TAX REMEDIES Page 2

Continuation...
4. PRESCRIPTION OF GOVERNMENTS RIGHT TO ASSESS
Sections 203, and 222-223 Tax Code
G.R. No. 178087 May 5, 2010
COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
KUDOS METAL CORPORATION, Respondent.
DECISION
DEL CASTILLO, J.:
The prescriptive period on when to assess taxes benefits both the government and
the taxpayer.1 Exceptions extending the period to assess must, therefore, be strictly
construed.
This Petition for Review on Certiorari seeks to set aside the Decision2 dated March 30,
2007 of the Court of Tax Appeals (CTA) affirming the cancellation of the assessment
notices for having been issued beyond the prescriptive period and the
Resolution3 dated May 18, 2007 denying the motion for reconsideration.
Factual Antecedents
On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income Tax
Return (ITR) for the taxable year 1998.
Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal

Revenue (BIR) served upon respondent three Notices of Presentation of Records.
Respondent failed to comply with these notices, hence, the BIR issued a Subpeona
Duces Tecum dated September 21, 2006, receipt of which was acknowledged by
respondent’s President, Mr. Chan Ching Bio, in a letter dated October 20, 2000.
A review and audit of respondent’s records then ensued.
On December 10, 2001, Nelia Pasco (Pasco), respondent’s accountant, executed a

Waiver of the Defense of Prescription,4 which was notarized on January 22, 2002,
received by the BIR Enforcement Service on January 31, 2002 and by the BIR Tax
Fraud Division on February 4, 2002, and accepted by the Assistant Commissioner of
the Enforcement Service, Percival T. Salazar (Salazar).
This was followed by a second Waiver of Defense of Prescription5 executed by Pasco

on February 18, 2003, notarized on February 19, 2003, received by the BIR Tax Fraud
Division on February 28, 2003 and accepted by Assistant Commissioner Salazar.
1
On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable
year 1998 against the respondent. This was followed by a Formal Letter of Demand
with Assessment Notices for taxable year 1998, dated September 26, 2003 which was
received by respondent on November 12, 2003.
Respondent challenged the assessments by filing its "Protest on Various Tax

Assessments" on December 3, 2003 and its "Legal Arguments and Documents in
Support of Protests against Various Assessments" on February 2, 2004.
On June 22, 2004, the BIR rendered a final Decision6 on the matter, requesting the
immediate payment of the following tax liabilities:
Kind of Tax Amount

Income Tax ₱ 9,693,897.85
VAT 13,962,460.90
EWT 1,712,336.76
Withholding Tax-Compensation 247,353.24
Penalties 8,000.00
Total ₱25,624,048.76
Ruling of the Court of Tax Appeals, Second Division
Believing that the government’s right to assess taxes had prescribed, respondent filed
on August 27, 2004 a Petition for Review7 with the CTA. Petitioner in turn filed his
Answer.8
On April 11, 2005, respondent filed an "Urgent Motion for Preferential Resolution of
the Issue on Prescription."9
On October 4, 2005, the CTA Second Division issued a Resolution10 canceling the
assessment notices issued against respondent for having been issued beyond the
prescriptive period. It found the first Waiver of the Statute of Limitations incomplete
and defective for failure to comply with the provisions of Revenue Memorandum Order
(RMO) No. 20-90. Thus:
First, the Assistant Commissioner is not the revenue official authorized to sign the
waiver, as the tax case involves more than ₱1,000,000.00. In this regard, only the
Commissioner is authorized to enter into agreement with the petitioner in extending
the period of assessment;
2
Secondly, the waiver failed to indicate the date of acceptance. Such date of
acceptance is necessary to determine whether the acceptance was made within the
prescriptive period;
Third, the fact of receipt by the taxpayer of his file copy was not indicated on the
original copy. 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 also of the acceptance by the
BIR and the perfection of the agreement.1avvphi1
The subject waiver is therefore incomplete and defective. As such, the three-year
prescriptive period was not tolled or extended and continued to run. x x x11
Petitioner moved for reconsideration but the CTA Second Division denied the motion
in a Resolution12 dated April 18, 2006.
Ruling of the Court of Tax Appeals, En Banc
On appeal, the CTA En Banc affirmed the cancellation of the assessment notices.
Although it ruled that the Assistant Commissioner was authorized to sign the waiver
pursuant to Revenue Delegation Authority Order (RDAO) No. 05-01, it found that the
first waiver was still invalid based on the second and third grounds stated by the CTA
Second Division. Pertinent portions of the Decision read as follows:
While the Court En Banc agrees with the second and third grounds for invalidating the
first waiver, it finds that the Assistant Commissioner of the Enforcement Service is
authorized to sign the waiver pursuant to RDAO No. 05-01, which provides in part as
follows:
A. For National Office cases
Designated Revenue Official
1. Assistant Commissioner (ACIR), For tax fraud and policy Enforcement Service
cases
2. ACIR, Large Taxpayers Service For large taxpayers cases other than those cases
falling under Subsection B hereof
3. ACIR, Legal Service For cases pending verification and awaiting resolution of
certain legal issues prior to prescription and for issuance/compliance of Subpoena
Duces Tecum
4. ACIR, Assessment Service (AS) For cases which are pending in or subject to
review or approval by the ACIR, AS
Based on the foregoing, the Assistant Commissioner, Enforcement Service is

authorized to sign waivers in tax fraud cases. A perusal of the records reveals that the
3
investigation of the subject deficiency taxes in this case was conducted by the
National Investigation Division of the BIR, which was formerly named the Tax Fraud
Division. Thus, the subject assessment is a tax fraud case.
Nevertheless, the first waiver is still invalid based on the second and third grounds
stated by the Court in Division. Hence, it did not extend the prescriptive period to
assess.
Moreover, assuming arguendo that the first waiver is valid, the second waiver is
invalid for violating Section 222(b) of the 1997 Tax Code which mandates that the
period agreed upon in a waiver of the statute can still be extended by subsequent
written agreement, provided that it is executed prior to the expiration of the first period
agreed upon. As previously discussed, the exceptions to the law on prescription must
be strictly construed.
In the case at bar, the period agreed upon in the subject first waiver expired on
December 31, 2002. The second waiver in the instant case which was supposed to
extend the period to assess to December 31, 2003 was executed on February 18,
2003 and was notarized on February 19, 2003. Clearly, the second waiver was
executed after the expiration of the first period agreed upon. Consequently, the same
could not have tolled the 3-year prescriptive period to assess.13
Petitioner sought reconsideration but the same was unavailing.
Issue
Hence, the present recourse where petitioner interposes that:
THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT THE

GOVERNMENT’S RIGHT TO ASSESS UNPAID TAXES OF RESPONDENT
PRESCRIBED.14
Petitioner’s Arguments
Petitioner argues that the government’s right to assess taxes is not barred by
prescription as the two waivers executed by respondent, through its accountant,
effectively tolled or extended the period within which the assessment can be made. In
disputing the conclusion of the CTA that the waivers are invalid, petitioner claims that
respondent is estopped from adopting a position contrary to what it has previously
taken. Petitioner insists that by acquiescing to the audit during the period specified in
the waivers, respondent led the government to believe that the "delay" in the process
would not be utilized against it. Thus, respondent may no longer repudiate the validity
of the waivers and raise the issue of prescription.
Respondent’s Arguments
4
Respondent maintains that prescription had set in due to the invalidity of the waivers
executed by Pasco, who executed the same without any written authority from it, in
clear violation of RDAO No. 5-01. As to the doctrine of estoppel by acquiescence
relied upon by petitioner, respondent counters that the principle of equity comes into
play only when the law is doubtful, which is not present in the instant case.
Our Ruling
The petition is bereft of merit.
Section 20315 of the National Internal Revenue Code of 1997 (NIRC) mandates the
government to assess internal revenue taxes within three years from the last day
prescribed by law for the filing of the tax return or the actual date of filing of such
return, whichever comes later. Hence, an assessment notice issued after the three-
year prescriptive period is no longer valid and effective. Exceptions however are
provided under Section 22216 of the NIRC.
The waivers executed by respondent’s accountant did not extend the period within
which the assessment can be made
Petitioner does not deny that the assessment notices were issued beyond the three-
year prescriptive period, but claims that the period was extended by the two waivers
executed by respondent’s accountant.
We do not agree.
Section 222 (b) of the NIRC provides that the period to assess and collect taxes may
only be extended upon a written agreement between the CIR and the taxpayer
executed before the expiration of the three-year period. RMO 20-9017 issued on April
4, 1990 and RDAO 05-0118 issued on August 2, 2001 lay down the procedure for the
proper execution of the waiver, to wit:
1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase
"but not after ______ 19 ___", which indicates 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.
2. The waiver must be signed by the taxpayer himself or his duly authorized
representative. In the case of a corporation, the waiver must be signed by any
of its responsible officials. In case the authority is delegated by the taxpayer to a
representative, such delegation should be in writing and duly notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him must sign the waiver
indicating that the BIR has accepted and agreed to the waiver. The date of such
acceptance by the BIR should be indicated. However, before signing the waiver,
5
the CIR or the revenue official authorized by him must make sure that the
waiver is in the prescribed form, duly notarized, and executed by the taxpayer
or his duly authorized representative.
5. Both the date of execution by the taxpayer and date of acceptance by the
Bureau should be before the expiration of the period of prescription or before
the lapse of the period agreed upon in case a subsequent agreement is
executed.
6. The waiver must be executed in three copies, the original copy to be attached
to the docket of the case, the second copy for the taxpayer and the third copy
for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her
file copy must be indicated in the original copy to show that the taxpayer was
notified of the acceptance of the BIR and the perfection of the agreement.19
A perusal of the waivers executed by respondent’s accountant reveals the following

infirmities:
1. The waivers were executed without the notarized written authority of Pasco to
sign the waiver in behalf of respondent.
2. The waivers failed to indicate the date of acceptance.
3. The fact of receipt by the respondent of its file copy was not indicated in the
original copies of the waivers.
Due to the defects in the waivers, the period to assess or collect taxes was not
extended. Consequently, the assessments were issued by the BIR beyond the three-
year period and are void.
Estoppel does not apply in this case
We find no merit in petitioner’s claim that respondent is now estopped from claiming
prescription since by executing the waivers, it was the one which asked for additional
time to submit the required documents.
In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,20 the

doctrine of estoppel prevented the taxpayer from raising the defense of prescription
against the efforts of the government to collect the assessed tax. However, it must be
stressed that in the said case, estoppel was applied as an exception to the statute of
limitations on collection of taxes and not on the assessment of taxes, as the BIR was
able to make an assessment within the prescribed period. More important, there was
a finding that the taxpayer made several requests or positive acts to convince the
government to postpone the collection of taxes, viz:
It appears that the first assessment made against respondent based on its second
final return filed on November 28, 1946 was made on February 11, 1947. Upon receipt
6
of this assessment respondent requested for at least one year within which to pay the
amount assessed although it reserved its right to question the correctness of the
assessment before actual payment. Petitioner granted an extension of only three
months. When it failed to pay the tax within the period extended, petitioner sent
respondent a letter on November 28, 1950 demanding payment of the tax as
assessed, and upon receipt of the letter respondent asked for a reinvestigation and
reconsideration of the assessment. When this request was denied, respondent again
requested for a reconsideration on April 25, 1952, which was denied on May 6, 1953,
which denial was appealed to the Conference Staff. The appeal was heard by the
Conference Staff from September 2, 1953 to July 16, 1955, and as a result of these
various negotiations, the assessment was finally reduced on July 26, 1955. This is the
ruling which is now being questioned after a protracted negotiation on the ground that
the collection of the tax has already prescribed.
It is obvious from the foregoing that petitioner refrained from collecting the tax by
distraint or levy or by proceeding in court within the 5-year period from the filing of the
second amended final return due to the several requests of respondent for extension
to which petitioner yielded to give it every opportunity to prove its claim regarding the
correctness of the assessment. 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.
While we may agree with the Court of Tax Appeals that a mere request for
reexamination or reinvestigation may not have the effect of suspending the running of
the period of limitation for in such case there is need of a written agreement to extend
the period between the Collector and the taxpayer, there are cases however where 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. And when such situation comes to pass there
are authorities that hold, based on weighty reasons, that such an attitude or behavior
should not be countenanced if only to protect the interest of the Government.
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 has 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. vs.
U.S., 78 L. ed., 647). Or, as was aptly said, "The tax could have been collected, but
the government withheld action at the specific request of the plaintiff. The plaintiff is
7
now estopped and should not be permitted to raise the defense of the Statute of
Limitations." [Newport Co. vs. U.S., (DC-WIS), 34 F. Supp. 588].21
Conversely, in this case, the assessments were issued beyond the prescribed period.
Also, there is no showing that respondent made any request to persuade the BIR to
postpone the issuance of the assessments.
The doctrine of estoppel cannot be applied in this case as an exception to the statute
of limitations on the assessment of taxes considering that there is a detailed
procedure for the proper execution of the waiver, which the BIR must strictly follow. As
we have often said, the doctrine of estoppel is predicated on, and has its origin in,
equity which, broadly defined, is justice according to natural law and right.22 As such,
the doctrine of estoppel cannot give validity to an act that is prohibited by law or one
that is against public policy.23 It should be resorted to solely as a means of preventing
injustice and should not be permitted to defeat the administration of the law, or to
accomplish a wrong or secure an undue advantage, or to extend beyond them
requirements of the transactions in which they originate.24 Simply put, the doctrine of
estoppel must be sparingly applied.
Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure to
comply with RMO 20-90 and RDAO 05-01, which the BIR itself issued. As stated
earlier, the BIR failed to verify whether a notarized written authority was given by the
respondent to its accountant, and to indicate the date of acceptance and the receipt
by the respondent of the waivers. Having caused the defects in the waivers, the BIR
must bear the consequence. It cannot shift the blame to the taxpayer. To stress, a
waiver of the statute of limitations, being a derogation of the taxpayer’s right to
security against prolonged and unscrupulous investigations, must be carefully and
strictly construed.25
As to the alleged delay of the respondent to furnish the BIR of the required
documents, this cannot be taken against respondent. Neither can the BIR use this as
an excuse for issuing the assessments beyond the three-year period because with or
without the required documents, the CIR has the power to make assessments based
on the best evidence obtainable.26
WHEREFORE, the petition is DENIED. The assailed Decision dated March 30, 2007
and Resolution dated May 18, 2007 of the Court of Tax Appeals are
hereby AFFIRMED.
SO ORDERED.
DIGEST
CIR v. Kudos Metal Corporation,
G.R. No. 178087 dated May 5, 2010
8
DOCTRINE: Valid Waiver Requires Strict Compliance With Procedures Prescribed In
Revenue Memorandum Order No. (“RMO”) 20-90 And Revenue Delegation Authority
Order No. (“RDAO”) 05-01
FACTS:
1. Respondent Kudos Metal Corporation filed its Annual Income Tax Return (ITR) for the
taxable year 1998.
2. Pursuant to a Letter of Authority (Sept 7 1999), the BIR served upon kudos
Notices of Presentation of Records. Kudos failed to comply with such. Hence.
The BIR ossued a Subpoena Duces Tecum (Sept 21, 2006).
3. A review and audit of respondents records then ensued.
4. Dec 10 2001, the accountant of Kudos executed a Waiver of Defense of
Prescription which was followed by another Waiver of Defense of Prescription
on Feb 18 2003.
5. On Aug 25 2003, BIR issued a Prelim Assessment Notice for the taxable year of
1998. This was followed by a Formal Letter of Demand with Assessment Notice.
6. Respondent then challenged the assessments by filing its Protest (Dec 3

2003)and its Legal Arguments and Documents in support of protests against the
assessments (Feb 2 2004)
7. BIR requested the immediate payment of the tax liabilities
Kind of Tax Amount
Income Tax P 9,693,897.85
VAT 13,962,460.90
EWT 1,712,336.76
Withholding Tax-Compensation 247,353.24
Penalties 8,000.00
Total P25,624,048.76
8. CTA: Right to assess has PRESCRIBED.

