has not
previously waived it in writing as when by his repeated requests or positive acts the
Government has been, for good reasons, persuaded to postpone collection to make him
feel that the demand was not unreasonable or that no harassment or injustice is
meant by the Government.

xxxx

This case has no precedent in this jurisdiction for it is the first time that such has risen, but
there are several precedents that may be invoked in American jurisprudence. As Mr. Justice
Cardozo has said: "The applicable principle is fundamental and unquestioned. ‘He who
prevents a thing from being done may not avail himself of the nonperformance which
he himself occasioned, for the law says to him in effect "this is your own act, and
therefore you are not damnified."’ (R.H. Stearns Co. v. U.S., 78 L. ed., 647). (Emphasis
supplied.)30

This rationale is not applicable to the present case where the respondent did nothing to prevent the
BIR from collecting the tax. It did not present to the BIR any new evidence for its re-evaluation. At
the earliest opportunity, respondent insisted that the assessment was invalid and made clear to the
BIR its refusal to produce documents that the BIR requested. On the other hand, the BIR also
communicated to the respondent its unwavering stance that its assessment is correct. Given that
both parties were at a deadlock, the next logical step would have been for the BIR to issue a
Decision denying the respondent’s protest and to initiate proceedings for the collection of the
assessed tax and, thus, allow the respondent, should it so choose, to contest the assessment before
the CTA. Postponing the collection for eight long years could not possibly make the taxpayer feel
that the demand was not unreasonable or that no harassment or injustice is meant by the
Government. There was no legal, or even a moral, obligation preventing the CIR from collecting the
assessed tax. In a similar case, Cordero v. Conda,31 the Court did not suspend the running of the
prescription period where the acts of the taxpayer did not prevent the government from collecting the
tax.

The government also urges that partial payment is "acknowledgement of the tax obligation",
hence a "waiver on the defense of prescription." But partial payment would not prevent the
government from suing the taxpayer. Because, by such act of payment, the government is
not thereby "persuaded to postpone collection to make him feel that the demand was not
unreasonable or that no harassment or injustice is meant." Which, as stated in Collector v.
Suyoc Consolidated Mining Co., et al., L-11527, November 25, 1958, is the underlying
reason behind the rule that prescriptive period is arrested by the taxpayer’s request for
reexamination or reinvestigation – even if "he has not previously waived it [prescription] in
writing."

The Court reminds us, in the case of Commissioner of Internal Revenue v. Algue, Inc., 32 of the need
to balance the conflicting interests of the government and the taxpayers.

Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. On the other hand, such collection should be made in accordance with law as any
 arbitrariness will negate the very reason for government itself. It is therefore necessary to
reconcile the apparently conflicting interest of the authorities and the taxpayers so that the
real purpose of taxation, which is the promotion of common good, may be achieved.

Thus, the three-year statute of limitations on the collection of an assessed tax provided under
Section 269(c) of the Tax Code of 1977, a law enacted to protect the interests of the taxpayer, must
be given effect. In providing for exceptions to such rule in Section 271, the law strictly limits the
suspension of the running of the prescription period to, among other instances, protests wherein the
taxpayer requests for a reinvestigation. In this case, where the taxpayer merely filed two protest
letters requesting for a reconsideration, and where the BIR could not have conducted a
reinvestigation because no new or additional evidence was submitted, the running of statute of
limitations cannot be interrupted. The tax which is the subject of the Decision issued by the CIR on 8
October 2002 affirming the Formal Assessment issued on 14 April 1994 can no longer be the subject
of any proceeding for its collection. Consequently, the right of the government to collect the alleged
deficiency tax is barred by prescription.

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The assailed en banc Decision of
the CTA in CTA EB No. 37 dated 22 February 2005, cancelling Assessment Notice No. 000688-80-
7333 issued against Philippine Global Communication, Inc. for its 1990 income tax deficiency for the
reason that it is barred by prescription, is hereby AFFIRMED. No costs.

