Commissioner v. Philamlife Insurance Co.

,
GR 105208
May 29, 1995

Case Digest No. 65 of Lucky O. Javellana

FACTS:

On May 30, 1983, private respondent Philamlife, For its Third Quarter of 1983, 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 with
respect to its 1982 claim for refund. On December 16, 1985, it filed another claim for refund
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

ISSUE:

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?

HELD:

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.
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
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 suspended for reasons of equity and other special
circumstances. 
 Pacific Pro., Ltd. Case (Case Not Found)
GR 68013
November 12, 1984

Case Digest No. 66 of Lucky O. Javellana

United Airlines v. CIR,

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

Case Digest No. 67 of Lucky O. Javellana

FACTS:

Petitioner used to be an online carrier but ceased operating cargo flights from the Philippines
starting 2001. It is now an offline international air carrier but has a general sales agent in the
Philippines which sells passage documents for its off-line flights for carriage of passengers and
cargo. It filed a claim for refund on the Gross Philippine Billings (GPB) tax it paid. The CTA
ruled that Petitioner was not liable for the GBP but was liable to pay 32% tax on its net income
derived from the sales of passage documents in the Philippines.

ISSUE:

Is Petitioner liable for either the GPB or the 32% tax?

HELD:

32% tax. The Court reiterated the ruling in South African Airways and BOAC stating that it is
the sale of tickets which is the revenue-generating activity subject to Philippine tax. The correct
interpretation of the applicable rules is that, if an international air carrier maintains flights to and
from the Philippines, it shall be taxed at the rate of 2 1/2% of its Gross Philippine Billings, 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.
The Court also ruled that “to avoid multiplicity of suits and  unnecessary difficulties and
expenses” the issue of deficiency tax assessment be resolved jointly with the its claim for refund
and doing so does not violate the rule against offsetting of taxes.

ABS-CBN Broadcasting Corp. v. CTA

108 SCRA 143

Case Digest No. 68 of Lucky O. Javellana

FACTS:

The ABS-CBN Broadcasting Corporation (herein shall be called the “Company”) was engaged
in the business of telecasting local as well as foreign films acquired from foreign corporations
not engaged in trade or business with the Philippines. Under Section 24 (b) of the National
Revenue Code, a withholding tax of 30% (RA 2343). It was implemented through Circular No.
V-334. Pursuant to the foregoing, ABS-CBN dutifully withheld and turned over to the BIR the
amount of 30% of one-half of the film rentals paid by it to foreign corporations not engaged in
trade or business within the Philippines. The last year that ABS-CBN withheld taxes pursuant to
the foregoing Circular was in 1968.

RA 5431 amended Section 24 (b) of the Tax Code increasing the tax rate from 30 % to 35 % and
revising the tax basis from “such amount” referring to rents, etc. to “gross income.” The
following was implemented by Circular No. 4-71.

Petitioner requested for a reconsideration and withdrawal of the assessment.

ISSUE:

Whether or not respondent can apply General Circular No. 4-71 retroactively and issue a
deficiency assessment against petitioner.

HELD:
Any rulings or circulars promulgated by the CIR have no retroactive application when it would
be prejudicial to taxpayers. The retroactive application of Memorandum Circular No. 4-71
prejudices ABS-CBN since:

1. The assessment and demand on petitioner to pay deficiency withholding income tax was also
made three years after 1968 for a period of time commencing in 1965.

2. ABS-CBN was no longer in a position to withhold taxes due from foreign corporations
because it had already remitted all film rentals and no longer had any control over them when the
new Circular was issued.

Emilio S. Lim v. Court of Appeals

GR L-48134-37
October 18, 1990

Case Digest No. 69 of Lucky O. Javellana

DOCTRINE: Prescriptive Period to File Criminal Case Under NIRC SECTION 281: 5 years
from failure to pay tax after notice and demand.

NATURE: Petition for Review on Certiorari

FACTS: Spouses Lim were engaged in the dealership of various household appliances.

The NBI conducted a raid on Oct. 5, 1959 on their:

1.) Business Address: No. 336 Nueva Street, Manila; and
2.) 111 12th Street, Quezon City.
Seized from the Lim couple were business and accounting records which served as bases for an
investigation undertaken by the BIR.
On Sept. 30, 1964, Senior Revenue Examiner Raphael S. Daet submitted a memorandum that the
income tax returns filed by the spouses Lim for 1958 and 1959 were false or fraudulent.
Assessment should be: P835, 127.
Acting Commissioner Benjamin M. Tabios informed the couple that there deficiency income
taxes are P922, 913.04.

On April 10, 1965, spouses requested an re-investigation.

BIR expressed willingness on the following conditions:

1.) written waiver of the defense of prescription under the statute of limitations;
2.) depositing ½ of the assessment and securing the other ½ with a surety bond.
Spouses Lim refused to comply with the conditions and reiterated his request.
BIR rendered a final decision holding that there was no cause for reversal of the assessment
against the Lim couple.

The final notice and demand for payment was served through their daughter in law on July 3,
1968 for the amount of P1,237,190.55 including interest, surcharges and penalty for late
payment.
BIR referred the matter to the Manila’s Fiscal’s Office for investigation and prosecution.

4 criminal informations were filed against petitioners.

 violation of NIRC SECTION 45
 violation of NIRC SECTION 51

RTC Manila found petitioners guilty.

CA affirmed RTC. 23 days later Antonio Lim, Sr. died.