Issues on 1st waiver:
1. Assistant Commissioner is NOT THE REVENUE OFFICIAL

AUTHORIZED TO SIGN THE WAIVER, since the tax case involved
more than P1M.
9
2. Waiver failed to indicate the date of acceptance.
3. The fact of receipt by the taxpayer of his file copy was not indicated on
the original copy
9. CTA En Banc: Agreed to 2 &3
ISSUE:
The CTA en banc erred in ruling that the governments right to assess unpaid taxes of
respondent prescribed
HELD:
The waivers executed by respondent’s accountant did not extend the period within
which the assessment can be made
Sec 203 NIRC: mandates the government to assess internal revenue taxes within 4
years from the last day prescribed by law for the filing of the tax return or the actual
date of filing of such return, whichever comes later.
Hence, an assessment notice issued after the three-year prescriptive period is

no longer valid and effective. Exceptions however are provided under Sec 222 of
the NIRC.
EXCEPTION: (Sec 22 NIRC) The period to assess and collect taxes may only be
extended upon a written agreement between the CIR and the Taxpayer executed
before the expiration of the 3-year period. RMP20-90 issued on April 4, 1991 and
RDAO 05-01 issued on Aug 2 2001 laydown the procedure for the proper execution of
waiver.
1. The waiver must be in the proper form prescribed by RMO 20-

90. The phrase but not after ______ 19 ___, which indicates 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.
2. The waiver must be signed by the taxpayer himself or his duly

authorized representative. In the case of a corporation, the waiver
must be signed by any of its responsible officials. In case the authority
10
is delegated by the taxpayer to a representative, such delegation
should be in writing and duly notarized.
4. The CIR or the revenue official authorized by him must sign the
waiver indicating that the BIR has accepted and agreed to the
waiver. The date of such acceptance by the BIR should be
indicated. However, before signing the waiver, the CIR or the revenue
official authorized by him must make sure that the waiver is in the
prescribed form, duly notarized, and executed by the taxpayer or his
duly authorized representative.
5. Both the date of execution by the taxpayer and date of acceptance

by the Bureau should be before the expiration of the period of
prescription or before the lapse of the period agreed upon in case
a subsequent agreement is executed.
6. The waiver must be executed in three copies, the original copy to be

attached to the docket of the case, the second copy for the taxpayer
and the third copy for the Office accepting the waiver. The fact of
receipt by the taxpayer of his/her file copy must be indicated in the
original copy to show that the taxpayer was notified of the acceptance
of the BIR and the perfection of the agreement.[19]
INFIRMITIES OF THE FIRST WAIVER:
1. Executed without the notarized written authority of Pasco to sign the waiver in
behalf of the respondent
2. The waivers failed to indicate the date of acceptance
3. The fact of receipt by the respondent of its file copy was not indicated in the
original copies of the waivers.
Due to the defects in the waivers, the period to assess or collect taxes was not
extended. Consequently, the assessments were issued by the BIR beyond the three-
year period and are void.
ESTOPPEL DOES NOT APPLY.
In the case of CIR v. Suyoc Consolidated Mining Company, estoppel was applied AS
AN EXCEPTION TO THE STATUTE OF LIMITATIONS on collection of taxes and not
on the assessment of taxes. There was a finding that the taxpayer made several
11
requests or positive acts to convince the government to postpone the collection of
taxes.
In this case, the assessments were issued BEYOND the prescribed period. There was
also no showing that the respondent made any request to persuade the BIR to
postpone the issuance of the assessments.
BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with
RMO 20-90 and RDAO 05-01, which the BIR itself issued.
BIR failed to verify whether a notarized written authority was given by the
respondent to its accountant, and to indicate the date of acceptance and the
receipt by the respondent of the waivers.
Having caused the defects in the waivers, BIR must bear the consequences
and thus cannot shift the blame to the taxpayer.
We find no merit in petitioners claim that

respondent is now estopped from claiming
prescription since by executing the waivers, it
was the one which asked for additional time to
submit the required documents.
A waiver of the Statute of Limitations, being a derogation of taxpayer’s right to security

against prolonged and unscrupulous investigations, must be carefully and strictly
construed.
CIR vs Next Mobile full text see PDF
DIGEST
CIR v. NEXT MOBILE, INC. GR No. 212825. December 7, 2015
FACTS: On April 15, 2002, respondent filed with the Bureau of Internal Revenue
(BIR) its Annual Income Tax Return (ITR) for taxable year ending December 31, 2001.
Respondent also filed its Monthly Remittance Returns of Final Income Taxes Withheld
(BIR Form No. 1601-F), its Monthly Remittance Returns of Expanded Withholding Tax
(BIR Form No. 1501-E) and its Monthly Remittance Return of Income Taxes Withheld
on Compensation (BIR Form No. 1601-C) for year ending December 31, 2001. On
September 25, 2003, respondent received a copy of the Letter of Authority dated
September 8, 2003 signed by Regional Director Nestor S. Valeroso authorizing
12
Revenue Officer Nenita L. Crespo of Revenue District Office 43 to examine
respondent's books of accounts and other accounting records for income and
withholding taxes for the period covering January 1, 2001 to December 31, 2001.
Ma. Lida Sarmiento (Sarmiento), respondent’s Director of Finance, subsequently

executed several waivers of the statute of limitations to extend the prescriptive period
of assessment for taxes due in taxable year ending December 31, 2001.
On September 26, 2005, respondent received from the BIR a Preliminary Assessment
Notice dated September 16, 2005 to which it filed a Reply.
On October 25, 2005, respondent received a Formal Letter of Demand (FLD) and
Assessment Notices/Demand No. 43-734 both dated October 17, 2005 from the BIR,
demanding payment of deficiency income tax, final withholding tax (FWT), expanded
withholding tax (EWT), increments for late remittance of taxes withheld, and
compromise penalty for failure to file returns/late filing/late remittance of taxes
withheld, in the total amount of ₱313,339,610.42 for the taxable year ending
December 31, 2001. On November 23, 2005, respondent filed its protest against the
FLD and requested the reinvestigation of the assessments. On July 28, 2009,
respondent received a letter from the BIR denying its protest. Thus, on August 27,
2009, respondent filed a Petition for Review before the CTA docketed as CTA Case
No. 7965.
With the CTA, it was held that the demand was beyond the three year prescription
period under the NIRC. That the case does not apply the 10 year prescripton period
as there was not false return by the respondent. Also, the waivers did not validly
extend the prescription because of irregularities.
ISSUE: Whether or not the period to pay has prescribed.
RULING: NO.
The SC held that a waiver of the statute of limitations must faithfully comply with RMO
No. 20-90 and RDAO 05-01 in order to be valid. Sarmiento failed to show her authority
to the BIR to sign the waivers.
The BIR were also at fault having to neglect their ministerial duties.
Both parties knew the infirmities of the waivers but still continued. Respondents were
held in bad faith as after having benefited by the waivers by giving them more time to
pay, they used the waivers they made themselves when the consequences were not
in their favor.
The BIR's negligence amounts to malice and bad faith as they also knew the waivers
13
did not conform with RMO 20-90 and RDAO 05-01.
As both parties are in bad faith, the SC granted the petition on the issue of the
nullification of the formal letter of demand to the CTA.
The Supreme Court held that a taxpayer who is in bad faith cannot
impugn the validity of the waiver.
 While the Supreme Court reiterated that a waiver must strictly comply
with the requirements prescribed by the regulations, it qualified and
held that a taxpayer cannot impugn the validity of the waiver on the
basis of the defects he himself has caused after benefiting from it, as
he will be deemed estopped by his bad faith. Despite the waiver’s non -
compliance with the requirements in the regulations, the Supreme
Court ruled in favor of the BIR and treated the waiver as valid and
binding upon the taxpayer since the defect was attributable to the
latter’s deliberate acts.
 There is no hard-and-fast rule on the issuance of waivers, which is

why taxpayers need to take all factors into considerati on. While
executing a waiver may allow more time for a taxpayer to gather and
submit relevant documents before an assessment is finalized, it also
prolongs the tax audit taking a toll on the taxpayer’s time and
resources, not to mention the continuous runn ing of the interest
penalty should the assessment be found valid.
 With the issuance of RMO 14-2016 and the pronouncement of the

Supreme Court in the Next Mobile case, it appears that tax
assessments can no longer be won simply based on technicalities by
attacking the validity of waivers. Taxpayers should make it a point to
focus not just on procedural or technical issues but more on the merits
or the strength of its substantive factual and legal bases against a tax
assessment of the BIR.
 The Court of Tax Appeals (CTA), however, has differing views. In the most
recent case of Next Mobile, Inc. vs. Commissioner of Internal Revenue, the
CTA, applying the Aznar ruling, interpreted that any deviation from the truth,
even a 5% under-declaration of the reported gross revenues, already
constitutes a false return and warrants the application of the 10-year
prescriptive period to assess
14
G.R. No. 170257 September 7, 2011
RIZAL COMMERCIAL BANKING CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 seeking to set aside the July
27, 2005 Decision1 and October 26, 2005 Resolution2 of the Court of Tax Appeals En
Banc (CTA-En Banc) in C.T.A. E.B. No. 83 entitled "Rizal Commercial Banking
Corporation v. Commissioner of Internal Revenue."
THE FACTS
Petitioner Rizal Commercial Banking Corporation (RCBC) is a corporation engaged in

general banking operations. It seasonably filed its Corporation Annual Income Tax
Returns for Foreign Currency Deposit Unit for the calendar years 1994 and 1995.3
On August 15, 1996, RCBC received Letter of Authority No. 133959 issued by then
Commissioner of Internal Revenue (CIR) Liwayway Vinzons-Chato, authorizing a
special audit team to examine the books of accounts and other accounting records for
all internal revenue taxes from January 1, 1994 to December 31, 1995.4
On January 23, 1997, RCBC executed two Waivers of the Defense of Prescription
Under the Statute of Limitations of the National Internal Revenue Code covering the
internal revenue taxes due for the years 1994 and 1995, effectively extending the
period of the Bureau of Internal Revenue (BIR) to assess up to December 31, 2000.5
Subsequently, on January 27, 2000, RCBC received a Formal Letter of Demand

together with Assessment Notices from the BIR for the following deficiency tax
assessments:6
Compromise
Particulars Basic Tax Interest Penalties Total
Deficiency Income Tax

₱
443,6
1995 (ST-INC-95-0199- 72,57
2000) ₱ 252,150,988.01 ₱ 191,496,585.96 ₱ 25,000.00 3.97
1994 (ST-INC-94-0200- 216,478,397.90 207,819,261.99 25,000.00 424,3
15
2000) 22,65
9.89
Deficiency Gross Receipts Tax
28,94
1995 (ST-GRT-95- 5,525
0201-2000) 13,697,083.68 12,428,696.21 2,819,745.52 .41
5,269
1994 (ST-GRT-94- ,178.
0202-2000) 2,488,462.38 2,755,716.42 25,000.00 80
Deficiency Final Withholding Tax
123,1
1995 (ST-EWT-95- 48,47
0203-2000) 64,365,610.12 58,757,866.78 25,000.00 7.15
112,1
1994 (ST-EWT-94- 30,17
0204-2000) 53,058,075.25 59,047,096.34 25,000.00 1.59
Deficiency Final Tax on FCDU Onshore Income
143,4
1995 (ST-OT-95-0205- 35,68
2000) 81,508,718.20 61,901,963,.52 25,000.00 1.72
67,50
1994 (ST-OT-94-0206- 6,826
2000) 34,429,503.10 33,052,322.98 25,000.00 .08
Deficiency Expanded Withholding Tax
9,748
1995 (ST-EWT-95- ,055.
0207-2000) 5,051,415.22 4,583,640.33 113,000.00 55
8,628
1994 (ST-EWT-94- ,566.
0208-2000) 4,482,740.35 4,067,626.31 78,200.00 66
Deficiency Documentary Stamp Tax
667,9
1995 (ST-DST1-95- 55,48
0209-2000) 351,900,539.39 315,804,946.26 250,000.00 5.65
699,0
1995 (ST-DST2-95- 42,94
0210-2000) 367,207,105.29 331,535,844.68 300,000.00 9.97
972,8
1994 (ST-DST3-94- 64,10
0211-2000) 460,370,640.05 512,193,460.02 300,000.00 0.07
463,3
1994 (ST-DST4-94- 88,38
0212-2000) 223,037,675.89 240,050,706.09 300,000.00 1.98
16
₱4,17
0,058
TOTALS ₱2,130,226,954.83 ₱2,035,495,733.89 ₱4,335,945.52
,634.
49
Disagreeing with the said deficiency tax assessment, RCBC filed a protest on
February 24, 2000 and later submitted the relevant documentary evidence to support
it. Much later on November 20, 2000, it filed a petition for review before the CTA,
pursuant to Section 228 of the 1997 Tax Code.7
On December 6, 2000, RCBC received another Formal Letter of Demand with

Assessment Notices dated October 20, 2000, following the reinvestigation it
requested, which drastically reduced the original amount of deficiency taxes to the
following:8
Compromise
Particulars Basic Tax Interest Penalties Total

1995 (INC-95- ₱ 374,348.45 ₱ 346,656.92 ₱ 721,005.37
000003)
1994 (INC-94- 1,392,366.28 1,568,605.52 2,960,971.80
000002)
Deficiency Gross Receipts Tax
1995 (GRT-95- 2,000,926.96 3,322,589.63 ₱ 1,367,222.04 6,690,738.63
000004)
1994 (GRT-94- 138,368.61 161,872.32 300,240.93
000003)
Deficiency Final Withholding Tax
1995 (FT-95-000005) 362,203.47 351,287.75 713,491.22
1994 (FT-94-000004) 188,746.43 220,807.47 409,553.90
1995 (OT-95-000006) 81,508,718.20 79,052,291.08 160,561,009.28
1994 (OT-94-000005) 34,429,503.10 40,277,802.26 74,707,305.36
Deficiency Expanded Withholding Tax
1995 (EWT-95- 520,869.72 505,171.80 25,000.00 1,051,041.03
000004)
1994 (EWT-94- 297,949.95 348,560.63 25,000.00 671,510.58
000003)
1995 (DST-95- 599,890.72 149,972.68 749,863.40
000006)
1995 (DST2-95- 24,953,842.46 6,238,460.62 31,192,303.08
000002)
17
1994 (DST-94- 905,064.74 226,266.18 1,131,330.92
000005)
1994 (DST2-94- 17,040,104.84 4,260,026.21 21,300,131.05
000001)
TOTALS ₱ ₱ ₱ 12,291,947.73 ₱
164,712,903.44 126,155,645.38 303,160,496.55
On the same day, RCBC paid the following deficiency taxes as assessed by the BIR:9
Particulars 1994 1995 Total