SO ORDERED.
 SECOND DIVISION

G.R. No. 174942             March 7, 2008

BANK OF THE PHILIPPINE ISLANDS (Formerly: Far East Bank and Trust Company), petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

DECISION

TINGA, J.:

The Bank of the Philippine Islands (BPI) seeks a review of the Decision 1dated 15 August 2006 and
the Resolution2dated 5 October 2006, both of the Court of Tax Appeals (CTA or tax court), which
ruled that BPI is liable for the deficiency documentary stamp tax (DST) on its cabled instructions to
its foreign correspondent bank and that prescription had not yet set in against the government.

The following undisputed facts are culled from the CTA decision:

Petitioner, the surviving bank after its merger with Far East Bank and Trust Company, is a
corporation duly created and existing under the laws of the Republic of the Philippines with
principal office at Ayala Avenue corner Paseo de Roxas Ave., Makati City.

Respondent thru then Revenue Service Chief Cesar M. Valdez, issued to the petitioner a
pre-assessment notice (PAN) dated November 26, 1986.

Petitioner, in a letter dated November 29, 1986, requested for the details of the amounts
alleged as 1982-1986 deficiency taxes mentioned in the November 26, 1986 PAN.

On April 7, 1989, respondent issued to the petitioner, assessment/demand notices FAS-1-82

to 86/89-000 and FAS 5-82 to 86/89-000 for deficiency withholding tax at source (Swap
Transactions) and DST involving the amounts of P190,752,860.82 and P24,587,174.63,
respectively, for the years 1982 to 1986.

On April 20, 1989, petitioner filed a protest on the demand/assessment notices. On May 8,
1989, petitioner filed a supplemental protest.

On March 12, 1993, petitioner requested for an opportunity to present or submit additional
documentation on the Swap Transactions with the then Central Bank (page 240, BIR
Records). Attached to the letter dated June 17, 1994, in connection with the reinvestigation
of the abovementioned assessment, petitioner submitted to the BIR, Swap Contracts with the
Central Bank.

Petitioner executed several Waivers of the Statutes of Limitations, the last of which was
effective until December 31, 1994.
 On August 9, 2002, respondent issued a final decision on petitioner’s protest ordering the
withdrawal and cancellation of the deficiency withholding tax assessment in the amount
of P190,752,860.82 and considered the same as closed and terminated. On the other hand,
the deficiency DST assessment in the amount of P24,587,174.63 was reiterated and the
petitioner was ordered to pay the said amount within thirty (30) days from receipt of such
order. Petitioner received a copy of the said decision on January 15, 2003. Thereafter, on
January 24, 2003, petitioner filed a Petition for Review before the Court.

On August 31, 2004, the Court rendered a Decision denying the petitioner’s Petition for
Review, the dispositive portion of which is quoted hereunder:

IN VIEW OF ALL THE FOREGOING, the petition is hereby DENIED for lack of merit.
Accordingly, petitioner is ORDERED to PAY the respondent the amount
of P24,587,174.63 representing deficiency documentary stamp tax for the period
1982-1986, plus 20% interest starting February 14, 2003 until the amount is fully paid
pursuant to Section 249 of the Tax Code.

SO ORDERED.

On September 21, 2004, petitioner filed a Motion for Reconsideration of the abovementioned
Decision which was denied for lack of merit in a Resolution dated February 14, 2005.

On March 9, 2005, petitioner filed with the Court En Banc a Motion for Extension of Time to
File Petition for Review praying for an extension of fifteen (15) days from March 10, 2005 or
until March 25, 2005. Petitioner’s motion was granted in a Resolution dated March 16, 2005.

On March 28, 2005, (March 25 was Good Friday), petitioner filed the instant Petition for
Review, advancing the following assignment of errors.

I. THIS HONORABLE COURT OVERLOOKED THE SIGNIFICANCE OF

THE WAIVER DULY AND VALIDLY AGREED UPON BY THE PARTIES AND
EFFECTIVE UNTIL DECEMBER 31, 1994;

II. THIS TAX COURT ERRED IN HOLDING THAT THE COLLECTION OF

ALLEGED DEFICIENCY TAX HAS NOT PRESCRIBED.