ISSUE/S:
1.) WON the offenses prescribe after 5 years (Lim) or 10 years (government’s position)?
2.) WON the prescriptive period commenced to run from 1965 date of 1 st assessment or
discovery (according to Lim spouses) or from final notice on 1968 (government)?
3.) WON the RTC had jurisdiction over the tax collection case?
4.) WON the death of Emilio S. Lim, Sr. extinguished his civil liabilities?

HELD:
1.) 5 years – but the government instituted the case within the prescriptive period.

NIRC

SECTION 73. PENALTY FOR FAILURE TO FILE RETURN OR TO PAY TAX. –

Anyone liable to pay the tax, to make a return or to supply information required under this
code, who refuses or neglects to pay such tax, to make such return or to supply such
information at the time or times herein specified in each year, shall be punished by a fine of
not more than P2,000 or by imprisonment for not more than 6 months, or both.

Any individual or any officer of any corporation, or general co-partnership…, required by

law to make, render, sign or verify any return or to supply any information, who makes any
false or fraudulent return or statement with intent to defeat or evade the assessment required
by this Code to be made, shall be punished by a fine not exceeding P4,000 or by
imprisonment for not exceeding 1 year, or both.
 SECTION 354. PRESCRIPTION FOR VIOLATIONS OF ANY PROVISIONS OF
THIS CODE. – All violations of any provision of this Code shall prescribe after 5 years.

Prescription shall run from the day of the commission of the violation of the law, and if the
same not be known at the time, from the discovery thereof AND the institution of judicial
proceeding for its investigation and punishment.

The presumption shall be interrupted when proceedings are instituted against the guilty
persons and shall begin to run again if the proceedings are dismissed for reasons not
constituting jeopardy.

The term of prescription shall not run when the offender is absent from the Philippines.

2.) Commenced from the date of the final notice.

In criminal cases, statutes of limitations are acts of grace, a surrendering by the sovereign of
its right to prosecute.
They receive strict construction in favor of the Government and limitations in such cases will
not be presumed in the absence of clear legislation.

3.) No, because the criminal case was instituted on June 23, 1970 and PD 69 which mandates
RTC to order payment of the taxes took effect only on Jan. 1, 1973. It has no retroactive
application.
The law applicable was SECTION 316 which does not sanction such imposition.

4.) Regarding the liability of Emilio S. Lim, Sr. – extinguished by his death in accordance ith
SECTION 89 of the RPC; but the fine imposed in the 4 criminal cases is affirmed in the case
of petitioner Antonia Sun Lim in accordance with NIRC SECTION 73.

Commissioner v. Court of Appeals, Lucio Tan, et al.,

GR 119322
June4, 1996

Case Digest No. 70 of Lucky O. Javellana

FACTS:
In Commissioner of Internal Revenue V. Manila Hotel Corporation, SC overruled Court of Tax
Appeals decision that caterer’s tax under RA 6110 is illegal because it was vetoed by Former
President Marcos and Congress had not taken steps to override the veto. SC ruled in this case
that the law has always imposed a 3% caterer’s tax, as provided in Par 1, Sec 206 of the Tax
Code.
Presently, Manila Golf and Country Club, a non-stock corporation claims that it is exempt from
the 3% on gross receipts because President Marcos vetoed Sec 191-A of RA 6110 (Omnibus Tax
Law). President Marcos vetoed Sec 191-A because according to him it would 1) shift the burden
of taxation to the consuming public and 2) restrain the development of hotels which are essential
to the tourist industry. The protestation of the club was denied by petitioners saying that Sec 42
was not entirely vetoed but merely the words “hotels, motels, resthouses.” House of Ways and
Means concurred with petitioners stating that veto message only seems to object with certain
portions of 191-A and that can be gleaned by the reasons given by the President.

ISSUE:
WON veto referred to the entire section or merely the 20% tax on gross receipts of operators and
proprietors of eating places within hotels, motels and resthouses.
HELD:
President does not have the power to repeal an existing tax. Therefore, he could not have
repealed the 2% caterer’s tax.
CTA agreed with respondent club that president vetoed only a certain part. CTA mentioned that
President can veto only an entire item, and not just words. The President intentionally only
vetoed a few words in Sec 191-A. Assuming that the veto could not apply to just one provision
but all would render the Presidential veto void and still in favor of petitioner.
Inclusion of “hotels, motels, rest houses” in the 20% caterer’s tax bracket are items. President
has the right to veto such item, that which is subject to tax and tax rate. It does not refer to an
entire section. To construe item as an entire section would be to tie his hands to either completely
agree with a section he has objections with or to disagree with an entire section where he only
has a portion he disagrees with.

Commissioner v. Court of Tax Appeals and Fortune Tobacco,

GR119761,
August 29, 1996

Case Digest No. 71 of Lucky O. Javellana

FACTS:

Fortune Tobacco Corporation is engaged in the manufacture of different brands of cigarettes.

On various dates, the Philippine Patent Office issued to the corporation separate certificates of
trademark registration over "Champion," "Hope," and "More" cigarettes. 

The CIR initially classified 'Champion,' 'Hope,' and 'More' as foreign brands since they were
listed in the World Tobacco Directory as belonging to foreign companies. However, Fortune
changed the names of 'Hope' to Hope Luxury' and 'More' to 'Premium More,' thereby removing
the said brands from the foreign brand category. Fortune also submitted proof the BIR that
'Champion' was an original register and therefore a local brand. Ad Valorem taxes were imposed
on these brands. 

RA 7654 was passed in it was provided that 55% ad valorem tax will be imposed on local brands
carrying a foreign name. Two days before the effectivity of RA 7654, the BIR issued Revenue
Memorandum Circular No. 37-93,  in which Fortune was to be imposed 55% ad valorem tax on
the three brands classifying them as local brands carrying a foreign name.

