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RepublicofthePhilippines
SUPREMECOURT

THIRDDIVISION

G.R.No.139858October25,2005

COMMISSIONEROFINTERNALREVENUE,Petitioner,
vs.
ARTUROTULIO,Respondent.

DECISION

SANDOVALGUTIERREZ,J.:

Beforeusisapetitionforreviewoncertiorari1assailingtheOrdersdatedJune15,1999andAugust25,1999of
the Regional Trial Court (RTC), Branch 60, Baguio City, in Civil Case No. 3853R, entitled "REPUBLIC OF THE
PHILIPPINES,plaintiff,versus,ARTUROTULIO,defendant."

Thelegalissuebeingraisedhereiswhetherthecomplaintinthesaidcivilcasemaybedismissedontheground
ofprescription.

Arturo Tulio, respondent, is engaged in the construction business. On February 28, 1991, the Commissioner of
InternalRevenue,petitioner,senthimademandletterwithtwofinalassessmentnotices2requestingpaymentof
hisdeficiencypercentagetaxesofP188,585.76andP245,669.53forthetaxableyears1986and1987.However,
despitereceipt,respondentfailedtoactontheassessmentnotices.Hence,thesamebecamefinalandexecutory
pursuanttoSection2293ofthe1996NationalInternalRevenueCode.

On October 15, 1991, in order to enforce the collection of the taxes through administrative summary remedy,
petitionerissuedawarrantofdistraintand/orlevyagainstrespondent.However,hehasnopropertieswhichcan
beplacedunderdistraintand/orlevy.

On different dates, specifically on April 3, 1991, October 5, 1993 and May 14, 1997, petitioner sent letters to
respondent giving him the last opportunity to settle his deficiency tax liabilities. But respondent was obstinate.
Thus,onOctober29,1997,petitionerfiledwiththeRTC,Branch60,BaguioCityacivilactionforthecollectionof
thedeficiencypercentagetaxes,docketedasCivilCaseNo.3853R.Incidentally,itbearsemphasisthatitisthe
RTCwhichhasjurisdictionoverthiscase,nottheCourtofTaxAppeals.Itistheordinarycourts,notthetaxcourt,
whichcanentertainBIRmoneyclaimsbasedonassessmentsthathavebecomefinalandexecutory.4

OnMarch22,1999,theRTCissuedanOrderdirectingrespondenttofilehisanswertothecomplaint.Threedays
thereafter, respondent filed a motion to dismiss alleging that the complaint was filed beyond the threeyear
prescriptiveperiodprovidedbySection203oftheNationalInternalRevenueCode.5

On June 15, 1999, the RTC issued its first challenged Order dismissing Civil Case No. 3853R by reason of
prescription,thus:

"Since there was admittedly a return filed by the Bureau of Internal Revenue in the name of the taxpayer,
defendantArturoTulioonAugust15,1990orbeyondtheperiodprescribedbylawforthefilingthereof,thethree
(3) year period shall be counted from the day the return was filed. Ergo, the plaintiff had until August 15, 1993
withinwhichtofileforcollectionoftheallegeddeficiencypercentagetaxesincourt.Consideringthatthisinstant
case was filed only on October 19, 1997, the governments right to file this case has already prescribed as
correctlypointedoutbythedefendant."

"The court is not convinced that the case falls under Section 223 of the NIRC as alleged by the plaintiff for the
simple reason that the complaint never alleged fraud. Why should it be when it was the government entity
chargedwiththecollectionoftaxeswhichfiledthereturn.Itwouldbeimpossibleforthemtochargethemselves
withfilingafraudulentreturn.The10yearprescriptiveperiodprovidedforunderthecitedsectionofthetaxcode
therefore,shouldnotapplyinthiscase."
 xxx

"WHEREFORE,inthelightoftheforegoingpremises,themotiontodismissisherebyGRANTED.Letthiscasebe
asitisherebyDISMISSEDwithprejudice."

PetitionerfiledamotionforreconsiderationbutwasdeniedonAugust25,1999.Hence,thispetitionforreviewon
certiorari.

Asmentionedearlier,themainissueforourresolutioniswhetherpetitionerscauseofactionforthecollectionof
deficiencypercentagetaxesagainstrespondenthasprescribed.

The lower court erroneously applied Section 203 of the same Code providing for the threeyear prescriptive
period from the filing of the tax return within which internal revenue taxes shall be assessed. It held that such
period should be counted from the day the return was filed, or from August 15, 1990 up to August 15, 1993.
However,asshownbytherecords,respondentfailedtofileataxreturn,forcingpetitionertoinvokethepowers
ofhisofficeintaxadministrationandenforcement.Respondentsfailuretofilehistaxreturnsisthuscoveredby
Section223providingforatenyearprescriptiveperiodwithinwhichaproceedingincourtmaybefiled.

