Commissioner of Internal Revenue v Ayala Securities Corporation

Facts:
Ayala Securities Corp. (Ayala) failed to file returns of their accumulated surplus so Ayala was
charged with 25% surtax by the Commissioner of internal Revenue. The CTA (Court of Tax
Appeals) reversed the Commissioners decision and held that the assessment made against Ayala
was beyond the 5-yr prescriptive period as provided in section 331 of the National Internal
Revenue Code. Commissioner now files a motion for reconsideration of this decision. Ayala
invokes the defense of prescription against the right of the Commissioner to assess the surtax.

Issue:
Whether or not the right to assess and collect the 25% surtax has prescribed after five years.

Held:
No. There is no such time limit on the right of the Commissioner to assess the 25% surtax since
there is no express statutory provision limiting such right or providing for its prescription. Hence,
the collection of surtax is imprescriptible. The underlying purpose of the surtax is to avoid a
situation where the corporation unduly retains its surplus earnings instead of declaring and
paying dividends to its shareholders. SC reverses the ruling of the CTA.