Fortune filed a petition with the CTA which was granted finding the RMC as defective. The CIR
filed a motion for reconsideration with the CTA which was denied, then to the CA, an appeal,
which was also denied.

ISSUE: Whether the RMC was valid.

RULING:

NO. The RMC was made to place the three brands as locally made cigarettes bearing foreign
brands and to thereby have them covered by RA 7654. Specifically, the new law would have its
amendatory provisions applied to locally manufactured cigarettes which at the time of its
effectivity were not so classified as bearing foreign brands. Prior to the issuance of the RMC, the
brands were subjected to 45% ad valorem tax. In so doing, the BIR not simply interpreted the
law but it legislated under its quasi-legislative authority. The due observance of the requirements
of notice, of hearing, and of publication should not have been then ignored.

The Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid and
effective administrative issuance.

CIR v. Pascor Realty & Development Corp.,

GR 128315,
June 29, 1999

Case Digest No. 72 of Lucky O. Javellana

FACTS:
The BIR examined the books of account of Pascor Realty and Devt Corp. (PRDC) for the years
1986, 1987 and 1988, from which a tax liability of P10.5M was found. Subsequently, the CIR
filed a criminal complaint against PRDC with the DOJ for tax evasion. Attached to the criminal
complaint was a Joint Affidavit executed by the tax examiners. PRDC filed an Urgent Request
for Reconsideration/Reinvestigation with the CIR, disputing the tax assessment and tax liability,
but was denied upon the ground that no formal assessment has yet been issued by the
Commissioner.
PRDC elevated the decision to the CTA. PRDC averred that the Joint Affidavit attached to the
criminal complaint is tantamount to a formal assessment notice and hence can be subjected to
protest; that there is a simultaneous assessment and filing of criminal case; that the same is
contrary to due process because it is its theory that an assessment should come first before a
criminal case of tax evasion should be filed. 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. It ruled that the Joint Affidavit constitutes an
assessment; that an assessment is defined as simply the statement of the details and the amount
of tax due from a taxpayer; thus the Joint Affidavit which contains a computation of the tax
liability of PRDC is in effect an assessment which can be the subject of a protest. CA affirmed
the CTA.

ISSUES:
1. Whether or not the criminal complaint for tax evasion can be construed as an
assessment. - NO
2. Whether or not an assessment is necessary before criminal charges for tax evasion may be
instituted. - NO

HELD:
1. An assessment not only contains a computation of tax liabilities, but also a demand for
payment within a prescribed period. It signals the time when penalties and interests begin to
accrue against the taxpayer.
In the case at bar, the BIR examiners’ Joint Affidavit which was attached to the criminal
complaint filed with the DOJ against PRDC, did not constitute an assessment. The Joint
Affidavit served the purpose of supporting and substantiating the criminal complaint for tax
evasion, and was not meant to be a notice of the tax due and a demand to the taxpayer (PRDC)
for payment thereof.

San Agustin v. CIR,

GR 138485,
September 10, 2001

Case Digest No. 73 of Lucky O. Javellana

FACTS:
June 27, 1990 - Atty. Jose San Agustin of 2904 Kakarong St., Olympia, Makati died
a. leaving his wife Dra. Felisa L. San Agustin as sole heir.
b. He left a holographic will executed on April 21, 1980 giving all his estate to his
widow (Felisa L. San Agustin), and naming retired Justice Jose Y. Feria as Executor
thereof.
Aug 22 - Probate proceedings were instituted in RTC Makati, Branch 139.
Aug 30 - Notice of decedent's death was sent to the Commissioner of Internal Revenue.
Sept 3 - an estate tax return reporting estate tax due of P1,676,432.00 was filed on behalf of
the estate, with a request for an extension of 2 years for the payment of the tax because the
payment had to come from the estate since the widow did not have enough money.
Letter/answer - BIR Deputy Commissioner Victor A. Deoferio, Jr., granted the heirs an
extension of only 6 months, subject to the imposition of penalties and interests (Sections 248
and 249 NIRC).

Probate proceedings - RTC allowed the will and appointed Jose Feria as Executor of the
estate.
Dec 5 - executor submitted an inventory of the estate with a motion for authority to withdraw
funds for the payment of the estate tax.  this was granted.
Mar 8, 1991 – (within the 6 mo. extension) the executor paid the estate tax of P1,676,432 as
reported in the Tax Return filed with the BIR.

Sept 23 -the widow of the deceased, Felisa L. San Agustin, received a Pre-Assessment
Notice from the BIR (dated August 29, 1991), showing a deficiency estate tax of
P538,509.50, which, including surcharge, interest and penalties, amounted to P976,540.00.
Oct 1 (within the ten-day period given in the pre-assessment notice) - executor filed a letter
with the Commissioner expressing readiness to pay the basic deficiency estate tax of
P538,509.50 as soon as the RTC approves withdrawal thereof, but, requesting that the
surcharge, interest, and other penalties, amounting to P438,040.38 be waived, considering
that the assessed deficiency arose only on account of the difference in zonal valuation used
by the Estate and the BIR, and that the estate tax due per return of P1,676,432.00 was already
paid in due time within the extension period.

