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[Nos. L12250 and L12259. May 27, 1959]

THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs. PEDRO B. BAUTISTA and DATIVA CORRALES TAN,
respondents. PEDRO B. BAUTISTA and DATIVA
CORRALES TAN, petitioners, vs. THE COLLECTOR OF
INTERNAL REVENUE.
Appeal from a decision of the Court of Tax Appeals.
Spouses Pedro B. Bautista and Dativa Corrales Tan
each filed a separate income tax return for 1947. The
husband reported an income of P2,300 and paid an
income tax of P9.00, after claiming personal exemptions
of P2,500 as head of family and P500 for a minor child.
The wife reported in her return an income of P9,999.90
derived from the sale of her share in a lot and building
at Tabora street, Manila, paying an income tax of P490.
She also claimed personal exemptions of P2,500 for
being a married person or head of family and P500 for
the same minor child. Under investigation by the
Bureau of Internal Revenue, the returns were
consolidated and a deficiency was assessed against them
in the sum of P15,564.54. The deficiency assessment was
the result mainly of the alleged
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underdeclaration of the proceeds of the sale of the wife's

share in the Tabora property and the overvaluation of the
cost thereof. The spouses contested the assessment on the
grounds that the amount actually received by them from
the sale was P49,999.00 and not P66,606.66; that they
failed to claim deduction for losses sustained as a result of
the fire which destroyed their house; that the Tabora
property was a capital asset and only 50% of the gain was
taxable; and that the right to assess the deficiency income
tax had prescribed. On appeal, the Court of Tax Appeals
rendered the decision appealed, ordering the spouses to pay
the deficiency income tax of P10,376.38, plus 50%
surcharge, and surcharge of 5% and 1% monthly interest

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on the deficiency tax of P10,376.38. The Bautistas

maintain, in this appeal, that the lower court erred (1) in
overruling their defense of prescription; (2) in not allowing
deductions on account of the loss suffered by them; and (3)
in holding that the Tabora property was an ordinary asset.
The Government has appealed from the decision insofar as
it imposes the 5% surcharge and 1% monthly interest on
the deficiency tax only. Held: With respect to prescription,
the income tax returns of the Bautistas for 1947 are
deemed filed as of March 1, 1948. Section 331 of the Tax
Code provides that the deficiency assessment must be
made within five years after the return was filed, and the
assessment is deemed made when the notice to this effect is
released, mailed or sent by the Collector to the taxpayer,
for the purpose of giving effect to said assessment. Said
section does not require that the notice be received by the
taxpayer within the said period of five years. In the case at
bar, the Collector assessed the deficiency tax on January
21, 1953 and notice to this effect was sent or given due
course prior to March 1, 1953, for it was received in the
Office of the City Treasurer of Quezon City, on February
13, 1953, and, hence, before the expiration of said period.
As to the alleged fire losses disallowed by the court, suffice
it to say that the question whether the findings are correct
or not depends upon the degree of credence attached to the
testimonial evidence introduced by the taxpayers, which
the lower court was in a better position to decide. Finally,
the contention that the property was a capital asset, is
untenable, in view of the findings of the lower court that
said property was primarily held by them for rent, and that
they never occupied the same as their residence. On the
other hand, the claim of the Government has already been
rejected in Collector of Internal Revenue vs. University of
Sto. Tomas, G. R. No. L11274 and L11280, November 28,
1958. The
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surcharge of 5% and the interest of 1% a month referred to

in Section 51 (e) of the Tax Code, are imposed upon the "tax
unpaid."
Decision affirmed. Concepcin, J., ponente

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