Deficiency Income Tax ₱ ₱ 722,236.11 ₱ 3,687,785.55
2,965,549.44
Deficiency Gross Receipts Tax 300,695.84 6,701,893.17 7,002,589.01
Deficiency Final Withholding Tax 410,174.44 714,682.02 1,124,856.46
Deficiency Expanded Withholding 672,490.14 1,052,753.48 1,725,243.62
Tax
Deficiency Documentary Stamp Tax 1,131,330.92 749,863.40 1,881,194.32
TOTALS ₱ ₱ ₱
5,480,240.78 9,941,428.18 15,421,668.96
RCBC, however, refused to pay the following assessments for deficiency onshore tax
and documentary stamp tax which remained to be the subjects of its petition for
review:10

Basic ₱ 34,429,503.10 ₱ 81,508,718.20 ₱ 115,938,221.30
Interest 40,277,802.26 79,052,291.08 119,330,093.34
Sub Total ₱ 74,707,305.36 ₱ 160,561,009.28 ₱ 235,268,314.64
Basic ₱ 17,040,104.84 ₱ 24,953,842.46 ₱ 41,993,947.30
Surcharge 4,260,026.21 6,238,460.62 10,498,486.83
Sub Total ₱ 21,300,131.05 ₱ 31,192,303.08 ₱ 52,492,434.13
TOTALS ₱ 96,007,436.41 ₱ 191,753,312.36 ₱ 287,760,748.77
18
RCBC argued that the waivers of the Statute of Limitations which it executed on
January 23, 1997 were not valid because the same were not signed or conformed to
by the respondent CIR as required under Section 222(b) of the Tax Code.11 As
regards the deficiency FCDU onshore tax, RCBC contended that because the
onshore tax was collected in the form of a final withholding tax, it was the borrower,
constituted by law as the withholding agent, that was primarily liable for the remittance
of the said tax.12
On December 15, 2004, the First Division of the Court of Tax Appeals (CTA-First
Division) promulgated its Decision13which partially granted the petition for review. It
considered as closed and terminated the assessments for deficiency income tax,
deficiency gross receipts tax, deficiency final withholding tax, deficiency expanded
withholding tax, and deficiency documentary stamp tax (not an industry issue) for
1994 and 1995.14 It, however, upheld the assessment for deficiency final tax on FCDU
onshore income and deficiency documentary stamp tax for 1994 and 1995 and
ordered RCBC to pay the following amounts plus 20% delinquency tax:15

Basic ₱ 22,356,324.43 ₱ 16,067,952.86 ₱ 115,938, 221.30
Interest 26,153,837.08 15,583,713.19 119,330,093.34
Sub Total 48,510,161.51 31,651,666.05 119,330,093.34
Deficiency Documentary Stamp Tax (Industry Issue)
Basic ₱ 17,040,104.84 ₱ 24,953,842.46 ₱ 41,993,947.30
Surcharge 4,260,026.21 6,238,460.62 10,498,486.83
Sub Total 21,300,131.05 31,192,303.08 52,492,434.13
TOTALS ₱ 69,810,292.56 ₱ 62,843,969.13 ₱ 171,822,527.47
Unsatisfied, RCBC filed its Motion for Reconsideration on January 21, 2005, arguing
that: (1) the CTA erred in its addition of the total amount of deficiency taxes and the
correct amount should only be ₱ 132,654,261.69 and not ₱ 171,822,527.47; (2) the
CTA erred in holding that RCBC was estopped from questioning the validity of the
waivers; (3) it was the payor-borrower as withholding tax agent, and not RCBC, who
was liable to pay the final tax on FCDU, and (4) RCBC’s special savings account was
not subject to documentary stamp tax.16
In its Resolution17 dated April 11, 2005, the CTA-First Division substantially upheld its
earlier ruling, except for its inadvertence in the addition of the total amount of
deficiency taxes. As such, it modified its earlier decision and ordered RCBC to pay the
amount of ₱ 132,654,261.69 plus 20% delinquency tax.18
19
RCBC elevated the case to the CTA-En Banc where it raised the following issues:
I.
Whether or not the right of the respondent to assess deficiency onshore

tax and documentary stamp tax for taxable year 1994 and 1995 had
already prescribed when it issued the formal letter of demand and
assessment notices for the said taxable years.
II.
Whether or not petitioner is liable for deficiency onshore tax for taxable
year 1994 and 1995.
III.
Whether or not petitioner’s special savings account is subject to

documentary stamp tax under then Section 180 of the 1993 Tax Code.19
The CTA-En Banc, in its assailed Decision, denied the petition for lack of merit. It
ruled that by receiving, accepting and paying portions of the reduced assessment,
RCBC bound itself to the new assessment, implying that it recognized the validity of
the waivers.20 RCBC could not assail the validity of the waivers after it had received
and accepted certain benefits as a result of the execution of the said waivers. 21 As to
the deficiency onshore tax, it held that because the payor-borrower was merely
designated by law to withhold and remit the said tax, it would then follow that the tax
should be imposed on RCBC as the payee-bank.22 Finally, in relation to the
assessment of the deficiency documentary stamp tax on petitioner’s special savings
account, it held that petitioner’s special savings account was a certificate of deposit
and, as such, was subject to documentary stamp tax.23
Hence, this petition.
While awaiting the decision of this Court, RCBC filed its Manifestation dated July 22,
2009, informing the Court that this petition, relative to the DST deficiency assessment,
had been rendered moot and academic by its payment of the tax deficiencies on
Documentary Stamp Tax (DST) on Special Savings Account (SSA) for taxable years
1994 and 1995 after the BIR approved its applications for tax abatement.24
In its November 17, 2009 Comment to the Manifestation, the CIR pointed out that the
only remaining issues raised in the present petition were those pertaining to RCBC’s
deficiency tax on FCDU Onshore Income for taxable years 1994 and 1995 in the
aggregate amount of ₱ 80,161,827.56 plus 20% delinquency interest per annum. The
CIR prayed that RCBC be considered to have withdrawn its appeal with respect to the
CTA-En Banc ruling on its DST on SSA deficiency for taxable years 1994 and 1995
and that the questioned CTA decision regarding RCBC’s deficiency tax on FCDU
Onshore Income for the same period be affirmed.25
20
THE ISSUES
Thus, only the following issues remain to be resolved by this Court:
Whether petitioner, by paying the other tax assessment covered by the waivers
of the statute of limitations, is rendered estopped from questioning the validity
of the said waivers with respect to the assessment of deficiency onshore tax. 26
and
Whether petitioner, as payee-bank, can be held liable for deficiency onshore tax,
which is mandated by law to be collected at source in the form of a final
withholding tax.27
THE COURT’S RULING
Petitioner is estopped from

questioning the validity of the waivers
RCBC assails the validity of the waivers of the statute of limitations on the ground that
the said waivers were merely attested to by Sixto Esquivias, then Coordinator for the
CIR, and that he failed to indicate acceptance or agreement of the CIR, as required
under Section 223 (b) of the 1977 Tax Code.28 RCBC further argues that the principle
of estoppel cannot be applied against it because its payment of the other tax
assessments does not signify a clear intention on its part to give up its right to
question the validity of the waivers.29
The Court disagrees.
Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored on the rule
that "an admission or representation is rendered conclusive upon the person making
it, and cannot be denied or disproved as against the person relying thereon." A party
is precluded from denying his own acts, admissions or representations to the
prejudice of the other party in order to prevent fraud and falsehood.30
Estoppel is clearly applicable to the case at bench. RCBC, through its partial payment
of the revised assessments issued within the extended period as provided for in the
questioned waivers, impliedly admitted the validity of those waivers. Had petitioner
truly believed that the waivers were invalid and that the assessments were issued
beyond the prescriptive period, then it should not have paid the reduced amount of
taxes in the revised assessment. RCBC’s subsequent actioneffectively belies its
insistence that the waivers are invalid. The records show that on December 6, 2000,
upon receipt of the revised assessment, RCBC immediately made payment on the
uncontested taxes. Thus, RCBC is estopped from questioning the validity of the
waivers. To hold otherwise and allow a party to gainsay its own act or deny rights
which it had previously recognized would run counter to the principle of equity which
this institution holds dear.31
21
Liability for Deficiency
Onshore Withholding Tax
RCBC is convinced that it is the payor-borrower, as withholding agent, who is directly

liable for the payment of onshore tax, citing Section 2.57(A) of Revenue Regulations
No. 2-98 which states:
(A) Final Withholding Tax. — Under the final withholding tax system the amount of
income tax withheld by the withholding agent is constituted as a full and final payment
of the income tax due from the payee on the said income. The liability for payment
of the tax rests primarily on the payor as a withholding agent. Thus, in case of
his failure to withhold the tax or in case of under withholding, the deficiency tax
shall be collected from the payor/withholding agent. The payee is not required to
file an income tax return for the particular income. (Emphasis supplied)
The petitioner is mistaken.
Before any further discussion, it should be pointed out that RCBC erred in citing the
abovementioned Revenue Regulations No. 2-98 because the same governs collection
at source on income paid only on or after January 1, 1998. The deficiency withholding
tax subject of this petition was supposed to have been withheld on income paid during
the taxable years of 1994 and 1995. Hence, Revenue Regulations No. 2-98 obviously
does not apply in this case.
In Chamber of Real Estate and Builders’ Associations, Inc. v. The Executive

Secretary,32 the Court has explained that the purpose of the withholding tax system is
three-fold: (1) to provide the taxpayer with a convenient way of paying his tax liability;
(2) to ensure the collection of tax, and (3) to improve the government’s cashflow.
Under the withholding tax system, the payor is the taxpayer upon whom the tax is
imposed, while the withholding agent simply acts as an agent or a collector of the
government to ensure the collection of taxes.33 1avvphi1
It is, therefore, indisputable that the withholding agent is merely a tax collector and not
a taxpayer, as elucidated by this Court in the case of Commissioner of Internal
Revenue v. Court of Appeals,34 to wit:
In the operation of the withholding tax system, the withholding agent is the payor, a
separate entity acting no more than an agent of the government for the collection of
the tax in order to ensure its payments; the payer is the taxpayer – he is the person
subject to tax imposed by law; and the payee is the taxing authority. In other words,
the withholding agent is merely a tax collector, not a taxpayer. Under the withholding
system, however, the agent-payor becomes a payee by fiction of law. His (agent)
liability is direct and independent from the taxpayer, because the income tax is
still imposed on and due from the latter. The agent is not liable for the tax as no
wealth flowed into him – he earned no income. The Tax Code only makes the
22
agent personally liable for the tax arising from the breach of its legal duty to withhold
as distinguished from its duty to pay tax since:
"the government’s cause of action against the withholding agent is not for the
collection of income tax, but for the enforcement of the withholding provision of
Section 53 of the Tax Code, compliance with which is imposed on the withholding
agent and not upon the taxpayer."35 (Emphases supplied)
Based on the foregoing, the liability of the withholding agent is independent from that
of the taxpayer.1âwphi1 The former cannot be made liable for the tax due because it
is the latter who earned the income subject to withholding tax. The withholding agent
is liable only insofar as he failed to perform his duty to withhold the tax and remit the
same to the government. The liability for the tax, however, remains with the taxpayer
because the gain was realized and received by him.
While the payor-borrower can be held accountable for its negligence in performing its
duty to withhold the amount of tax due on the transaction, RCBC, as the taxpayer and
the one which earned income on the transaction, remains liable for the payment of tax
as the taxpayer shares the responsibility of making certain that the tax is properly
withheld by the withholding agent, so as to avoid any penalty that may arise from the
non-payment of the withholding tax due.
RCBC cannot evade its liability for FCDU Onshore Tax by shifting the blame on the
payor-borrower as the withholding agent. As such, it is liable for payment of deficiency
onshore tax on interest income derived from foreign currency loans, pursuant to
Section 24(e)(3) of the National Internal Revenue Code of 1993:
Sec. 24. Rates of tax on domestic corporations.
xxxx
(e) Tax on certain incomes derived by domestic corporations
xxxx
(3) Tax on income derived under the Expanded Foreign Currency Deposit System. –
Income derived by a depository bank under the expanded foreign currency deposit
system from foreign currency transactions with nonresidents, offshore banking units in
the Philippines, local commercial banks including branches of foreign banks that may
be authorized by the Central Bank to transact business with foreign currency
depository system units and other depository banks under the expanded foreign
currency deposit system shall be exempt from all taxes, except taxable income from
such transactions as may be specified by the Secretary of Finance, upon
recommendation of the Monetary Board to be subject to the usual income tax payable
by banks: Provided, That interest income from foreign currency loans granted by
such depository banks under said expanded system to residents (other than
23
offshore banking units in the Philippines or other depository banks under the
expanded system) shall be subject to a 10% tax. (Emphasis supplied)
As a final note, this Court has consistently held that findings and conclusions of the
CTA shall be accorded the highest respect and shall be presumed valid, in the
absence of any clear and convincing proof to the contrary.36 The CTA, as a
specialized court dedicated exclusively to the study and resolution of tax problems,
has developed an expertise on the subject of taxation.37 As such, its decisions shall
not be lightly set aside on appeal, unless this Court finds that the questioned decision
is not supported by substantial evidence or there is a showing of abuse or improvident
exercise of authority on the part of the Tax Court.38
WHEREFORE, the petition is DENIED.
SO ORDERED.
DIGEST
Tax Case Digest: RCBC V. CIR (2011)
G.R. No. 170257 September 7, 2011
Lessons Applicable: Waiver, Witholding Agent, CTA findings,
Laws Applicable:
FACTS:
January 23, 1997, RCBC executed 2 waivers of Defense of Prescription. Under the
statute of limitation of the NIRC covering the Internal Revenue Taxes due for 1994
and 1995 extending the assessment up to Dec. 31, 2000.
January 27, 2000: RCBC received a formal letter of demand together with assessment
notices for deficiency taxes. RCBC filed a Protest and then, a Petition for Review
before the CTA pursuant to Sec. 228 of the 1997 Tax Code.
Dec. 6, 2000: It again received a letter of demand which drastically reduced the
deficiency tax except from the onshore tax and document stamp tax (DST).
RCBC argued the validity of the waivers for not being signed and for the onshore tax,
it should not be primarily liable since it is only a withholding agent.
CTA terminated the assessment for other deficiencies except for the FCDU shore tax
and DST charging 20% deficiency tax. Being denied in CTA en banc, it raised the
matter to the Supreme Court. While the case is pending, the DST deficiency was paid
after the BIR approved its application for abatement.
24
ISSUES: W/N RCBC as payee bank can be held liable for deficiency on shore tax
which is mandatory by law to be collected at source in the form of a final withholding
tax.
HELD: Petition is denied. As held in Chamber of Real Estate and Builder's