Oct 4 - Commissioner issued an Assessment Notice reiterating the demand in the pre-
assessment notice and requesting payment on or before 30 days upon receipt thereof.
Oct 31 letter - executor requested the Commissioner a reconsideration of the assessment of
P976,549.00 and waiver of the surcharge, interest, etc.
Dec 18 - Commissioner accepted payment of the basic deficiency tax in the amount of
P538,509.50 through its Receivable Accounts Billing Division.
Request was only acted upon on Jan 21, 1993 - when the executor received a letter (dated
September 21, 1992), signed by the Commissioner, stating that there is no legal justification
for the waiver of the interests, surcharge and compromise penalty in this case, and requiring
full payment of P438,040.38 representing such charges within 10 days from receipt thereof.
Jan 25 - Estate paid P438,040.38 under protest.
 Feb18 - Petition for Review was filed by the executor with the CTA with the prayer that
Commissioner's decision be reversed and for a refund of P438,040.38.
Commissioner opposed, alleging that the CTA's jurisdiction was not properly invoked as no
claim for a tax refund of the deficiency tax collected was filed with the BIR before the
petition was filed, violating of Sections 204 and 230 NIRC. Moreover, there is no statutory
basis for the refund of the deficiency surcharges, interests and penalties charged by the
Commissioner upon the estate of the decedent.

CTA – decision modifying the CIR's assessment for surcharge, interests and other penalties
from P438,040.38 to P13,462.74, representing interest on the deficiency estate tax, for which
reason the CTA ordered the reimbursement to the respondent estate the balance of
P423,577.64 (as overpayment).

CA - granted the petition of the Commissioner of Internal Revenue and held that the Court of
Tax Appeals did not acquire jurisdiction over the subject matter and that, accordingly, its
decision was null and void.

ISSUE:
(1) Whether or not filing of a claim for refund is essential before filing a petition for review;
(2) Whether or not imposition by the respondent of surcharge, interest and penalties on the
deficiency estate tax is illegal.

HELD:

1. No. The case has a striking resemblance to the controversy in Roman Catholic Archbishop of
Cebu vs. Collector of Internal Revenue.
The petitioner in that case paid under protest the sum of P5,201.52 by way of income tax,
surcharge and interest and, forthwith, filed a petition for review before the CTA. Then
respondent Collector (now Commissioner) of Internal Revenue set up several defenses, one
of which was that petitioner had failed to first file a written claim for refund, pursuant to
Section 306 of the Tax Code, of the amounts paid. Convinced that the lack of a written claim
for refund was fatal to petitioner's recourse to it, the Court of Tax Appeals dismissed the
petition for lack of jurisdiction. On appeal to this Court, the tax court's ruling was reversed;
the Court held:
"We agree with petitioner that Section 7 of Republic Act No.1125, creating the Court
of Tax Appeals, in providing for appeals from -
'(1) Decisions of the Collector 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 law or part of the law
administered by the Bureau of Internal Revenue -
allows an appeal from a decision of the Collector in cases involving' disputed
assessments' as distinguished from cases involving' refunds of internal revenue taxes,
fees or other charges, x x'; that the present action involves a disputed assessment';
because from the time petitioner received assessments Nos. 17-EC-00301-55 and 17-
AC-600107-56 disallowing certain deductions claimed by him in his income tax
returns for the years 1955 and 1956, he already protested and refused to pay the same,
questioning the correctness and legality of such assessments; and that the petitioner
paid the disputed assessments under protest before filing his petition for review with
the Court a quo,  only to forestall the sale of his properties that had been placed under
distraint by the respondent Collector since December 4, 1957. To hold that the
taxpayer has now lost the right to appeal from the ruling on, the disputed assessment
but must prosecute his appeal under section 306 of the Tax Code, which requires a
taxpayer to file a claim for refund of the taxes paid as a condition precedent to his
right to appeal, would in effect require of him to go through a useless and needless
ceremony that would only delay the ! disposition of the case, for the Collector (now
Commissioner) would certainly disallow the claim for refund in the same way as he
disallowed the protest against the assessment. The law, should not be interpreted as to
result in absurdities."
2. No. It would appear that, as early as 23 September 1991, the estate already received a pre-
assessment notice indicating a deficiency estate tax of P538,509.50. Within the ten-day
period given in the pre-assessment notice, respondent Commissioner received a letter from
petitioner expressing the latter's readiness to pay the basic deficiency estate tax of
P538,509.50 as soon as the trial court would have approved the withdrawal of that sum from
the estate but requesting that the surcharge, interests and penalties be waived. On 04 October
1991, however, petitioner received from the Commissioner notice insisting payment of the
tax due on or before the lapse of thirty (30) days from receipt thereof. The deficiency estate
tax of P538,509.50 was not paid until 19 December 1991.
The delay in the payment of the deficiency tax within the time prescribed for its payment in
the notice of assessment justifies the imposition of a 25% surcharge in consonance with
Section 248A (3) of the Tax Code. The basic deficiency tax in this case being P538,509.50,
the twenty-five percent thereof comes to P134,627.37.
Section 249 of the Tax Code states that any deficiency in the tax due would be subject to
interest at the rate of twenty percent (20%) per annum, which interest shall be assessed and
collected from the date prescribed for its payment until full payment is made. The
computation of interest by the Court of Tax Appeals – (P13,462.74)
"Deficiency x Interest x Terms
estate tax Rate 11/2 mo./12 mos
P538,509.50 20% per (11/04/91 to
annum 12/19/91)
 conforms with the law, i.e., computed on the deficiency tax from the date prescribed for its
payment until it is paid.
The Court of Tax Appeals correctly held that the compromise penalty of P20,000.00 could
not be imposed on petitioner, a compromise being, by its nature, mutual in essence. The
payment made under protest by petitioner could only signify that there was no agreement that
had effectively been reached between the parties.
Regrettably for petitioner, the need for an authority from the probate court in the payment of
the deficiency estate tax, over which respondent Commissioner has hardly any control, is not
one that can negate the application of the Tax Code provisions afore quoted.
Taxes, the lifeblood of the government, are meant to be paid without delay and often
oblivious to contingencies or conditions.
In sum, the tax liability of the estate includes a surcharge of P134,627.37 and interest of
P13,462.74 or a total of P148,090.00.