III. THIS HONORABLE COURT ERRED IN HOLDING THAT RESPONDENT DID

NOT VIOLATE PROCEDURAL DUE PROCESS IN THE ISSUANCE OF
ASSESSMENT NOTICE RELATIVE TO DOCUMENTARY STAMP DEFICIENCY.

IV. THIS HONORABLE COURT ERRED IN HOLDING THAT THE 4 MARCH 1987
MEMORANDUM OF THE LEGAL SERVICE CHIEF DULY APPROVED BY THE BIR
COMMISISONER VESTS NO RIGHTS TO PETITIONER.

V. THIS HONORABLE COURT ERRED IN HOLDING THAT PETITIONER IS

LIABLE FOR DOCUMENTARY STAMP TAX ON SWAP LOANS TRANSACTIONS
FROM 1982 TO 1986.3

The CTA synthesized the foregoing issues into whether the collection of the deficiency DST is
barred by prescription and whether BPI is liable for DST on its SWAP loan transactions.
On the first issue, the tax court, applying the case of Commissioner of Internal Revenue v. Wyeth
Suaco Laboratories, Inc.,4(Wyeth Suaco case), ruled that BPI’s protest and supplemental protest
should be considered requests for reinvestigation which tolled the prescriptive period provided by
law to collect a tax deficiency by distraint, levy, or court proceeding. It further held, as regards the
second issue, that BPI’s cabled instructions to its foreign correspondent bank to remit a specific sum
in dollars to the Federal Reserve Bank, the same to be credited to the account of the Central Bank,
are in the nature of a telegraphic transfer subject to DST under Section 195 of the Tax Code.

In its Petition for Review5 dated 24 November 2006, BPI argues that the government’s right to collect
the DST had already prescribed because the Commissioner of Internal Revenue (CIR) failed to
issue any reply granting BPI’s request for reinvestigation manifested in the protest letters dated 20
April and 8 May 1989. It was only through the 9 August 2002 Decision ordering BPI to pay deficiency
DST, or after the lapse of more than thirteen (13) years, that the CIR acted on the request for
reinvestigation, warranting the conclusion that prescription had already set in. It further claims that
the CIR was not precluded from collecting the deficiency within three (3) years from the time the
notice of assessment was issued on 7 April 1989, or even until the expiration on 31 December 1994
of the last waiver of the statute of limitations signed by BPI.

Moreover, BPI avers that the cabled instructions to its correspondent bank are not subject to DST
because the National Internal Revenue Code of 1977 (Tax Code of 1977) does not contain a specific
provision that cabled instructions on SWAP transactions are subject to DST.

The Office of the Solicitor General (OSG) filed a Comment 6 dated 1 June 2007, on behalf of the CIR,
asserting that the prescriptive period was tolled by the protest letters filed by BPI which were granted
and acted upon by the CIR. Such action was allegedly communicated to BPI as, in fact, the latter
submitted additional documents pertaining to its SWAP transactions in support of its request for
reinvestigation. Thus, it was only upon BPI’s receipt on 13 January 2003 of the 9 August 2002
Decision that the period to collect commenced to run again.

The OSG cites the case of Collector of Internal Revenue v. Suyoc Consolidated Mining Company, et
al.7(Suyoc case) in support of its argument that BPI is already estopped from raising the defense of
prescription in view of its repeated requests for reinvestigation which allegedly induced the CIR to
delay the collection of the assessed tax.

In its Reply8dated 30 August 2007, BPI argues against the application of the Suyoc case on two
points: first, it never induced the CIR to postpone tax collection; second, its request for
reinvestigation was not categorically acted upon by the CIR within the three-year collection period
after assessment. BPI maintains that it did not receive any communication from the CIR in reply to
its protest letters.

We grant the petition.