Association Inc. v. Executive Sec., the purpose of the withholding tax system are:
to provide the taxpayer with a convenient way of paying his tax liability
to ensure the collection of tax
to improve the governments cashflow.
Under the withholding tax system, the payor is the taxpayer upon whom the tax is
imposed, while the withholding agent simply acts as an agent or a collector of the
government to ensure the collection of taxes
The liability of the withholding agent is independent from that of the taxpayer.
The former cannot be made liable for the tax due because it is the latter who earned
the income subject to withholding tax.
The withholding agent is liable only insofar as he failed to perform his duty to withhold
the tax and remit the same to the government. The liability for the tax, however,
remains with the taxpayer because the gain was realized and received by him.
RCBC cannot evade its liability for FCDU Onshore Tax by shifting the blame on the
payor-borrower as the withholding agent.
The CTA, as a specialized court dedicated exclusively to the study and resolution of
tax problems, has developed an expertise on the subject of taxation and shall be
accorded the highest respect and shall be presumed valid, in the absence of any clear
and convincing proof to the contrary
G.R. No. 192173 July 29, 2015

vs.
STANDARD CHARTERED BANK, Respondent.
DECISION
25
PEREZ, J.:
For the Court's consideration is a Petition for Review on Certiorari which seeks to
reverse and set aside the 1 March 2010 Decision1 and the 30 April 2010
Resolution2 of the Court of Tax Appeals (CTA) En Banc in CTA EB Case No. 522,
affirming in toto the Decision3 and Resolution4 dated 27 February 2009 and 29 July
2009, respectively, of the Second Division of the CTA (CTA in Division) in CTA Case
No. 7165. The court a quo cancelled and set aside the Formal Letter of Demand and
Assessment Notices dated 24 June 2004 issued by petitioner against respondent for
deficiency income tax, final income tax – Foreign Currency Deposit Unit (FCDU), and
expanded withholding tax (EWT) in the aggregate amount of ₱33,076,944.18,
including increments covering taxable year 1998, for having been issued beyond the
reglementary period.
The Facts
As found by the CT A in Division and affirmed by the CT A En Banc, the factual

antecedents of the case and the proceedings conducted thereon were as follows:
On July 14, 2004, [respondent] received [petitioner's] Formal Letter of Demand dated
June 24, 2004, for alleged deficiency income tax, final income tax - FCDU,
[withholding tax - compensation (WTC)], EWT, [final withholding tax (FWT)], and
increments for taxable year 1998 in the aggregate amount of ₱33,326,211.37, broken
down as follows:
Compromise
Tax Basic Tax Interest Total
Penalty
Income Tax 3,594,272.00 3,803,936.67 25,000.00 7,423,208.67
Final Income 11,748,483.99 12,433,808.31 25,000.00 24,207,292.30
Tax –
FCDU
Withholding 50,282.59 55,450.48 12,000.00 117,733.07
Tax –
Compensation
Expanded 678,361.62 748,081.59 20,000.00 1,446,443.21
Withholding
Tax
Final 56,845.84 62,688.28 12,000.00 131,534.12
Withholding
Tax
TOTAL 16,128,246.04 17,103,965.33 94,000.00 33,326,211.37
26
On August 12, 2004, [respondent] protested the said assessment by filing a letter-
protest dated August 9, 2004 addressed to the BIR Deputy Commissioner for Large
Taxpayers' Service stating the factual and legal bases of the assessment, and
requested that it be withdrawn and cancelled. As of the date of filing of this Petition for
Review, [petitioner] has not rendered a decision on [respondent's] protest.
In view of [petitioner's] inaction on [respondent's] protest, on March 9, 2005,

[respondent] filed the present Petition for Review.
xxxx
On October 14, 2005, [respondent] filed a Motion for Leave of Court to Serve
Supplemental Petition, with attached Supplemental Petition for Review, pursuant to
Rule 10 of the 1997 Rules of Civil Procedure, as amended, in view of the alleged
payments made by [respondent] through the BIR's Electronic Filing and Payment
System (eFPS) as regards its deficiency [WTC] and [FWT] assessments in the
amounts of ₱124,967.73 and ₱139,713.l l, respectively. In its Supplemental Petition
for Review, (respondent) seeks to be fully credited of the payments it made to cover
the deficiency [WTC] and [FWT]. Thus, the remaining assessments cover only the
deficiency income tax, final income tax – FCDU, and [EWT] in the modified total
amount of ₱33,076,944.18, computed as follows:
Compromise
Basic Tax Interest Total
Tax Penalty
Income Tax 3,594,272.00 3,803,936.67 25,000.00 7,423,208.67
Final Income 11,748,483.99 12,433,808.31 25,000.00 24,207,292.30
Tax –
FCDU
Expanded 678,361.62 748,081.59 20,000.00 1,446,443.21
Withholding
Tax
TOTAL 16,021,117.61 16,985,826.57 70,000.00 33,076,944.18
Finding merit in [respondent's] motion, the same was granted and the Supplemental
Petition for Review was admitted in a Resolution dated December 12, 2005.
[Respondent] presented Chona G. Reyes, its Vice-President, as witness, and

documentary exhibits which were admitted by the Court in its Resolutions dated
October 1, 2007, and January 31, 2008.
27
On the other hand, [petitioner] presented Juan M. Luna, Jr., Revenue Officer II of the
BIR LTAID I, as witness, and documentary evidence marked as Exhibits "1 " to "4 ".
Thereafter, the parties were ordered to file their simultaneous memoranda, within
thirty (30) days from notice, after which the case shall be deemed submitted for
decision.
[Petitioner;s] "Memorandum" was filed on August 4, 2008, while [respondent's]

Memorandum was filed on October 24, 2008 after a series of motions for extension of
time to file memorandum were granted by the [c]ourt. The case was deemed
submitted for decision on November 12, 2008.5
The Ruling of the CTA in Division
In a Decision dated 27 February 2009,6 the CTA in Division granted respondent's

petition for the cancellation and setting aside of the subject Formal Letter of Demand
and Assessment Notices dated 24 June 2004 on the ground that petitioner's right to
assess respondent for the deficiency income tax, final income tax - FCDU, and EWT
covering taxable year 1998 was already barred by prescription. The court a quo
explained that although petitioner offered in evidence copies of the Waivers of Statute
of Limitations executed by the parties, for the purpose of justifying the extension of
period to assess respondent, the subject waivers, particularly the First and Second
Waivers dated 20 July 2001 and 4 April 2002, respectively, failed to strictly comply
and conform with the provisions of Revenue Memorandum Order (RMO) No. 20-90,
citing the case of Philippine Journalists, Inc. v. CIR.7 It therefore concluded that since
the aforesaid waivers were invalid, it necessarily follows that the subsequent waivers
did not in any way cure these defects. Neither did it extend the prescriptive period to
assess. Accordingly, it ruled that the assailed Formal Letter of Demand and
Assessment Notices are void for having been issued beyond the reglementary
period.8 Having rendered such ruling, the CT A in Division decided not to pass upon
other incidental issues raised before it for being moot.
On 29 July 2009, the CTA in Division denied petitioner's Motion for Reconsideration
thereof for lack of merit.9
Aggrieved, petitioner appealed to the CT A En Banc by filing a Petition for Review

under Section 18 of Republic Act (R.A.) No. 1125, as amended by R.A. No. 9282, 10 on
3 September 2009, docketed as CTA EB No. 522.
The Ruling of the CTA En Banc
The CT A En Banc affirmed in toto both the aforesaid Decision and Resolution
rendered by the CTA in Division in CTA Case No. 7165, pronouncing that there was
no cogent justification to disturb the findings and conclusion spelled out therein, since
what petitioner merely prayed was for the appellate court to view and appreciate the
28
arguments/discussions raised by petitioner in her own perspective of things, which
unfortunately had already been considered and passed upon.
In other words, the CT A En Banc simply concurred with the ruling that petitioner's
subject Formal Letter of Demand and Assessment Notices (insofar as to the
deficiency income tax, final income tax - FCDU, and EWT) shall be cancelled
considering that the same was already barred by prescription for having been issued
beyond the three-year prescriptive period provided for in Section 203 of the National
Internal Revenue Code (NIRC) of 1997, as amended. The waivers of the statute of
limitations executed by the parties did not extend the aforesaid prescriptive period
because they were invalid for failure to comply with and conform to the requirements
set forth in RMO No. 20-90.
Upon denial of petitioner's Motion for Reconsideration thereof, it filed the instant
Petition for Review on Certiorari before this Court seeking the reversal of the 1 March
2010 Decision11 and the 30 April 2010 Resolution12 rendered in CTA EB No. 522,
based on the sole ground, to wit: The CT A En Banc committed reversible error in not
holding that respondent is estopped from questioning the validity of the waivers of the
Statute of Limitations executed by its representatives in view of the partial payments it
made on the deficiency taxes sought to be collected in petitioner's Formal Letter of
Demand and Assessment Notices dated 24 June 2004. The Issues
The primary issue presented before this Court is whether or not petitioner's right to
assess respondent for deficiency income tax, final income tax - FCDU, and EWT
covering taxable year 1998 has already prescribed under Section 203 of the NIRC of
1997, as amended, for failure to comply with the requirements set forth in RMO No.
20-90 dated 4 April 1990, pertaining to the proper and valid execution of a waiver of
the Statute of Limitations, and in accordance with existing jurisprudential
pronouncements.
Subsequently, even assuming that petitioner's right to assess had indeed prescribed,
another issue was submitted for our consideration, to wit: whether or not respondent is
estopped from questioning the validity of the waivers of the Statute of Limitations
executed by its representatives in view of the partial payments it made on the
deficiency taxes (i.e. WTC and FWT) sought to be collected in petitioner's Formal
Letter of Demand and Assessment Notices dated 24 June 2004.
Our Ruling
We find no merit in the petition.
At the outset, the period for petitioner to assess and collect an internal revenue tax is
limited only to three years by Section 203 of the NIRC of 1997., as amended, quoted
hereunder as follows: SEC. 203. Period of Limitation Upon Assessment and
Collection. – Except as provided in Section 222, internal revenue taxes shall be
assessed within three years after the last day prescribed by law for the filing of the
29
return, and no proceeding in court without assessment for the collection of such taxes
shall be begun after the expiration of such period: Provided, That in a case where a
return is filed beyond the period prescribed by law, the three (3)-year period shall be
counted from the day the return was filed.
For 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. (Emphasis supplied)
This mandate governs the question of prescription of the government's right to assess
internal revenue taxes primarily to safeguard the interests of taxpayers from
unreasonable investigation by not indefinitely extending the period of assessment and
depriving the taxpayer of the assurance that it will no longer be subjected to further
investigation for taxes after the expiration of reasonable period of time.13
Thus, in the present case, petitioner only had three years, counted from the date of
actual filing of the return or from the last date prescribed by law for the filing of such
return, whichever comes later, to assess a national internal revenue tax or to begin a
court proceeding for the collection thereof without an assessment. However, one of
the exceptions to the three-year prescriptive period on the assessment of taxes is that
provided for under Section 222(b) of the NIRC of 1997, as amended, which states:
SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of

Taxes. –
xxxx
(b) If before the expiration of the time prescribed in Section 203 for the assessment of
the tax, both the Commissioner and the taxpayer have agreed in writing to its
assessment after such time, the tax may be assessed within the period agreed upon.
The period so agreed upon may be extended by subsequent written agreement made
before the expiration of the period previously agreed upon. (Emphasis supplied)
From the foregoing, the above provision authorizes the extension of the original three-
year prescriptive period by the execution of a valid waiver, where the taxpayer and the
Commissioner of Internal Revenue (CIR) may stipulate to extend the period of
assessment by a written 1 agreement executed prior to the lapse of the period
prescribed by law, and by subsequent written agreements before the expiration of the
period previously agreed upon. It must be kept in mind that the very reason why the
law provided for prescription is to give taxpayers peace of mind, that is, to safeguard
them from unreasonable examination, investigation, or assessment. 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.14
30
In the landmark case of Philippine Journalists, Inc. v. CIR (PJI case),15 we pronounced
that a waiver is not automatically a renunciation of the right to invoke the defense of
prescription. A waiver of the Statute of Limitations is nothing more than "an agreement
between the taxpayer and the Bureau of Internal Revenue (BIR) that the period to
issue an assessment and collect the taxes due is extended to a date certain." It is a
bilateral agreement, thus necessitating the very signatures of both the CIR and the
taxpayer to give birth to a valid agreement. Furthermore, indicating in the waiver the
date of acceptance by the BIR is necessary in order to determine whether the parties
(the taxpayer and the government) had entered into a waiver "before the expiration of
the time prescribed in Section 203 (the three-year prescriptive period) for the
assessment of the tax." When the period of prescription has expired, there will be no
more need to execute a waiver as there will be nothing more to extend. Hence, no
implied consent . can be presumed, nor can it be contended that the concurrence to
such waiver is a mere formality.
In delineation of the same sense about the waiver of the Statute of Limitations, RMO
No. 20-90 and Revenue Delegation Authority Order (RDAO) No. 05-01 were issued
on 4 April 1990 and 2 August 2001, respectively. The said revenue orders outline the
procedure for the proper execution of a waiver, viz.:16
1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase
"but not after __ 19 _", which indicates 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.
2. The waiver must be signed by the taxpayer himself or his duly authorized
representative. In the case of a corporation, the waiver must be signed by any
of its responsible officials. In case the authority is delegated by the taxpayer to a
representative, such delegation should be in writing and duly notarized.
4. The CIR or the revenue official authorized by him must sign the waiver
indicating that the BIR has accepted and agreed to the waiver. The date of such
acceptance by the BIR should be indicated. However, before signing the waiver,
the CIR. or the revenue official authorized by him must make sure that the
waiver is in the prescribed form, duly notarized, and executed by the taxpayer
or his duly authorized representative.
5. Both the date of execution by the taxpayer and date of acceptance by the
Bureau should be before the expiration of the period of prescription or before
the lapse of the period agreed upon in case a subsequent agreement is
executed.
6. The waiver must be executed in three copies, the original copy to be attached
to the docket of the case, the second copy for the taxpayer and the third copy
31
for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her
file copy must be indicated in the original copy to show that the taxpayer was
notified of the acceptance of the BIR and the perfection of the agreement.
(Emphases supplied)
The provisions of the RMO and RDAO explicitly show their mandatory nature,
requiring strict compliance. Hence, failure to comply with any of the requisites renders
a waiver defective and ineffectual. It is worth mentioning that strict compliance with the
requirements set forth in RMO No. 20-90 has been upheld in the PJI case.17 In
reversing the decision of the Court of Appeals promulgated on 5 August 2003, this
Court ruled that:
The NIRC, under Sections 203 and 222, provides for a statute of limitations on the
assessment and collection of internal revenue taxes in order to safeguard the interest
of the taxpayer against unreasonable investigation. Unreasonable investigation
contemplates cases where the period of 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 x x x
xxxx
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, x x
x"18 (Emphasis supplied)
Applying the rules and rulings, the waivers in question were defective and did not
validly extend the original three-year prescriptive period. As correctly found by the CT
A in Division, and affirmed in toto by the CT A En Banc, the subject waivers of the
Statute of Limitations were in clear violation of RMO No. 20-90:
1) This case involves assessment amounting to more than ₱1,000,000.00. For

this, RMO No. 20-90 requires the Commissioner of Internal Revenue to sign for
the BIR.1avvphi1 A perusal of the First and Second Waivers of the Statute of
Limitations shows that they were signed by Assistant Commissioner-Large
Taxpayers Service Virginia L. Trinidad and Assistant Commissioner-Large
Taxpayers Service Edwin R. Abella respectively, and not by the Commissioner
of Internal Revenue;
2) The date of acceptance by the Assistant Commissioner-Large Taxpayers