Philippine Journalists, Inc. v. CIR,

GR 162852,
December 16, 2004

Case Digest No. 74 of Lucky O. Javellana

FACTS:
In April 1995, the Philippine Journalists, Inc. (PJI) filed its income tax return for the year
1994. In 1995, a tax audit was conducted by the Bureau of Internal Revenue (BIR) where it
was found that PJI was liable for a tax deficiency. In September 1997, PJI asked that it be
allowed to present its evidence to dispute the finding. In the same month, the Comptroller of
PJI (Lorenza Tolentino) executed a waiver of the statute of limitations whereby PJI agreed
waived the running of the prescriptive period of the government’s right to make an
assessment. Said right was set to expire on April 17, 1998 but due to the additional evidence
that PJI sought to present, the government needed more time.
And so, a reinvestigation took place which yielded the same result – PJI is liable for tax
deficiencies. In December 1998, a formal assessment notice (FAN) was sent via registered
mail to PJI. Subsequently, a warrant for distraint/levy was issued against the assets of PJI.
PJI filed a protest which eventually reached the Court of Tax Appeals. PJI averred that the
waiver executed by Tolentino was incomplete; that no acceptance date was indicated to
show that the waiver was accepted by BIR; that no copy was furnished PJI; that the waiver
was an unlimited waiver because it did not indicate as to how long the extension of the
prescriptive period should last. As such, there was no valid waiver of the statute of
limitations which in turn make the FAN issued in December 1998 void.
The Commissioner of Internal Revenue (CIR) argued that the placing of the acceptance date
is merely a formal requirement and not vital to the validity of the waiver; that there is no
need to furnish PJI a copy of the waiver because in the first place, it was PJI, through its
representative, who was making the waiver so it should know about it; and that there is no
need to place a specific date as to how long the prescriptive period should be extended
because PJI was waiving the prescriptive period and was not asking to extend it.
The Court of Tax Appeals (CTA) ruled in favor of PJI. But the Court of Appeals reversed
the CTA as it ruled in favor of the CIR.
ISSUE:
1. Whether or not that the assessment having been made beyond the 3-year prescriptive
period is null and void; and
2. Whether or not the CTA 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

HELD:

The answers are in the Negative. The requirement to place the acceptance date is not merely
formal. The waiver of the statute of limitations is not a unilateral act by the taxpayer. The
BIR has to accept it hence the need for a BIR representative to affix his signature and the
date of acceptance. There is also therefore a need to furnish a copy to the taxpayer for the
latter to be apprised that his waiver has been accepted. It must be noted that the waiver 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 and not to waive the right to invoke the
defense of prescription. 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.

CIR v. Phil. Global Communications,

GR No. 167146,
October 31, 2006.

Case Digest No. 75 of Lucky O. Javellana

FACTS:

The wordings of the Temporary  Restraining Order suspended the implementation of the E-VAT
law in its entirety, but not the collection of 10% VAT on service under the National
Internal Revenue Code.
By reason of a legislative franchise, Respondent Philippine Global Communications, Inc. (PGCI)
constructs, maintains and operates communications system subject to 3% franchise tax under the
Tax Code. However, the said provision of the Tax Code on franchise tax was amended by
Section 12 of the Expanded Value Added Tax Law (E-VAT Law) which omitted the 3%
franchise tax imposed upon a telecommunications company.

A Temporary Restraining Order (TRO) was subsequently issued by the Court in the consolidated

cases of Tolentino et al. v. Secretary of Finance, et al., “ordering all the respondents to cease and
desist from enforcing and/or implementing the E-VAT Law.” By reason of the suspension of the
E- VAT Law, PGCI filed a claim for tax refund before Respondent Commission of
Internal Revenue (CIR) stating therein that upon the effectivity of the E-VAT Law, it was no
longer required to pay the 3% franchise tax. Due to the inaction of CIR, PGCI filed a case
against it before the Court of Tax Appeals (CTA). CTA ruled that BIR should refund the 3% to
PGCI.

ISSUE:

Whether or not PGCI was exempted from paying franchise taxes during the effectivity of the
TRO suspending the enforcement of the E-VAT Law.

HELD:

Under Section 12 of the E-VAT Law, the 3% franchise tax on “telephone and/or telegraph
systems and radio broadcasting stations” to which category PGCI belongs was omitted. Under
Section 3 of the E-VAT Law, however, PGCI’s sale of services is subject to VAT, thus, under
the E-VAT Law, PGCI ceased to be liable to pay the 3% franchise tax. It instead is made liable
to pay 10% VAT on sale of services.
The effectivity of the E-VAT Law was, however, suspended, by this Court when it issued a TRO
pending the resolution of the Tolentino et al. cases challenging the constitutionality of the law.
The wording of the order leaves no doubt that what was restrained by the TRO was the
implementation of the E-VAT law in its entirety.