Section 3189 of the Tax Code of 1977 provides:

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

succeeding section, internal revenue taxes shall be assessed within five years after the
return was filed, and no proceeding in court without assessment for the collection of such
taxes shall be begun after the expiration of such period. For the purposes of this section, a
return filed before the last day prescribed by law for the filing thereof shall be considered as
filed on such last day: Provided, That this limitation shall not apply to cases already
investigated prior to the approval of this Code.
The statute of limitations on assessment and collection of national internal revenue taxes was
shortened from five (5) years to three (3) years by Batas Pambansa Blg. 700. 10 Thus, the CIR has
three (3) years from the date of actual filing of the tax return to assess a national internal revenue tax
or to commence court proceedings for the collection thereof without an assessment.

When it validly issues an assessment within the three (3)-year period, it has another three (3) years
within which to collect the tax due by distraint, levy, or court proceeding. The assessment of the tax
is deemed made and the three (3)-year period for collection of the assessed tax begins to run on the
date the assessment notice had been released, mailed or sent to the taxpayer. 11

As applied to the present case, the CIR had three (3) years from the time he issued assessment
notices to BPI on 7 April 1989 or until 6 April 1992 within which to collect the deficiency DST.
However, it was only on 9 August 2002 that the CIR ordered BPI to pay the deficiency.

In order to determine whether the prescriptive period for collecting the tax deficiency was effectively
tolled by BPI’s filing of the protest letters dated 20 April and 8 May 1989 as claimed by the CIR, we
need to examine Section 32012 of the Tax Code of 1977, which states:

Sec. 320. Suspension of running of statute.—The running of the statute of limitations

provided in Sections 318 or 319 on the making of assessment and the beginning of distraint
or levy or a proceeding in court for collection, in respect of any deficiency, shall be
suspended for the period during which the Commissioner is prohibited from making the
assessment or beginning distraint or levy or a proceeding in court and for sixty days
thereafter; when the taxpayer requests for a re-investigation which is granted by the
Commissioner; when the taxpayer cannot be located in the address given by him in the
return filed upon which a tax is being assessed or collected: Provided, That if the taxpayer
informs the Commissioner of any change in address, the running of the statute of limitations
will not be suspended; when the warrant of distraint and levy is duly served upon the
taxpayer, his authorized representative, or a member of his household with sufficient
discretion, and no property could be located; and when the taxpayer is out of the Philippines.
(Emphasis supplied)

The above section is plainly worded. In order to suspend the running of the prescriptive periods for
assessment and collection, the request for reinvestigation must be granted by the CIR.

In BPI v. Commissioner of Internal Revenue,13the Court emphasized the rule that the CIR must first
grant the request for reinvestigation as a requirement for the suspension of the statute of limitations.
The Court said:

In the case of Republic of the Philippines v. Gancayco, taxpayer Gancayco requested for a

thorough reinvestigation of the assessment against him and placed at the disposal of the
Collector of Internal Revenue all the evidences he had for such purpose; yet, the Collector
ignored the request, and the records and documents were not at all examined. Considering
the given facts, this Court pronounced that—

x x x The act of requesting a reinvestigation alone does not suspend the period. The
request should first be granted, in order to effect suspension. (Collector v. Suyoc
Consolidated, supra; also Republic v. Ablaza, supra). Moreover, the Collector gave appellee
until April 1, 1949, within which to submit his evidence, which the latter did one day before.
There were no impediments on the part of the Collector to file the collection case from April
1, 1949…
In Republic of the Philippines v. Acebedo, this Court similarly found that—

x x x T]he defendant, after receiving the assessment notice of September 24, 1949, asked
for a reinvestigation thereof on October 11, 1949 (Exh. "A"). There is no evidence that this
request was considered or acted upon. In fact, on October 23, 1950 the then Collector of
Internal Revenue issued a warrant of distraint and levy for the full amount of the assessment
(Exh. "D"), but there was follow-up of this warrant. Consequently, the request for
reinvestigation did not suspend the running of the period for filing an action for
collection. [Emphasis in the original]14

The Court went on to declare that the burden of proof that the request for reinvestigation had been
actually granted shall be on the CIR. Such grant may be expressed in its communications with the
taxpayer or implied from the action of the CIR or his authorized representative in response to the
request for reinvestigation.

There is nothing in the records of this case which indicates, expressly or impliedly, that the CIR had
granted the request for reinvestigation filed by BPI. What is reflected in the records is the piercing
silence and inaction of the CIR on the request for reinvestigation, as he considered BPI’s letters of
protest to be.