Service Virginia L. Trinidad of the First Waiver was not indicated therein;
3) The date of acceptance by the Assistant Commissioner-Large Taxpayers

Service Edwin R. Abella of the Second Waiver was not indicated therein;
32
4) The First and Second Waivers of Statute of Limitations did not specify the
kind and amount of the tax due; and
5) The tenor of the Waiver of the Statute of Limitations signed by petitioner's

authorized representative failed to comply with the prescribed requirements of
RMO No. 20-90. The subject waiver speaks of a request for extension of time
within which to present additional documents, whereas the waiver provided
under RMO No. 20-90 pertains to the approval by the Commissioner of Internal
Revenue of the taxpayer's request for re-investigation and/or
reconsideration of his/its pending internal revenue case.19
Taking into consideration the foregoing defects in the First and Second Waivers
presented and admitted in evidence before the court a quo, the period to assess the
tax liabilities of respondent for taxable year 1998 was never extended. Consequently,
when the succeeding waivers of Statute of Limitations were subsequently executed
covering the same tax liabilities of respondent, and there being no assessment having
been issued as of that time, prescription has already set in. We therefore hold that the
subject waivers did not extend the period to assess the subject deficiency tax liabilities
of respondent for taxable year 1998. The aforesaid waivers cannot be considered as
"subsequent written agreement(s) made before the expiration of the period previously
agreed upon" referred to in the second sentence of the earlier quoted Section 222(b)
of the NIRC of 1997, as amended, since there is no "period previously agreed upon"
to speak of.
As regards petitioner's insistence that respondent is already estopped from impugning

the validity of the subject waivers considering that it made partial payments on the
deficiency taxes being collected, particularly as to the payment of its deficiency WTC
and FWT assessments in the amounts of ₱124,967.73 and ₱139,713.11, respectively,
we find this argument bereft of merit.
As aptly found in the 29 July 2009 Resolution of the CTA in Division, although
respondent paid the deficiency WTC and FWT assessments, it did not waive the
defense of prescription as regards the remaining tax deficiencies, it being on record
that respondent continued to raise the issue of prescription in its Pre-Trial Brief filed
on 15 August 2005, Joint Stipulations of Facts and Issues filed on 1 September 2005,
direct testimonies of its witness, and Memorandum filed on 24 October 2008. More so,
even petitioner did not consider such payment of respondent as a waiver of the
defense of prescription, but merely raised the issue of estoppel in her Motion for
Reconsideration of the aforesaid decision. From the conduct of both parties, there can
be no estoppel in this case.20
Upon payment of the assessed deficiency in the WTC in the amount of ₱124,967.73
and in the FWT in the amount of µ139,713.11, respondent filed a Motion for Leave of
Court to Serve Supplemental Petition, with attached Supplemental Petition for Review.
As stated in the CTA En Banc affirmed decision of the CTA in Division, "[i]n its
33
Supplemental Petition for Review, respondent seeks to be fully credited of the
payments it made to cover the deficiency WTC and FWT. Thus, the remaining
assessments cover only the deficiency income tax, final income tax – FCDU, and
(EWT) in the modified total amount of ₱33,076,944.18, x x x". 21 The aforesaid motion
was granted and the supplemental petition was admitted by the CT A in Division.
Undeniably, the acceptance of said payments was never questioned by petitioner.
Indeed, the decision of the CTA in Division, which decision was affirmed by the CTA
En Banc, covered only the remaining questioned assessment, namely: income tax,
final income tax -FCDU, and EWT. Clearly, the payment of the deficiency WTC and
FWT was made together with the reiteration in the petition for the cancellation of the
assessment notices on the alleged deficiency income tax, final income tax - FCDU,
and EWT.
When respondent paid the deficiency WTC and FWT assessments, petitioner
accepted said payment without any opposition. This effectively extinguished
respondent's obligation to pay the subject taxes. It bears emphasis that, obligations
are extinguished, among others, by payment or performance.22 Under Article 1232 of
the Civil Code, payment means not only the delivery of money but also the
performance, in any other manner, of an obligation. As intended, which intention was
recognized by the CT A in · Division and CT A En Banc, the question regarding the
income tax, final income tax - FCDU, and EWT, was kept unaffected by the payment
of the deficiency WTC and FWT assessments.
By way of reiteration, taking into consideration the foregoing flaws found in the subject
waivers, the same are void, and the supposed suspensions of the prescriptive periods
within which to issue the subject assessments were not legally effected. And the facts
of this case do not call for the application of the doctrine of estoppel.
It must be remembered that the execution of a Waiver of Statute of Limitations may be

beneficial to the taxpayer or to the BIR, or to both. Considering however, that it results
to a derogation of some of the rights of the taxpayer, the same must be executed in
accordance with pre-set guidelines and procedural requirements. Otherwise, it does
not serve its purpose, and the taxpayer has all the right to invoke its nullity. For that
reason, this Court cannot turn blind on the importance of the Statute of Limitations
upon the assessment and collection of internal revenue taxes provided for under the
NIRC. 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 properly in the making of the 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 may 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
34
taxpayer within the contemplation of the Commission which recommends the approval
of the law.23
In fine, considering the defects in the First and Second Waivers, the period to assess
or collect deficiency taxes for the taxable year 1998 was never extended.
Consequently, the Formal Letter of Demand and Assessment Notices dated 24 June
2004 for deficiency income tax, FCDU, and EWT in the aggregate amount of
1!33,076,944.18, including increments, were issued by the BIR beyond the three-year
prescriptive period and are therefore void.24WHEREFORE, the petition is DENIED for
lack of merit. No costs.
SO ORDERED.
DIGEST
Commissioner of Internal Revenue vs Standard Chartered Bank [July 29, 2015]
Standard Chartered Bank received a formal letter of demand ( dated June 24, 2004)
for alleged deficiency income tax, final income tax – Foreign Currency Deposit Unit
(FCDU), and expanded withholding tax (EWT) in the aggregate amount of
P33,076,944.18, including increments covering taxable year 1998.
Standard Chartered protested the said assessment through filing a letter-protest

stating the factual and legal bases of the assessment and requested that it be
withdrawn and cancelled. It further contended that it already made payments through
BIR’s electronic filing and payment system (eFPS) as regards its deficiency [WTC]
and [FWT] assessments in the amounts of P124,967.73 and P139,713.11,
respectively. Thus, the remaining assessments cover only the modified total amount
of P33,076,944.18.
The decision of the CTA in Division, which was later on concurred by the CTA En
Banc, is that petitioner’s subject Formal Letter of Demand and Assessment Notices
should be cancelled considering that the same was already barred by prescription for
having been issued beyond the three-year prescriptive period provided for in Section
203 of the National Internal Revenue Code. Although waivers of the statute of
limitations were executed by the parties on July 20, 2001 and April 4, 2002, these did
not extend the aforesaid prescriptive period because they were invalid by reason of
failure to comply with the requirements set forth in RMO No. 20-90.
Issues
I. WON the CIR’s right to assess Standard Chartered for deficiency income tax and
final income tax covering taxable year 1998 has already prescribed, despite the
waiver of statute of limitations executed by the parties
35
II. WON Standard Chartered is estopped from questioning the validity of the waivers
of the Statute of Limitations in view of the partial payments it made on the deficiency
taxes sought to be collected
Discussion
I. [YES] At the outset, the period for petitioner to assess and collect an internal
revenue tax is limited only to three (3) years after the last day prescribed by law
for the filing of the return. Provided, That in a case where a return is filed beyond
the period prescribed by law, the three (3)-year period shall be counted from the
day the return was filed. (Section 203 of the NIRC)
Thus, in the present case, petitioner only had three years, counted from the date of
actual filing of the return or from the last date prescribed by law for the filing of such
return, whichever comes later, to assess a national internal revenue tax or to begin a
court proceeding for the collection thereof without an assessment. However, one of
the exceptions to the three-year prescriptive period on the assessment of taxes is
when before the expiration of the time prescribed in Section 203 for the assessment of
the tax, both the Commissioner and the taxpayer have agreed in writing to its
assessment after such time, the tax may be assessed within the period agreed
upon. (Section 222(b) of the NIRC of 1997)
The cited provision authorizes the extension of the original three-year prescriptive
period by the execution of a valid waiver, where the taxpayer and CIR may stipulate
to extend the period of assessment by a written agreement executed prior to the lapse
of the period prescribed by law, and by subsequent written agreements before the
expiration of the period previously agreed upon.
RMO No. 20-90 implements the provisions of the NIRC relating to the period of
prescription for the assessment and collection of taxes. The provisions of the RMO
explicitly show their mandatory nature, requiring strict compliance. Hence, failure to
comply with any of the requisites renders a waiver defective and ineffectual.
36
In the instant case, the subject waivers did not comply with the form prescribed by the
RMO, thus they did not extend the period to assess the subject deficiency tax
liabilities of respondent for taxable year 1998. Hence prescription has already set in.
II. [NO] When respondent paid the deficiency WTC and FWT assessments,
petitioner accepted said payment without any opposition. This effectively extinguished
respondent’s obligation to pay the subject taxes. It bears emphasis that, obligations
are extinguished, among others, by payment or performance.
The facts of this case do not call for the application of the doctrine of estoppel. It
must be remembered that the execution of a Waiver of Statute of Limitations results to
a derogation of some of the rights of the taxpayer, the same must be executed in
accordance with pre-set guidelines and procedural requirements. The Court cannot
turn blind on the importance of the Statute of Limitations upon the assessment and
collection of internal revenue taxes provided for under the NIRC.
Ruling: In fine, the period to assess or collect deficiency taxes for the taxable year
1998 was never extended. Consequently, the Formal Letter of Demand and
Assessment Notices dated 24 June 2004 were issued by the BIR beyond the three-
year prescriptive period and are therefore void.
WHEREFORE, the petition is DENIED.
G.R. No. L-17438 April 30, 1964
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,

vs.
RITA LIM DE YU, defendant-appellee.
NO DIGEST
Office of the Solicitor General for plaintiff-appellant.

Ignacio M. Orendain for defendant-appellee.
MAKALINTAL, J.:
Appellee Rita Lim de Yu filed her yearly income tax returns from 1948 through 1953.
The Bureau of Internal Revenue assessed the taxes due on each return, and appellee
37
paid them accordingly. On July 17, 1956 the Bureau issued to appellee deficiency
income tax assessments for the years 1945 to 1953 in the total amount of P22,450.50.
She protested the assessments and requested a reinvestigation. On August 30, 1956
she signed a "waiver" of the statute of limitations under the Tax Code as condition to
the reinvestigation requested. Thereafter, or on July 18, 1958, the Bureau issued to
her income tax assessment notices for the years 1948 to 1953 totalling P35,379.63.
This last assessment, like the one issued in 1956, covered not only the basic
deficiency income taxes, but also 50% thereof as surcharge. Upon appellee's failure to
pay, an action for collection was filed against her in the Court of First Instance of
Cotabato on May 11, 1959. After trial the suit was dismissed, and the Government
appealed to the Court of Appeals, which forwarded the case to this Court, the issues
involved being purely legal.
Appellant claims that the lower court erred (1) in ruling that the deficiency income
taxes due from appellee for the years 1948, 1949 and 1956 were not assessed on
time; and (2) in dismissing the case on the ground that the right of appellant to collect
the deficiency income tax assessment had already prescribed.
Sections 331 and 332 of the Tax Code provide:
SEC. 331. 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.
SEC. 332. Exceptions as to period of limitation of assessment and collection of taxes.

— (a) In the case of a false or fraudulent return with intent to evade tax or of a failure
to file a return, the tax may be assessed, or a proceeding in court for the collection of
such tax may be begun without assessment, at any time within ten years after the
discovery of the falsity fraud, or omission.
(b) Where before the expiration of the time prescribed in the preceding section
for the assessment of the tax, both the Commissioner of Internal Revenue and
the taxpayer have consented in writing to its assessment after such time, the
tax may be assessed at any time prior to the expiration of the period agreed
upon. The period so agreed upon may be extended by subsequent agreements
in writing made before the expiration of the period previously agreed upon.
(c) Where the assessment of any internal revenue, tax has been made within
the period of limitation above prescribed such tax may be collected by distraint
or levy or by a proceeding in court, but only if begun (1) within five years after
the assessment of the tax, or (2) prior to the expiration of any period for
38
collection agreed upon in writing by the Commissioner of Internal Revenue and
the taxpayer before the expiration of such five-year period. The period so
agreed upon may be extended by subsequent agreements in writing made
before the expiration of the period previously agreed upon.
The first issue raised by appellant is whether or not the returns filed by appellee for
the years 1948 to 1953 are false and fraudulent. Appellant maintains they are
because the yearly net incomes reported in her returns are much less than as
computed by the Bureau, and consequently, under par. (a), Section 332 of the Tax
Code, it has ten years from the date of the discovery of the fraud or falsity, i.e., May
25, 1955, within which to assess the taxes or file a suit for collection without
assessment. And since, it is further contended, appellee can no longer question
correctness of the assessment in view of her failure to the Court of Tax Appeals to
review the same, she should be ordered to pay the amounts being collected.
But while fraud is alleged in the complaint, the same has not been established. It is
one thing to say that the correctness of the last assessment made by appellant, July
18, 1958, may no longer be challenged on the technical ground just stated and quite
another thing to say that appellee committed a deliberate fraud in declaring small
incomes for the years in which she filed her returns. Indeed the Bureau itself appears
none too sure as to the amounts of her net incomes for those years. On three different
occasions it arrived at three highly different computation. First, it accepted appellee's
yearly statements of income from 1945 to 1953 and assessed her a total tax
P2,732,37, which she paid. Then in 1956 the Bureau came up with a different set of
figures for the same period, considerably higher than those stated in the returns, and
using such figures as basis assessed her deficiency taxes in the total amount of
P22,450.50. Finally, in 1958 the Bureau made another computation of appellee's net
incomes for years 1948 to 1953, and assessed her deficiency taxes in the sum of
P35,379.63. Note that the disparity between the 1956 and the 1958 assessments is
really much greater than what appears at first glance, as the latter do not include the
taxes corresponding to the years 1945, 1946 and 1947. Attention may likewise be
drawn to the fact that in paragraph 3 of the complaint appellant seeks to collect
appellee the sum of P28.53, plus a surcharge of 50%, unpaid tax for the year 1948,
notwithstanding the fact admitted in the stipulation, that appellee filed her return that
year and duly paid the said amount.
Fraud not having been proven, the period of limitation for assessment or collection
was five years from the filing of the return, according to Section 331 of the tax code.
The right to assess or collect the income taxes for the years 1948 to 1950 had already
prescribed, therefore, when the Bureau of Internal Revenue issued the deficiency
income tax assessments on July 17, 1956.
The tax years 1948 to 1950 cannot be deemed included in the "waiver of the statute of
limitations under the National Internal Revenue Code" executed by appellee on
August 30, 1956. The five-year period for assessment, counted from the date the
return is filed, may be extended upon agreement of the Commissioner and the
39
taxpayer, but such agreement must be made before, not after, the expiration of the
original period (Section 332 [b], Tax Code). The clear import of the provision is that it
does not authorize extension once prescription has attached.
The waiver validly covers only the tax years 1951 and 1952, with respect to which the
five-year period had not yet elapsed when the said waiver was executed. With respect
to the tax year 1953, as to which the return was filed by appellee on March 1, 1954,
the waiver was not necessary for the effectivity of the assessment made on July 18,
1958, since such assessment was well within the original five-year period provided by
law. After the assessment on July 18, 1958, appellant had five years within which to
file suit for collection pursuant to Section 332 (c) of the tax code. Appellee's theory
that collection could be made only up to the end of the period of extension stated in
the waiver, namely, December 31, 1958, is without merit. Assessment and collection
are two different processes.
An assessment is not an action or proceeding for the collection of taxes. It is