That the provisions of the Tax Code, prior to their amendment by the E-VAT Law, were to apply
in the interim, that is, while the TRO in Tolentino et al. was effective, is clearly reflected
in Revenue Memorandum Circular No. 27-94 issued by CIR which directed all
internal revenue officers to comply with the following directives, to wit: “3. All VAT and non-
VAT persons shall be governed by the provisions of the National Internal Revenue Code prior to
its amendment by Republic Act No. 7716 x x x x 5. All other amendments of the NIRC made by
RA 7716 shall be considered ineffective until the Supreme Court has declared otherwise.”
With the issuance of the TRO, the enforcement and/or implementation of the entire E-VAT law
was stopped. The abolition of the 3% franchise tax on telecommunications companies, and
its replacement by the 10% VAT, was effective and implemented only on January 1, 1996. Thus,
PGCI’s claim for refund of the franchise tax must fail. To grant a refund of the franchise tax it
paid prior to the effectivity and implementation of the VAT would create a vacuum and thereby
deprive the government from collecting either the VAT or the franchise tax.
 RCBC v. CIR,
GR No. 168498,
April 24, 2007

Case Digest No. 76 of Lucky O. Javellana

FACTS:
For resolution is petitioner’s Motion for Reconsideration of on the Decision dated June 16, 2006
affirming the Decision of the Court of Tax Appeals En Banc dated June 7, 2005 in C.T.A. EB
No. 50, which affirmed the Resolutions of the Court of Tax Appeals Second Division dated May
3, 2004 and November 5, 2004 in C.T.A. Case No. 6475, denying petitioner’s Petition for Relief
from Judgment and Motion for Reconsideration, respectively.
Petitioner reiterates its claim that its former counsel’s failure to file petition for review with the
Court of Tax Appeals within the period set by Section 228 of the National Internal Revenue
Code of 1997 (NIRC) was excusable.
Petitioner maintains that its counsel’s neglect in not filing the petition for review within the
reglementary period was excusable.  It alleges that the counsel’s secretary misplaced the
Resolution hence the counsel was not aware of its issuance and that it had become final and
executory.
ISSUE:
Whether or not the inadvertence of the petitioner’s counsel is excusable and thus, the petition to
cancel the assessment against the petitioner should be given due course.
HELD:
Relief cannot be granted on the flimsy excuse that the failure to appeal was due to the neglect of
petitioner’s counsel.  Otherwise, all that a losing party would do to salvage his case would be to
invoke neglect or mistake of his counsel as a ground for reversing or setting aside the adverse
judgment, thereby putting no end to litigation.
If indeed there was negligence, this is obviously on the part of petitioner’s own counsel whose
prudence in handling the case fell short of that required under the circumstances.  He was well
aware of the motion filed by the respondent for the Court to resolve first the issue of this Court’s
jurisdiction on July 15, 2003, that a hearing was conducted thereon on August 15, 2003 where
both counsels were present and at said hearing the motion was submitted for
resolution.  Petitioner’s counsel apparently did not show enthusiasm in the case he was handling
as he should have been vigilant of the outcome of said motion and be prepared for the necessary
action to take whatever the outcome may have been. Such kind of negligence cannot support
petitioner’s claim for relief from judgment.
In the instant case, the Commissioner failed to act on the disputed assessment within 180 days
from date of submission of documents.  Thus, petitioner opted to file a petition for review before
the Court of Tax Appeals.  Unfortunately, the petition for review was filed out of time, i.e., it
was filed more than 30 days after the lapse of the 180-day period.  Consequently, it was
dismissed by the Court of Tax Appeals for late filing.  Petitioner did not file a motion for
reconsideration or make an appeal; hence, the disputed assessment became final, demandable
and executory.
Based on the foregoing, petitioner cannot now claim that the disputed assessment is not yet final
as it remained unacted upon by the Commissioner; that it can still await the final decision of the
Commissioner and thereafter appeal the same to the Court of Tax Appeals.  This legal maneuver
cannot be countenanced.   After availing the first option, i.e.,  filing a petition for review which
was however filed out of time, petitioner cannot successfully resort to the second
option, i.e., awaiting the final decision of the Commissioner and appealing the same to the Court
of Tax Appeals, on the pretext that there is yet no final decision on the disputed assessment
because of the Commissioner’s inaction.
BPI v. CIR,
GR No. 174942

Case Digest No. 77 of Lucky O. Javellana

FACTS:
Respondent issued to the petitioner a pre-assessment notice (PAN) dated November 26, 1986.
Petitioner requested for the details of the amounts alleged as 1982-1986 deficiency taxes
mentioned 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.
Petitioner filed a protest on the demand/assessment notices
Attached to the letter dated June 17, 1994, in connection with the reinvestigation... of the...
assessment, petitioner submitted to the BIR, Swap Contracts with the Central Bank.
Respondent issued a final decision on petitioner's protest ordering the withdrawal and
cancellation of the deficiency withholding tax assessment... and considered the same as closed
and terminated. On the other hand, the... deficiency DST assessment... was reiterated and the
petitioner was ordered to pay the said amount within thirty (30) days from receipt of such order.
Petitioner filed a Petition for Review before the Court.
Court rendered a Decision denying the petitioner's Petition for Review
ISSUE:
Whether the collection of the deficiency DST is barred by prescription and whether BPI is liable
for DST on its SWAP loan transactions.
HELD:
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 320... of the Tax Code... which states
In order to suspend the running of the prescriptive periods for assessment and collection, the
request for reinvestigation must be granted by the CIR.
In BPI v. Commissioner of Internal Revenue, the Court emphasized the rule that the CIR must
first grant the request for reinvestigation as a requirement for the suspension of the statute of
limitations.
the 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.
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.
t 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.
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.
in
Republic of the Philippines v. Ablaza:
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 taxpayer would furthermore be under obligation to always
keep their books and keep them open for inspection subject to harassment by unscrupulous tax
agents. The law on prescription being a remedial measure... should be interpreted in a way
conducive to bringing about the beneficent purpose of affording protection to the taxpayer within
the contemplation of the Commission which recommend the approval of the law.
Given the prescription of the government's claim, we no longer deem it necessary to pass upon
the validity of the assessment.