Section223(nowSection222)oftheNationalInternalRevenueCodeprovides:

"Section223.ExceptionsastoPeriodofLimitationofAssessmentandCollectionofTaxes.

(a)Inthecaseofafalseorfraudulentreturnwithintenttoevadetaxoroffailuretofileareturn,thetaxmaybe
assessed,oraproceedingincourtforthecollectionofsuchtaxmaybefiledwithoutassessment,atany
time within ten (10) years after the discovery of the falsity, fraud or omission: Provided, That in a fraud
assessmentwhichhadbecomefinalandexecutory,thefactoffraudshallbejudiciallytakencognizanceofinthe
civilorcriminalactionforthecollectionthereof.

xxx

(c)Anyinternalrevenuetaxwhichhasbeenassessedwithintheperiodoflimitationasprescribedinparagraph
(a) hereof may be collected by distraint or levy or by a proceeding in court within three (3) years
followingtheassessmentofthetax."

Section223specifiesthree(3)instanceswhentherunningofthethreeyearprescriptiveperioddoesnotapply.
These are: (1) filing a false return, (2) filing a fraudulent return with intent to evade tax or (3) failure to file a
return.Theperiodwithinwhichtoassesstaxistenyearsfromdiscoveryofthefraud,falsificationoromission.

Here, respondent failed to file his tax returns for 1986 and 1987. On September 14, 1989, petitioner found
respondentsomission.Hence,therunningofthetenyearprescriptiveperiodwithinwhichtoassessandcollect
the taxes due from respondent commenced on that date until September 14, 1999. The two final assessment
noticeswereissuedonFebruary28,1991,wellwithintheprescriptiveperiodofthree(3)years.Whenrespondent
failedtoquestionorprotestthedeficiencyassessmentsthirty(30)daystherefrom,oruntilMarch30,1991,the
samebecamefinalandexecutory.

AsweheldinMarcosIIvs.CourtofAppeals,6theomissiontofileanestatetaxreturn,andthesubsequentfailure
tocontestorappealtheassessmentmadebytheBIRisfatal,consideringthatunderSection223oftheNIRC,in
caseoffailuretofileareturn,thetaxmaybeassessedatanytimewithintenyearsaftertheomission, and
anytaxsoassessedmaybecollectedbylevyuponrealpropertywithinthreeyearsfollowingtheassessmentof
thetax(aswasdonehere).Sincetheestatetaxassessmenthadbecomefinalandunappealable,thereisnowno
reasonwhypetitionershouldnotenforceitsauthoritytocollectrespondentsdeficiencypercentagetaxesfor1986
and1987.

WHEREFORE,thepetitionisGRANTED.TheassailedOrdersoftheRegionalTrialCourt,Branch60,BaguioCity
dismissingCivilCaseNo.3853RareherebyREVERSED.Let
thecaseberemandedtosaidcourtforfurtherproceedingswithdispatch.

SOORDERED.

ANGELINASANDOVALGUTIERREZ

AssociateJustice

WECONCUR:

ARTEMIOV.PANGANIBAN

AssociateJustice
 Chairman
RENATOC.CORONA CONCHITACARPIOMORALES

AssociateJustice AssociateJustice
CANCIOC.GARCIA

AssociateJustice

ATTESTATION

IattestthattheconclusionsintheaboveDecisionwerereachedinconsultationbeforethecasewasassignedto
thewriteroftheopinionoftheCourt'sDivision.

ARTEMIOV.PANGANIBAN

AssociateJustice

Chairman,ThirdDivision

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairman's Attestation, it is hereby
certifiedthattheconclusionsintheaboveDecisionwerereachedinconsultationbeforethecasewasassignedto
thewriteroftheopinionoftheCourt.

HILARIOG.DAVIDE,JR.

ChiefJustice

Footnotes
1UnderSection1,Rule45ofthe1997RevisedRulesofCivilProcedure,asamended.

2DenominatedasFANNo.48691000853andFANNo.48791000854.

3 "Section 229. Protesting of Assesment. x x x Such assessment may be protested administratively by

filingarequestforreconsiderationorreinvestigationwithinthirty(30)daysfromreceiptoftheassessmentx
xx."

Here, respondent failed to file a request for reconsideration or reinvestigation within thirty (30) days from
noticeoftheassessment.

4TaxLawandJurisprudencebyJusticeJoseC.VitugandJudgeErnestoD.Acosta,SecondEdition,2000.

5Section203.PeriodofLimitationUponAssessmentandCollection.ExceptasprovidedinSection223,
internalrevenuetaxesshallbeassessedwithinthree(3)yearsafterthelastdayprescribedbylawforthe
filingofthereturn,andnoproceedingincourtwithoutassessmentforthecollectionofsuchtaxesshallbe
begunaftertheexpirationofsuchperiodxxx"
6G.R.No.120880,June5,1997,273SCRA47.

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