merely a notice to the effect that the amount therein stated is due as tax and a
demand for the payment thereof. It is a step preliminary, but essential to warrant
distraint, if still feasible, and, also, to establish a cause for "judicial action" as
the phrase is, used in section 316 of the Tax Code ... (Alhambra Cigar and
Cigarette Manufacturing Company v. The Collector of Internal Revenue, L-
12026, May 29, 1959).
Section 331 gives the Government five years from filing of the return (which is not
false or fraudulent) within which to assess the tax due. Paragraph (b) of Section 332
allows the extension of this period by means of a written agreement between the
taxpayer and the Commissioner of Internal Revenue. On the other hand, paragraph
(c) of the same section is concerned with the collection of the tax after assessment,
regardless of whether the assessment was made during the original five-year period
or within an agreed period of extension. Collection then may be effected within five
years after assessment or within the "period for collection agreed upon in writing by
the Commissioner of Internal Revenue and the taxpayer before the expiration of such
five-year period." Thus, although under the waiver appellee consented to the
"assessment and collection" if made not later than December 31, 1958, such
,expiration date must be deemed to refer only to the extension of the assessment
period. Insofar as collection is concerned, the period does not apply, for otherwise the
effect of the waiver would be to shorten, not extend, the legal period for that purpose.
Appellant therefore had five years from 1958 within which to file his action, which was
actually filed in 1959.
WHEREFORE, the appealed decision is modified by ordering appellee to pay

appellant the sum of P26,182.00 as deficiency income taxes for the years 1951, 1952
and 1953, plus 5% surcharge and 1% monthly interest thereon from July 31, 1958
until payment of the full obligation, with costs.
NO DIGEST
40
G.R. No. L-18384 September 20, 1965
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
HEIRS OF CESAR JALANDONI, ET AL., defendants-appellants.
Office of the Solicitor General for plaintiff-appellee.

Jaime R. Nuevas for defendants-appellants heirs of Cesar Jalandoni.
Filemon Flores and Aniano Bagabaldo for defendants-appellants Angeles Jalandoni,
et al.
BAUTISTA ANGELO, J.:
Isabel Ledesma died intestate on June 23, 1948 leaving real properties situated in the
provinces of Negros Occidental and Rizal and in the cities of Manila and Baguio, and
personal properties consisting of shares of stock in various domestic corporations.
She left as heirs her husband Bernardino Jalandoni and three children, namely,
Cesar, Angeles and Delfin, all surnamed Jalandoni.
On November 19, 1948, Cesar Jalandoni, one of the heirs, filed an estate and
inheritance tax return reporting the following: (1) that the real and personal properties
owned by the deceased and her surviving husband had a total market value of
P1,324,555.80; (2) that after deducting therefrom the conjugal share of her husband
and some expenses the net estate subject to estate tax was P28,148.04; and (3) that
the amount subject to inheritance tax was P542,225.83. This return also shows that
no testamentary or intestate proceedings were instituted.
On the basis of this return the Bureau of Internal Revenue made an assessment on
November 20, 1948 calling for the payment of the amounts of P31,435.95 and
P58,863.52 as estate and inheritance taxes, respectively, stating therein that the
assessment was "to be considered partial pending investigation of the return." These
sums were paid by Cesar Jalandoni.
After a preliminary investigation was made of the properties reported in the

abovementioned return, a second assessment was made on January 27, 1953 by the
Bureau of Internal Revenue showing that there was due from the estate the amounts
of P5,539.67 and P9,899.37 as deficiency estate and inheritance taxes, respectively,
for which reason a demand was made on Bernardino Jalandoni stating therein that the
same was still "to be considered partial pending further investigation of the return,"
which amounts were paid by Bernardino Jalandoni on February 28, 1953.
True to the foregoing reservation, the Bureau of Internal Revenue conducted another
investigation and this time it found (1) that the market value of the lands reported in
the return filed by Cesar Jalandoni was underdeclared in the amount of P365,149.50;
41
(2) that seven lots which were registered in the Talisay-Silay cadastre of Negros
Occidental as belonging to the deceased, including their improvements, were omitted
from the return the same having a market value of P100,200.00; and (3) the shares of
stock owned by the deceased in the Victorias Milling Company, Hawaiian-Philippine
Company and Central Azucarera de la Carlota, though included in the return, were
however underdeclared in the amount of P16,355.36, and on the basis of these
findings a third assessment was made against the estate on May 9, 1956 wherein the
heirs were required to pay the amounts of P29,995.30 and P49,842.05 as deficiency
estate and inheritance taxes, respectively, including accrued interests, with the
warning that failure on their part to pay the same would subject them to the payment
of surcharge, interest, and penalty for late payment of the tax.
In answer to this third assessment after notice was served on the administrator of the
estate, Bernardino Jalandoni, Lorenzo J. Teves, in his capacity as counsel of the heirs
of the deceased, wrote a letter to the Collector of Internal Revenue setting up the
defense of prescription in the sense that the deficiency in the estate and inheritance
taxes payment of which was required therein can no longer be collected since more
than five years had already elapsed from the filing of the return invoking in his favor
Section 331 of the National Internal Revenue Code. To this defense, the Collector
retorted claiming that the stand of counsel cannot be entertained for the reason that, it
appearing that the estate and inheritance tax return which was filed by the
administrator or by the heirs contained omissions which amount to fraud indicative of
an intention to evade payment of the proper tax due the government, the taxes then
being collected could still be demanded within ten years from the discovery of the
falsity or omission pursuant to Section 332(a) of said Code, which period had not yet
expired, and as a consequence, the assessment notice was reiterated with the
request that the deficiency estate and inheritance taxes therein demanded be settled
as soon as possible. And noting that the 30-day period within which the heirs could
appeal the Collector's assessment to the Court of Tax Appeals had already elapsed,
while on the other hand they indicated their unwillingness to settle the claim, the
Collector of Internal Revenue filed the present case before the Court of First Instance
of Manila pressing the collection of the deficiency estate and inheritance taxes
assessed against the heirs of the deceased Isabel Ledesma Jalandoni.
While this case was pending hearing on the merits, the lower court set a date for pre-
trial in an effort to have the parties agree on a stipulation of facts, and this having
failed, upon request of defendants, the lower court ordered the Collector of Internal
Revenue to verify the allegation that the seven lots in Negros Occidental which were
claimed not to have been included in the return filed by Cesar Jalandoni were in fact
included therein, and to this effect the Collector designated Examiner Genaro Butas to
conduct the examination. In his report Examiner Butas stated that of the seven lots
that were previously reported not included in the return, two were actually declared
therein, though he reaffirmed his previous finding as regards the other five lots and the
market value of the sugar lands and rice lands left by the deceased and the value of
the shares of stock owned by her in several domestic corporations.
42
There being no additional evidence, oral or documentary, submitted by the parties,
and passing solely on the allegations appearing in the pleadings which appear to be
undisputed, the trial court rendered its decision on February 16, 1960 ordering
defendants, jointly and severally, to pay plaintiff the sum of P79,837.35 as estate and
inheritance taxes, plus the interest that had accrued thereon as a result of their
delinquency. Defendants interposed the present appeal.
It is claimed that the lower court erred in finding that the return submitted by Cesar
Jalandoni in behalf of the heirs concerning the estate of the deceased for the purpose
of the payment of the required estate and inheritance taxes is false and fraudulent
there being no evidence on record showing that said return was filed in bad faith for
which reason fraud cannot be imputed to appellants. As against this claim appellee
advances the theory that since fraudulent intent is a state of mind which cannot be
proven by direct evidence, the same may be inferred from facts and circumstances
that appear to be undisputed as was done by the court a quo as follows:
The difference between the amounts appearing in the returns filed and the
undeclared properties of the estate of the deceased is a substantial
understatement of the true value of the estate in question. The court is of the
opinion, and so holds that the tax returns filed were false. A substantial
understatement of stocks and the omission of seven (7) parcels of land
belonging to the estate of the deceased, makes it impossible for the court to
believe that the omission or understatements were due to inadvertence,
negligence, or honest statement of error. Circumstances such as this are
competent to base a finding of willful intent.1awphîl.nèt
And to bolster up this finding appellee submits the following facts which, it contends,
appear in the record: (1) among the real properties belonging to the deceased five lots
in Negros Occidental, including improvements thereon, with a market value of
P58,570.00 were not included in the return filed by a representative of appellants; (2)
the value of the sugar and rice lands that were reported in the return were
underdeclared in the amount of P365,149.50; and (3) the market value of the shares
of stock owned by the deceased in the Victorias Milling Company, Hawaiian-Philippine
Company and the Central Azucarera de la Carlota was underdeclared in the amount
of P16,355.36. In other words, it is claimed that a total amount of P440,074.86 which
constitutes real asset of the estate has been deliberately omitted from the return
thereby evincing an intention to evade the payment of the correct amount of tax due to
the government.
We are of the opinion that this finding is neither fair nor reasonable. To begin with, it
should be here noted that when this case was pending hearing on the merits before
the lower court, the latter, upon request of appellants, ordered the Collector of Internal
Revenue to verify the allegation that there were seven lots in Negros Occidental which
were claimed not to have been included in the return filed by Cesar Jalandoni, and to
this effect the Collector designated Examiner Genaro Butas to conduct the
43
examination. Examiner Butas, after conducting the examination, submitted his report
the pertinent of which reads:
Lot Assessed Fair Market

Classification
No. Value Value
493 Sugarland P15,140.00 P21,630.00
710 390.00 550.00
521 21,000.00 30,000.00
954 820.00 1,230.00
939 1,210.00 1,720.00
Lot 6,080.00 6,080.00
229
House 12,000.00 12,000.00
Commercial 6,400.00 6,400.00
Concrete
228 10,000.00 10,000.00
House
Camarin 500.00 500.00
TOTAL
P73,650.00 P90,110.00
In other words, from the report of Examiner Butas the following may be gleaned: that
of the seven lots alleged to have been excluded from the return, three were actually
included, with the particularity that they were the most valuable, to wit: Lot 493 with a
market value of P21,630.00; Lot 521 with a market value of P30,000.00; and Lot 229
with a market value of P12,000.00, while another lot was not also included because it
belonged to Delfin Jalandoni, or Lot 228 which, including improvements, has a market
value of P16,900.00. Hence, from the foregoing we find that the aggregate value of
the aforesaid four lots is P86,610.00 which, if deducted from the total value of the
seven lots amounting to P90,110.00, gives a balance of P3,500.00 as the value of the
three remaining lots. These three lots being conjugal property, one-half thereof
belonging to the deceased's spouse should still be deducted, thus leaving a small
balance of P1,750.00. If to this we add that, as the record shows, these three lots
were already declared in the return submitted by Bernardino Jalandoni as part of his
property and his wife for purposes of income tax, there is reason to believe that their
omission from the return submitted by Cesar Jalandoni was merely due to an honest
mistake or inadvertence as properly explained by appellants. We can hardly dispute
this conclusion as it would be stretching too much the imagination if we would find
that, because of such inadvertence, which appears to be inconsequential, the heirs of
the deceased deliberately omitted from the return the three lots with the only purpose
of defrauding the government after declaring therein as asset of the estate property
worth P1,324,555.80.
The same thing may be said with regard to the alleged undervaluation of certain sugar
and rice lands reported by Cesar Jalandoni which appellee fixes at P365,149.50, for
the same can at most be considered as the result of an honest difference of opinion
44
and not necessarily an intention to commit fraud. It should be stated that in the estate
and inheritance tax returns submitted by Cesar Jalandoni on November 19, 1948 he
reported said lands as belonging to the deceased with a statement of what in his
opinion represent their reasonable actual value but which happened not to tally with
the valuation made by the Collector of Internal Revenue. Certainly if there is any
mistake in the valuation made by Jalandoni the same can only be considered as
honest mistake, or one based on excusable inadvertence, he being not an expert in
appraising real estate. The deficiency assessment, moreover, was made by the
Collector of Internal Revenue more than five years from the filing of the return, and
experience shows that such an intervening period is sufficiently long to, warrant an
increase in value of real estate which is precisely what was found by the Collector of
Internal Revenue with regard to the lands in question. It is certainly an error to impute
fraud based on an honest difference of opinion.
Finally, we find unreasonable to impute with regard to the appraisal made by

appellants of the shares of stock of the deceased in Victorias Milling Company,
Hawaiian-Philippine Company and Central Azucarera de la Carlota, simply because
Cesar Jalandoni placed in his return an aggregate market value of P95,480.00,
instead of mentioning the book value declared by said corporations in the returns filed
by them with the Bureau of Internal Revenue. The fact that the value given in the
returns did not tally with the book value appearing in the corporate books is not in
itself indicative of fraud especially when we take into consideration the circumstance
that said book value only became known several months after the death of the
deceased. Moreover, it is a known fact that stock securities frequently fluctuate in
value and a mere difference of opinion in relation thereto cannot serve as proper basis
for assessing an intention to defraud the government.
Having reached the conclusion that the heirs of the deceased have not committed any
act indicative of an intention to evade the payment of the inheritance or estate taxes
due the government, as evidenced by their willingness in the past to pay all the taxes
properly assessed against them, it is evident that the instant claim of appellee has
already prescribed under Section 331 of the National Internal Revenue Code. And
with this conclusion, a discussion of the other errors assigned by appellants would
seem to be unnecessary.
WHEREFORE, the decision appealed from is reversed and the complaint of appellee
is dismissed. No pronouncement as to costs.
45
DIGEST
Republic vs. Heirs of Cesar Jalandoni, GR No. 18384, 15 SCRA 51, September
20, 1965
FACTS: Isabel Ledesma died intestate leaving real properties and personal properties
consisting of shares of stock in various domestic corporations. She left as heirs her
husband Bernardino Jalandoni and three children, namely, Cesar, Angeles and Delfin.
Cesar Jalandoni, one of the heirs, filed an estate and inheritance tax return. On the
basis of this return, the BIR made two separate partial assessments calling for the
payment deficiency estate and inheritance taxes. The BIR then demanded payment
from the heirs while stating that the same was still "to be considered partial pending
investigation of the return." These stated sums were unquestionably paid by the heirs.
When the BIR conducted another investigation, it found: (1) that the market value of
the lands reported in the return filed by Cesar Jalandoni were UNDERDECLARED;
(2) that seven lots in the Talisay-Silay, Negros Occidental were OMITTED from the
return; and (3) the shares of stock owned by the deceased in the Victorias Milling
Company, Hawaiian-Philippine Company and Central Azucarera de la Carlota were
also UNDERDECLARED. As such, the BIR required the heirs to pay the amounts of P
29,995.30 and P 49,842.05 as deficiency estate and inheritance taxes.
Defendant Bernardino Jalandoni wrote a letter to the Collector of Internal Revenue