Petron Corporation v. CIR,

G.R. No. 180385,
July 28, 2010

Case Digest No. 78 of Lucky O. Javellana

Facts:
A corporation engaged in the production of petroleum products, Petron
Pursuant to Deeds of Assignment executed in its favor, Petron acquired Tax Credit Certificates
(TCCs) from, among others, the following BOI-registered entities, namely, Diamond Knitting
Corporation, Filstar Textile Industrial Corporation, Alliance Thread Co., Inc., Fiber Tech.
Corporation, Jantex.
Phils., Inc. and Master Colour System Corporation the TCCs were subject to the following
conditions, to wit:
The assignments of the TCCs were duly approved by the Department of Finance One-Stop Shop
Inter-Agency Tax Credit and Duty Drawback Center (the Center), a tax credit window created
under Administrative Order No. 226
Issued DOF Tax Debit Memos (DOF-TDMs) by the Center, Petron, as assignee of said TCCs,
utilized the same to pay its excise tax liabilities for the... years 1993 to 1997.
Upon Petron's surrender of the DOF-TDMs, TCCs and Deeds of Assignment, the corresponding
Authorities to Accept Payment of Excise Taxes (ATAPETs) were further issued by the BIR
Collection Program Division.
Petron received a collection letter dated April 22, 1998 from the BIR Revenue District Office of
South Makati, Metro Manila, demanding payment of the total amount of P1,107,542,547.08 in
unpaid taxes, surcharges and interests for the years 1993 to 1997.
Petron received a collection letter dated April 22, 1998 from the BIR Revenue District Office of
South Makati, Metro Manila, demanding payment of the total amount of P1,107,542,547.08 in
unpaid taxes, surcharges and interests for the years 1993 to 1997.
With the denial of its letters of protest to the foregoing collection letter, Petron perfected an
appeal which was docketed as C.T.A. Case No. 5657 before the CTA.
With the denial of its letters of protest to the foregoing collection letter
Upholding Petron's argument to the effect, among other matters, that its... status as a BOI-
registered enterprise and its transactions with the original grantees qualified it to be a transferee
of the subject TCCs, The collection of the alleged delinquent excise taxes CANCELLED
Accordingly, Respondents are ENJOINED from collecting the said amount of taxes against the
petitioner.
On October 24, 1999, the Center cancelled TCCs of the same TCCs acquired and used by Petron
on the ground that they were fraudulently procured and transferred.
As a consequence of the cancellation, respondent issued an Assessment dated November 15,
1999 (the
Assessment), directing Petron to pay deficiency excise taxes
In view of respondent's inaction on the protest it filed to question the factual and legal bases of
the Assessment, Petron filed the July 7, 2000 petition for review which was docketed before the
CTA... the invalidation of the cancellation of the TCCs as well as the withdrawal of the
Assessment respondent filed its answer, Contending that the TCCs were cancelled on the
strength of the Center's findings... that they were fraudulently obtained and transferred to Petron
upon fictitious supply agreements with the grantees respondent sought the dismissal of the
petition, At the pre-trial conference conducted in the case, the parties submitted a Joint
Stipulation of Facts and Issues the CTA Second Division went on to render the August 23,
2006... decision, denying Petron's petition.
ORDERED TO PAY deficiency excise taxes
Petron elevated the matter via the petition for review docketed before the CTA En Banc.
CTA En Banc rendered the herein assailed decision, affirming decision of the CTA Second
Division.
The Center's finding of fraud in the procurement of the TCCs by the grantees rendered the same
worthless, even in the hands of an assignee like Petron.
The evidence adduced in the case which showed misrepresentation in the levels of fuel oil use by
the grantees and the non-delivery of petroleum products by Petron also indicate that fraud also
attended the transfer of the TCCs;
The Center acted within its mandate in declaring TCCs fraudulently issued and transferred;
Aggrieved, Petron filed the petition for review on certiorari.
Petron argues that, having been issued pursuant to Administrative Order No. 226 in relation to
Executive Order No. 226, the subject TCCs were immediately effective and could be readily
used by the grantees and/or their transferees.
Petron maintains that respondent failed to prove the fraud which purportedly attended the
procurement of the subject TCCs.
Petron correctly argues that the CTA En Banc reversibly erred in holding that the result of the
post-audit conducted by the Center partook the nature of a suspensive condition for the validity
of the subject TCCs... and the use thereof as payment of its tax liabilities or duties.
TCCs were, consequently, valid upon their issuance in favor of the... original grantees which had
the right to use them in payment of their tax liabilities and/or transfer them in favor of assignees
like Petron which could, in turn, utilize them as payment of its own tax liabilities.