In fact, it was only in his comment to the present petition that the CIR, through the OSG, argued for
the first time that he had granted the request for reinvestigation. His consistent stance invoking
the Wyeth Suaco case, as reflected in the records, is that the prescriptive period was tolled by BPI’s
request for reinvestigation, without any assertion that the same had been granted or at least acted
upon.15

In the Wyeth Suaco case, private respondent Wyeth Suaco Laboratories, Inc. sent letters seeking
the reinvestigation or reconsideration of the deficiency tax assessments issued by the BIR. The
records of the case showed that as a result of these protest letters, the BIR Manufacturing Audit
Division conducted a review and reinvestigation of the assessments. The records further showed
that the company, thru its finance manager, communicated its inability to settle the tax deficiency
assessment and admitted that it knew of the ongoing review and consideration of its protest.

As differentiated from the Wyeth Suaco case, however, there is no evidence in this case that the
CIR actually conducted a reinvestigation upon the request of BPI or that the latter was made aware
of the action taken on its request. Hence, there is no basis for the tax court’s ruling that the filing of
the request for reinvestigation tolled the running of the prescriptive period for collecting the tax
deficiency.

Neither did the waiver of the statute of limitations signed by BPI supposedly effective until 31
December 1994 suspend the prescriptive period. The CIR himself contends that the waiver is void
as it shows no date of acceptance in violation of RMO No. 20-90. 16 At any rate, the records of this
case do not disclose any effort on the part of the Bureau of Internal Revenue to collect the deficiency
tax after the expiration of the waiver until eight (8) years thereafter when it finally issued a decision
on the protest.

We also find the Suyoc case inapplicable. In that case, several requests for reinvestigation and
reconsideration were filed by Suyoc Consolidated Mining Company purporting to question the
correctness of tax assessments against it. As a result, the Collector of Internal Revenue refrained
from collecting the tax by distraint, levy or court proceeding in order to give the company every
opportunity to prove its claim. The Collector also conducted several reinvestigations which
eventually led to a reduced assessment. The company, however, filed a petition with the CTA
claiming that the right of the government to collect the tax had already prescribed.

When the case reached this Court, we ruled that Suyoc could not set up the defense of prescription
since, by its own action, the government was induced to delay the collection of taxes to make the
company feel that the demand was not unreasonable or that no harassment or injustice was meant
by the government.

In this case, BPI’s letters of protest and submission of additional documents pertaining to its SWAP
transactions, which were never even acted upon, much less granted, cannot be said to have
persuaded the CIR to postpone the collection of the deficiency DST.

The inordinate delay of the CIR in acting upon and resolving the request for reinvestigation filed by
BPI and in collecting the DST allegedly due from the latter had resulted in the prescription of the
government’s right to collect the deficiency. As this Court declared in Republic of the Philippines v.
Ablaza:17

The law prescribing a limitation of actions for the collection of the income tax is beneficial
both to the Government and to its citizens; to the Government because tax officers would be
obliged to act promptly in the making of assessment, and to citizens because after the lapse
of the period of prescription citizens would have a feeling of security against unscrupulous
tax agents who will always find an excuse to inspect the books of taxpayers, not to determine
the latter’s real liability, but to take advantage of every opportunity to molest peaceful, law-
abiding citizens. Without such a legal defense taxpayers would furthermore be under
obligation to always keep their books and keep them open for inspection subject to
harassment by unscrupulous tax agents. The law on prescription being a remedial measure
should be interpreted in a way conducive to bringing about the beneficent purpose of
affording protection to the taxpayer within the contemplation of the Commission which
recommend the approval of the law.18

Given the prescription of the government’s claim, we no longer deem it necessary to pass upon the
validity of the assessment.

WHEREFORE, the petition is GRANTED. The Decisionof the Court of Tax Appeals dated 15 August
2006 and its Resolution dated 5 October 2006, are hereby REVERSED and SET ASIDE. No
pronouncement as to costs.

SO ORDERED.