setting up the defense of PRESCRIPTION. He argued that the required deficiency in
the estate and inheritance taxes payment can no longer be collected since MORE
THAN FIVE YEARS had already elapsed from the filing of the return pursuant to
Section 331 of the NIRC. As a rejoinder, the Collector retorted claiming that such
defense is not valid since the estate and inheritance tax return filed by them
contained OMISSIONS which amount to FRAUD INDICATIVE OF AN INTENTION
TO EVADE PAYMENT of the proper tax due the government. Hence, the Collector
concluded that THE TAXES COULD STILL BE DEMANDED within ten years from the
discovery of the falsity or omission pursuant to Section 332(a) of said Code.
When the lower court ordered the Collector to verify the allegation that the seven lots
in Negros Occidental were in fact included therein, the Collector designated Examiner
Genaro Butas to conduct the examination. In his report, Examiner Butas stated that of
the seven lots that were previously reported not included in the return, TWO
WERE ACTUALLY DECLARED THEREIN, though he reaffirmed his previous finding
as regards the other five lots and the market value of the sugar lands and rice lands
and the value of the shares of stock in several domestic corporations.
46
Nevertheless, the lower court found that that the return submitted by Cesar Jalandoni
is FALSE AND FRAUDULENT on the ground that the DIFFERENCES between the
amounts appearing in the returns filed and the undeclared properties of the estate of
the deceased is a SUBSTANTIAL UNDERSTATEMENT OF THE TRUE VALUE OF
THE ESTATE. The lower court was not inclined to believe that the omission or
understatements were due to mere inadvertence, negligence, or honest statement of
error, in fact, it believed that such circumstances are indicative of a willful intent to
defraud. Hence, it ordered the heirs to pay the Collector the sum of P 79,837.35 as
estate and inheritance taxes. The heirs appealed the case arguing that FRAUD
CANNOT BE IMPUTED AGAINST THEM since there was NO EVIDENCE ON
RECORD SHOWING THAT SAID RETURN WAS FILED IN BAD FAITH.
ISSUE: Was there an intention on the part of the heirs to evade payment of the proper
tax?
DECISION: NO. The omission and under declaration of the properties was NOT
DELIBERATE and DID NOT AMOUNT TO FRAUD indicative of an intention to evade
payment of the proper tax due the government. As regards to the claim of the
Government that the SEVEN LOTS were deliberately omitted from the tax returns filed
by the representative of the heirs: It appears, however, that three of the seven lots
alleged to have been excluded were actually INCLUDED in the returns; that one
lot was not included because it BELONGED to one of the heirs; and that the
three remaining lots were ALREADY DECLARED in the return submitted by
Bernardino Jalandoni as part of the conjugal property for purposes of income
tax.
As regards to the claim of the Government that the MARKET VALUE OF THE
SUGAR LANDS were under declared by the representative of the heirs, as it did not
tally with the valuation made by the Collector: Any mistake made in the valuation
made by the representative can only be considered as HONEST MISTAKE or one
based on an EXCUSABLE INADVERTENCE, since HE NOT AN EXPERT IN
APPRAISING REAL ESTATE. It is certainly an ERROR TO IMPUTE FRAUD BASED
ON AN HONEST DIFFERENCE OF OPINION.
As regards to the claim of the Government that the VALUE OF THE SHARES OF
STOCK did not tally with their book value: The fact that the value of the shares of
stock given in the returns did not tally with their book value appearing in the corporate
books is NOT IN ITSELF INDICATIVE OF FRAUD especially when said BOOK
VALUE ONLY BECAME KNOWN SEVERAL MONTHS AFTER THE DEATH OF
THE DECEASED. Moreover, stock securities frequently fluctuate in value and a
MERE DIFFERENCE OF OPINION in relation thereto CANNOT SERVE AS PROPER
BASIS for assessing AN INTENTION TO DEFRAUD the government.
47
G.R. No. L-20569 August 23, 1974
JOSE B. AZNAR, in his capacity as Administrator of the Estate of the deceased,

Matias H. Aznar, petitioner,
vs.
COURT OF TAX APPEALS and COLLECTOR OF INTERNAL
REVENUE, respondents.
Sato, Enad Garcia for petitioner.
Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and
Special Attorney Librada R. Natividad for respondents.
ESGUERRA, J.:p
Petitioner, as administrator of the estate of the deceased, Matias H. Aznar, seeks a

review and nullification of the decision of the Court of Tax Appeals in C.T.A. Case No.
109, modifying the decision of respondent Commissioner of Internal Revenue and
ordering the petitioner to pay the government the sum of P227,691.77 representing
deficiency income taxes for the years 1946 to 1951, inclusive, with the condition that if
the said amount is not paid within thirty days from the date the decision becomes final,
there shall be added to the unpaid amount the surcharge of 5%, plus interest at the
rate of 12% per annum from the date of delinquency to the date of payment, in
accordance with Section 51 of the National Internal Revenue Code, plus costs against
the petitioner.
It is established that the late Matias H. Aznar who died on May 18, 1958, predecessor
in interest of herein petitioner, during his lifetime as a resident of Cebu City, filed his
income tax returns on the cash and disbursement basis, reporting therein the
following:
Year Net Amount Exhibi

Income of Tax t
Paid
194 P12,822.0 P114.6 pp.
5 0 6 85-88
B.I.R.
rec.
194 9,910.94 114.66 38-A
6 (pp.
329-
332
48
B.I.R
rec.)
194 10,200.00 132.00 39
7 (pp.
75-78
B.I.R
rec.)
194 9,148.34 68.90 40
8 (pp.
70-73
B.I.R.
rec.)
194 8,990.66 59.72 41
9 (pp.
64-67
B.I.R.
rec.)
195 8,364.50 28.22 42
0 (pp.
59-62,
BIR
rec.)
195 6,800.00 none 43
1 (pp.
54-57
BIR
rec.).
The Commissioner of Internal Revenue having his doubts on the veracity of the
reported income of one obviously wealthy, pursuant to the authority granted him by
Section 38 of the National Internal Revenue Code, caused B.I.R. Examiner Honorio
Guerrero to ascertain the taxpayer's true income for said years by using the net worth
and expenditures method of tax investigation. The assets and liabilities of the taxpayer
during the above-mentioned years were ascertained and it was discovered that from
1946 to 1951, his net worth had increased every year, which increases in net worth
was very much more than the income reported during said years. The findings clearly
indicated that the taxpayer did not declare correctly the income reported in his income
tax returns for the aforesaid years.
Based on the above findings of Examiner Guerrero, respondent Commissioner, in his

letter dated November 28, 1952, notified the taxpayer (Matias H. Aznar) of the
assessed tax delinquency to the amount of P723,032.66, plus compromise penalty.
49
The taxpayer requested a reinvestigation which was granted for the purpose of
verifying the merits of the various objections of the taxpayer to the deficiency income
tax assessment of November 28, 1952.
After the reinvestigation, another deficiency assessment to the reduced amount of

P381,096.07 dated February 16, 1955, superseded the previous assessment and
notice thereof was received by Matias H. Aznar on March 2, 1955.
The new deficiency assessment was based on the following computations:
1946
Net income per return ........................ P9,910.94

Add: Under declared income .............. 22,559.94
Net income per investigation............... 32,470.45
Deduct: Income tax liability

per return as assessed ...................................................... 114.66
Balance of tax due ........................................................... P3,687.10
Add: 50% surcharge ........................................................ 1,843.55
DEFICIENCY INCOME TAX ...................................... P5,530.65
1947
Net income per return ..................................................... P10,200.00

Add: Under declared income ............................................ 90,413.56
Net income per reinvestigation ....................................... P100,613.56
Deduct: Personal and additional exemption ...................... 7,000.00
Amount of income subject to tax ...................................... P93,613.56
Total tax liability ............................................................... P24,753.15
Deduct: Income tax liability per return as assessed ............ 132.00
Add: 50% surcharge ........................................................ 12,310.58 DEFICIENCY
INCOME TAX ...................................... P36,931.73
1948
Net income per return ...................................................... P9,148.34

Add: Under declared income ............................................. 15,624.63
Net income per reinvestigation .......................................... P24,772.97
Deduct: Personal and additional exemptions ...................... 7,000.00
Amount of income subject to tax ....................................... P17,772.97
Total tax liability ............................................................... 2,201.40
Deduct: Income tax liability per return as assessed ............ 68.90
50
Add: 50% surcharge ........................................................ 1,066.25 DEFICIENCY
INCOME TAX ...................................... P3,198.75
1949
Net income per return ....................................................... P9,990.66

Net income per reinvestigation .......................................... 114,409.19
Deduct: Personal and additional exemptions ...................... P7,000.00
Deduct: Income tax liability per return as assessed ............. 59.72
Balance of tax due ............................................................ P30,083.96
Add: 50% surcharge ......................................................... 15,041.98 DEFICIENCY
INCOME TAX ....................................... P45,125.94
1950
Net income per return ....................................................... P8,364.50

Net income per reinvestigation .......................................... P373,943.26
Deduct: Personal and additional exemptions ...................... 7,800.00
Deduct: Income tax liability per return as assessed ............. 28.00
Balance of tax due ............................................................ P185,855.00
Add: 50% surcharge ......................................................... 92,928.00 DEFICIENCY
INCOME TAX ....................................... P278,783.00
1951
Net income per return ........................................................ P6,800.00

Add: Under declared income ............................................... 33,355.80
Net income per reinvestigation ............................................ P40,155.80
Deduct: Personal and additional exemptions ........................ 7,200.00
Amount of income subject to tax ......................................... P32,955.80
Total tax liability .................................................................. P7,684.00
Deduct: Income tax liability per return as assessed ............... - o - .
Balance of tax due .............................................................. P7,684.00
Add: 50% surcharge ........................................................... 3,842.00 DEFICIENCY
INCOME TAX .......................................... P11,526.00
SUMMARY
1946
.... P5,530.65
51
1947 .... 36,931.73
1948 .... 3,198.75
1949 .... 45,125.94
1950 .... 278,783.00
1951 .... 11,526.00
Total .... P381,096.07
In determining the unreported income, the respondent Commissioner of Internal

Revenue resorted to the networth method which is based on the following
computations:
1945
Real estate inventory ................................ P64,738.00

Other assets ............................................. 37,606.87
Total assets ............................................ P102,344.87
Less: Depreciation allowed ...................... 2,027.00
Networth as of Dec. 31, 1945 ................ P100,316.97
1946
Real estate inventory ................................. P86,944.18

Other assets ............................................. 60,801.65
Total assets ............................................. P147,745.83
Less: Depreciation allowed ...................... 4,875.41
Net assets ................................................ P142,870.42
Less: Liabilities .................. P17,000.00
Net Worth as of
Jan. 1, 1946 ................... P100,316.97 P117,316.97
Increase in networth ................................. 25,553.45
Add: Estimated living expenses ................. 6,917.00
Net income .............................................. P32,470.45
1947
Real estate inventory .................................. P237,824.18

Other assets ............................................... 54,495.52
Total assets ............................................... P292,319.70
Less: Depreciation allowed ......................... 12,835.72
Net assets .................................................. 279,483.98
Less: Liabilities ................... P60,000.00
Networth as of
52
Jan. 1, 1947 ........................ 125,870.42 P185,870.42
Increase in networth ................................... P93,613.56
Add: Estimated living expenses ................... 7,000.00
Net income ................................................P100,613.56
1948

Other assets .............................................. 118,720.60
Total assets ............................................... P363,544.78
Less: Depreciation allowed ........................ 20,936.03
Net assets ................................................. P342,608.75
Less: Liabilities ................... P105,351.80
Networth as of
Jan. 1, 1948 ...................... 219,483.98 P324,835.78
Net income ................................................ P24,772.97
1949
Real estate inventory ................................. P400,515.52

Investment in schools and other colleges .... 23,105.29
Other assets ............................................. 70,311.00
Total assets ............................................... P493,931.81
Less: Depreciation allowed ........................ 32,657.08
Net assets ................................................. P461.274.73
Less; Liabilities .................. P116,608.59
Networth as of
Jan. 1, 1949 ...................... 237,256.95 P353,865.54
Increase in networth .................................. P107,409.19
Add: Estimated living expenses .................. 7,000.00
Net income ............................................... P114,409.19
1950

Investment in Schools and
other colleges ................................ 193,460.99
October assets .......................................... 310,788.87
Total assets ............................................... P916,715.38
Less; Depreciation allowed ........................ 47,561.99
Net assets ................................................. P869,153.39
Less: Liabilities .................. P158,343.99
Networth as of Jan. 1, 1950 ... 344,666.14 P503,010.13
53
Net income ................................................. P373,943.26
1951
Real estate inventory ................................... P412,465.52

Investment in schools and other colleges ..... 214,016.21
Other assets ............................................... 320,209.40
Total assets ................................................ P946,691.13
Less: Depreciation allowed ......................... 62,466.90
Net assets .................................................. P884,224.23
Less: Liabilities ........................................... P140,459.03
Networth as of
Jan. 1, 1951 ................ 710,809.40 P851,268.43
Increase in networth .................................... P32,955.80
Add: Estimated living expenses .................... 7,200.00
Net income ................................................. P40,155.80
(Exh. 45-B, BIR rec. p. 188)
On February 20, 1953, respondent Commissioner of Internal Revenue, thru the City
Treasurer of Cebu, placed the properties of Matias H. Aznar under distraint and levy
to secure payment of the deficiency income tax in question. Matias H. Aznar filed his
petition for review of the case with the Court of Tax Appeals on April 1, 1955, with a
subsequent petition immediately thereafter to restrain respondent from collecting the
deficiency tax by summary method, the latter petition being granted on February 8,
1956, per C.T.A. resolution, without requiring petitioner to file a bond. Upon review,
this Court set aside the C.T.A. resolution and required the petitioner to deposit with
the Court of Tax Appeals the amount demanded by the Commissioner of Internal
Revenue for the years 1949 to 1951 or furnish a surety bond for not more than double
the amount.
On March 5, 1962, in a decision signed by the presiding judge and the two associate
judges of the Court of Tax Appeals, the lower court concluded that the tax liability of
the late Matias H. Aznar for the year 1946 to 1951, inclusive should be P227,788.64
minus P96.87 representing the tax credit for 1945, or P227,691.77, computed as
follows:
1946
Net income per return .............................................. P9,910.94