ISSUE:
SUBSEQUENT CANCELLATION BY THE DOF CENTER OF THE TAX CREDIT
CERTIFICATES PREVIOUSLY USED TO PAY PETRON'S TAX LIABILITIES HAD THE
EFFECT OF NON-PAYMENT OF PETRON'S EXCISE TAXES
THERE WAS NO FRAUD IN THE TRANSFER OF THE SUBJECT TAX CREDIT
CERTIFICATES.
THE TAX CREDIT CERTIFICATES WERE FRAUDULENTLY TRANSFERRED FROM
THE GRANTEES TO PETRON

HELD:
Post-audit
The TCCs are immediately valid and effective after their issuance.
The foregoing guidelines cannot be clearer on the validity and effectivity of the TCC to pay or
settle tax liabilities of the grantee or transferee, as they do not make the effectivity and validity of
the TCC dependent on the outcome of a post-audit. In fact, if we are to... sustain the appellate tax
court, it would be absurd to make the effectivity of the payment of a TCC dependent on a post-
audit since there is no contemplation of the situation wherein there is no post-audit.
Clearly, a tax payment through a TCC cannot be both effective when made and dependent on a
future event for its effectivity. Our system of laws and procedures abhors ambiguity.
Moreover, if the TCCs are considered to be subject to post-audit as a suspensive condition, the
very purpose of the TCC would be defeated as there would be no guarantee that the TCC would
be honored by the government as payment for taxes. No investor would take the risk of...
utilizing TCCs if these were subject to a post-audit that may invalidate them, without prescribed
grounds or limits as to the exercise of said post-audit.
The inescapable conclusion is that the TCCs are not subject to post-audit as a suspensive
condition, and are thus valid and effective from their issuance.
Not being privy to the issuance of the subject TCCs and having already used them in paying its
own tax liabilities, Petron also correctly points out that it cannot be prejudiced by the fraud
which supposedly attended the issuance of the same.
More so, when it is borne in mind... that, as ground for the cancellation of said TCCs, fraud was
not adequately established by respondent with clear and convincing evidence showing that the
grantees had not, indeed, manufactured and exported at the volumes which served as bases for
the grant of the subject TCCs.
While the CTA is not governed strictly by technical rules of evidence on the principle that rules
of procedure are not ends in themselves but are primarily intended as tools in the administration
of justice,... respondent's presentation of evidence to... prove the fraud which attended the
issuance of the subject TCCs is not a mere procedural technicality which may be disregarded
considering that it is the very basis for the claim that Petron's payment of its excise tax liabilities
had been avoided.
It cannot be over-emphasized that fraud is a question of fact which cannot be presumed and must
be proven by clear and convincing evidence by the party alleging the same.
Without even presenting the documents which served as bases for the issuance of... the subject
TCCs from 1994 to 1997, respondent miserably failed in discharging his evidentiary burden with
the presentation of the Center's cancellation memoranda to which were simply annexed some of
the grantees' original registration documents and their Financial Statements for an average of two
years.
For a party charged with the burden of proving the same, respondent did not even come close to
establishing the fraud which purportedly attended both the issuance of the subject TCCs and the
transfer thereof in favor of Petron.
hat respondent's reliance of the Center's cancellation memoranda was misplaced and misguided
is evident from the following admissions in the parties' June 22, 2001 Joint Stipulation of Facts
and Issues
Having proven the valuable consideration for the grantees' transfer of the TCCs in its favor, it
also bears pointing out that Petron has more than amply proved its good faith by complying with
the procedures laid down for the transfer and use thereof.
Petron had every right to rely on the validity of the subject TCCs, the Center's approval of the
deeds of assignment the grantees executed over the same and the BIR's acceptance of its use
thereof in payment of its excise taxes.
Petron was not shown to have had a hand in or knowledge of the fraud which purportedly
attended the issuance of the... same TCCs.
As a transferee in good faith and for value, Petron cannot, therefore, be said to have incurred any
liability insofar as the transfers of the subject TCCs are concerned.
respondent had no legal basis to once again assess the excise taxes Petron already paid with the
use of the TCCs assigned in its favor... another is entered invalidating respondent's Assessment
of petitioner's deficiency excise taxes for the years 1995 to 1997 for lack of legal bases.

CIR v. Gonzales, et al.,

G.R. No. 177279,
October 13, 20108

Case Digest No. 79 of Lucky O. Javellana

FACTS:
In 1948, Matias Yusay died leaving behind two heirs, namely, Jose Yusay and Lilia Yusay
Gonzales. Jose was appointed as administrator. He filed an estate and inheritance tax return in
1949. The Bureau of Internal Revenue (BIR) conducted a tax audit and the BIR found that there
was an under-declaration in the return filed. In 1953 however, a project of partition between the
two heirs was submitted to the BIR. The estate was to be divided as follows: 1/3 for Gonzales
and 2/3 for Jose. The BIR then conducted another investigation in July 1957 with the same result
– there was a huge under-declaration. In February 1958, the Commissioner of Internal Revenue
issued a final assessment notice (FAN) against the entire estate. In November 1959, Gonzales
questioned the validity of the FAN issued in 1958. She averred that it was issued way beyond the
prescriptive period of 5 years (under the old tax code). The return was filed by Jose in 1949 and
so the CIR’s right to make an assessment has already prescribed in 1958.
ISSUE: Whether or not the state and inheritance tax return file by Jose Yusay was defective and
hence the right of the CIR to make an assessment has not prescribe.
HELD:
It was found that Jose filed a return which was so defective that the CIR cannot make a correct
computation on the taxes due. When a tax return is so defective, it is as if there is no return filed,
hence, it is considered that the taxpayer omitted to file a return. As such, the five year
prescriptive period to make an assessment (NOTE: Under the National Internal Revenue Code of
1997, prescriptive period for normal assessment is 3 years) is extended to 10 years. And the
counting of the prescriptive period shall run from the discovery of the omission (or fraud or
falsity in appropriate cases). In the case at bar, the omission was deemed to be discovered in the
re-investigation conducted in July 1957. Hence, the FAN issued in February 1958 was well
within the ten year prescriptive period. Gonzales was adjudged to pay the deficiency tax in the
FAN, without prejudice to her right to ask reimbursement from Jose’s estate (Jose already died).