Add: Under declared income ..................................... 22,559.51
Net income ............................................................ P32,470.45
Less: Personal and additional exemptions .................. 6,917.00
Income subject to tax ............................................. P25,553.45
Tax due thereon ...................................................... P3,801.76
54
Less: Tax already assessed ...................................... 114.66
Balance of tax due .................................................... P3,687.10
Add: 50% surcharge ................................................. 1,843.55
Deficiency income tax ................................................ P5,530.65
1947
Net income per return ............................................ P10,200.00

Add: Under declared income .................................. 57,551.19
Net income ........................................................... P67,751.19
Less: Personal and additional exemptions ............... 7,000.00
Income subject to tax ............................................. P60,751.19
Tax due thereon ..................................................... P13,420.38
Less: Tax already assessed ..................................... P132.00
Balance of tax due ................................................... P13,288.38
Add: 50% surcharge ................................................ 6,644.19
Deficiency income tax .............................................. P19,932.57
1948
Net income per return .............................................. P9,148.34

Add: Under declared income ..................................... 8,732.10
Net income ............................................................ P17,880.44
Less: Personal and additional exemptions ................. 7,000.00
Income subject to tax .............................................. P10,880.44
Tax due thereon ...................................................... P1,029.67
Less: Tax already assessed ....................................... 68.90
Balance of tax due .................................................... 960.77
Add: 50% surcharge ................................................. 480.38
Deficiency income tax ............................................... P1,441.15
1949
Net income per return ................................................. P8,990.66

Add: under declared income ......................................... 43,718.53
Net income ............................................................... P52,709.19
Less: Personal and additional exemptions .................... 7,000.00
Income subject to tax ................................................. P45,709.19
Tax due thereon ......................................................... P8,978.57
Less: Tax already assessed ......................................... 59.72
Balance of tax due ....................................................... P8,918.85
Add: 50% surcharge .................................................... 4,459.42
Deficiency income tax ................................................. P13,378.27
1950
55
Net income per return .................................................. P6,800.00
Add: Under declared income ......................................... 33,355.80
Net income ................................................................. P40,155.80
Less: Personal and additional exemptions ...................... 7,200.00
Income subject to tax .................................................. P32,955.80
Tax due thereon ........................................................... P7,684.00
Less: Tax already assessed ........................................... -o- .
Balance of tax due ........................................................ P7,684.00
Add: 50% surcharge .................................................... 3,842.00
Deficiency income tax .................................................. P11,526.00
1951
Net income per return ................................................... P8,364.50

Add: Under declared income ........................................ 246,449.06
Net income ............................................................... P254.813.56
Less: Personal and additional exemptions .................... 7,800.00
Income subject to tax ................................................ P247,013.56
Tax due thereon ........................................................ P117,348.00
Less: Tax already assessed ........................................ 28.00
Balance of tax due ..................................................... P117,320.00
Add: 50% surcharge .................................................. 58,660.00
Deficiency income tax ................................................ P175 980.00
SUMMARY
1946 P5,530.65
1947 19,932.57
1948 1,441.15
1949 13,378.27
1950 175,980.00
1951 11,526.00
P227,788.64.
The first vital issue to be decided here is whether or not the right of the Commissioner
of Internal Revenue to assess deficiency income taxes of the late Matias H. Aznar for
the years 1946, 1947, and 1948 had already prescribed at the time the assessment
was made on November 28, 1952.
56
Petitioner's contention is that the provision of law applicable to this case is the period
of five years limitation upon assessment and collection from the filing of the returns
provided for in See. 331 of the National Internal Revenue Code. He argues that since
the 1946 income tax return could be presumed filed before March 1, 1947 and the
notice of final and last assessment was received by the taxpayer on March 2, 1955, a
period of about 8 years had elapsed and the five year period provided by law (Sec.
331 of the National Internal Revenue Code) had already expired. The same argument
is advanced on the taxpayer's return for 1947, which was filed on March 1, 1948, and
the return for 1948, which was filed on February 28, 1949. Respondents, on the other
hand, are of the firm belief that regarding the prescriptive period for assessment of tax
returns, Section 332 of the National Internal Revenue Code should apply because, as
in this case, "(a) In the case of a false or fraudulent return with intent to evade tax or of
a failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time within ten years
after the discovery of the falsity, fraud or omission" (Sec. 332 (a) of the NIRC).
Petitioner argues that Sec. 332 of the NIRC does not apply because the taxpayer did
not file false and fraudulent returns with intent to evade tax, while respondent
Commissioner of Internal Revenue insists contrariwise, with respondent Court of Tax
Appeals concluding that the very "substantial under declarations of income for six
consecutive years eloquently demonstrate the falsity or fraudulence of the income tax
returns with an intent to evade the payment of tax."
To our minds we can dispense with these controversial arguments on facts, although
we do not deny that the findings of facts by the Court of Tax Appeals, supported as
they are by very substantial evidence, carry great weight, by resorting to a proper
interpretation of Section 332 of the NIRC. We believe that the proper and reasonable
interpretation of said provision should be that in the three different cases of (1) false
return, (2) fraudulent return with intent to evade tax, (3) failure to file a return, the tax
may be assessed, or a proceeding in court for the collection of such tax may be begun
without assessment, at any time within ten years after the discovery of the (1) falsity,
(2) fraud, (3) omission. Our stand that the law should be interpreted to mean a
separation of the three different situations of false return, fraudulent return with intent
to evade tax, and failure to file a return is strengthened immeasurably by the last
portion of the provision which segregates the situations into three different classes,
namely "falsity", "fraud" and "omission". That there is a difference between "false
return" and "fraudulent return" cannot be denied. While the first merely implies
deviation from the truth, whether intentional or not, the second implies intentional or
deceitful entry with intent to evade the taxes due.
The ordinary period of prescription of 5 years within which to assess tax liabilities
under Sec. 331 of the NIRC should be applicable to normal circumstances, but
whenever the government is placed at a disadvantage so as to prevent its lawful
agents from proper assessment of tax liabilities due to false returns, fraudulent return
intended to evade payment of tax or failure to file returns, the period of ten years
57
provided for in Sec. 332 (a) NIRC, from the time of the discovery of the falsity, fraud or
omission even seems to be inadequate and should be the one enforced.
There being undoubtedly false tax returns in this case, We affirm the conclusion of the
respondent Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that
the period of ten years within which to assess petitioner's tax liability had not expired
at the time said assessment was made.
II
As to the alleged errors committed by the Court of Tax Appeals in not deducting from
the alleged undeclared income of the taxpayer for 1946 the proceeds from the sale of
jewelries valued at P30,000; in not excluding from other schedules of assets of the
taxpayer (a) accounts receivable from customers in the amount of P38,000 for 1948,
P126,816.50 for 1950, and provisions for doubtful accounts in the amount of
P41,810.56 for 1950; (b) over valuation of hospital and dental buildings for 1949 in the
amount of P32,000 and P6,191.32 respectively; (c) investment in hollow block
business in the amount of P8,603.22 for 1949; (d) over valuation of surplus goods in
the amount of P23,000 for the year 1949; (e) various lands and buildings included in
the schedule of assets for the years 1950 and 1951 in the total amount of
P243,717.42 for 1950 and P62,564.00 for 1951, these issues would depend for their
resolution on determination of questions of facts based on an evaluation of evidence,
and the general rule is that the findings of fact of the Court of Tax Appeals supported
by substantial evidence should not be disturbed upon review of its decision (Section 2,
Rule 44, Rules of Court).
On the question of the alleged sale of P30,000 worth of jewelries in 1946, which
amount petitioner contends should be deducted from the taxpayer's net worth as of
December 31, 1946, the record shows that Matias H. Aznar, when interviewed by
B.I.R. Examiner Guerrero, stated that at the beginning of 1945 he had P60,000 worth
of jewelries inherited from his ancestors and were disposed off as follows: 1945,
P10,000; 1946, P20,000; 1947, P10,000; 1948, P10,000; 1949, P7,000; (Report of
B.I.R. Examiner Guerrero, B.I.R. rec. pp. 90-94).
During the hearing of this case in the Court of Tax Appeals, petitioner's accountant
testified that on January 1, 1945, Matias H. Aznar had jewelries worth P60,000 which
were acquired by purchase during the Japanese occupation (World War II) and sold
on various occasions, as follows: 1945, P5,000 and 1946, P30,000. To corroborate
the testimony of the accountant, Mrs. Ramona Agustines testified that she bought
from the wife of Matias H. Aznar in 1946 a diamond ring and a pair of earrings for
P30,000; and in 1947 a wrist watch with diamonds, together with antique jewelries, for
P15,000. Matias H. Aznar, on the other hand testified that in 1945, his wife sold to
Sards Parino jewelries for P5,000 and question, Mr. Aznar stated that his transaction
with Sards Parino, with respect to the sale of jewelries, amounted to P15,000.
58
The lower court did not err in finding material inconsistencies in the testimonies of
Matias H. Aznar and his witnesses with respect to the values of the jewelries allegedly
disposed off as stated by the witnesses. Thus, Mr. Aznar stated to the B.I.R. examiner
that jewelries worth P10,000 were sold in 1945, while his own accountant testified that
the same jewelries were sold for only P5,000. Mr. Aznar also testified that Mrs.
Agustines purchased from his wife jewelries for P35,000, and yet Mrs. Agustines
herself testified that she bought jewelries for P30,000 and P15,000 on two occasions,
or a total of P45,000.
We do not see any plausible reason to challenge the fundamentally sound basis
advanced by the Court of Tax Appeals in considering the inconsistencies of the
witnesses' testimony as material, in the following words:
We do not say that witnesses testifying on the same transaction should

give identical testimonies. Because of the frailties and the limitations of
the human mind, witnesses' statements are apt to be inconsistent in
certain points, but usually the inconsistencies refer to the minor phases of
the transaction. It is the insignificance of the detail of an occurrence that
fails to impress the human mind. When that same mind, made to recall
what actually happened, the significant point which it failed to take note is
naturally left out. But it is otherwise as regards significant matters, for
they leave indelible imprints upon the human mind. Hence, testimonial
inconsistencies on the minor details of an occurrence are dismissed
lightly by the courts, while discrepancies on significant points are taken
seriously and weigh adversely to the party affected thereby.
There is no sound basis for deviating from the lower court's conclusion that: "Taxwise
in view of the aforesaid inconsistencies, which we deem material and significant, we
dismiss as without factual basis petitioner's allegation that jewelries form part of his
inventory of assets for the purpose of establishing his net worth at the beginning of
1946."
As to the accounts receivable from the United States government for the amount of
P38,254.90, representing a claim for goods commandered by the U.S. Army during
World War II, and which amount petitioner claimed should be included in his net worth
as of January 1, 1946, the Court of Tax Appeals correctly concluded that the
uncontradicted evidence showed that "the collectible accounts of Mr. Aznar from the
U.S. Government in the sum of P38,254.90 should be added to his assets (under
accounts receivable) as of January 1, 1946. As of December 31, 1947, and December
31, 1948, the years within which the accounts were paid to him, the 'accounts
receivable shall decrease by P31,362.37 and P6,892.53, respectively."
Regarding a house in Talisay Cebu, (covered by Tax Declaration No. 8165) which
was listed as an asset during the years 1945 and 1947 to 1951, but which was not
listed as an asset in 1946 because of a notation in the tax declaration that it was
reconstructed in 1947, the lower court correctly concluded that the reconstruction of
59
the property did not render it valueless during the time it was being reconstructed and
consequently it should be listed as an asset as of January 1, 1946, with the same
valuation as in 1945, that is P1,500.
On the question of accounts receivable from customers in the amount of P38,000 for
1948, and P123,816.58 for the years 1950 and 1951, which were included in the
assets of Mr. Aznar for those years by the respondent Commissioner of Internal
Revenue, it is very clear that those figures were taken from the statements (Exhs. 31
and 32) filed by Mr. Matias H. Aznar with the Philippine National Bank when he was
intending to obtain a loan. These statements were under oath and the natural
implication is that the information therein reflected must be the true and accurate
financial condition of the one who executed those statements. To believe the
petitioner's argument that the late Mr. Aznar included those figures in his sworn
statement only for the purpose of obtaining a bigger credit from the bank is to cast
suspicion on the character of a man who can no longer defend himself. It would be as
if pointing the finger of accusation on the late Mr. Aznar that he intentionally falsified
his sworn statements (Exhs. 31 and 32) to make it appear that there were non-
existent accounts receivable just to increase his assets by fictitious entries so that his
credit with the Philippine National Bank could be enhanced. Besides, We do not lose
sight of the fact that those statements (Exhs. 31 and 32) were executed before this tax
controversy arose and the disputable presumptions that a person is innocent of crime
or wrong; that a person intends the ordinary consequences of his voluntary act; that a
person takes ordinary care of his concerns; that private transaction have been fair and
regular; that the ordinary course of business has been followed; that things have
happened according to the ordinary course of nature and the ordinary habits of life;
that the law has been obeyed (Sec. 5, (a), (c), (d), (p), (q), (z), (ff), Rule 131 of the
Rules of Court), together with the conclusive presumption that "whenever a party has,
by his own declaration, act, or omission, intentionally and deliberately led another to
believe a particular thing true, and to act upon such belief, he cannot, in any litigation
arising out of such declaration, act or omission, be permitted to falsify it" (Sec. 3 (a),
Rule 131, Rules of Court), convincingly indicate that the accounts receivable stated by
Mr. Aznar in Exhibits 31 and 32 were true, in existence, and accurate to the very
amounts mentioned.
There is no merit to petitioners argument that those statements were only for the
purpose of obtaining a bigger credit from the bank (impliedly stating that those
statements were false) and those accounts were allegedly back accounts of students
of the Southwestern Colleges and were worthless, and if collected, would go to the
funds of the school. The statement of the late Mr. Aznar that they were accounts
receivable from customers should prevail over the mere allegation of petitioner,
unsupported as they are by convincing evidence. There is no reason to disturb the
lower court's conclusion that the amounts of P38,000 and P123,816.58 were accounts
receivable from customers and as such must be included as petitioner's assets for the
years indicated.
60
As to the questions of doubtful accounts (bad debts), for the amount of P41,810.56, it
is clear that said amount is taken from Exhibit 31, the sworn statement of financial
condition filed by Mr. Matias H. Aznar with the Philippine National Bank. The lower
court did not commit any error in again giving much weight to the statement of Mr.
Aznar and in concluding that inasmuch as this is an item separate and apart from the
taxpayer's accounts receivable and non-deductible expense, it should be reverted to
the accounts receivable and, consequently, considered as an asset in 1950.
On the alleged over valuation of two buildings (hospital building which respondent
Commissioner of Internal Revenue listed as an asset from 1949-1951 at the basic
valuation of P130,000, and which petitioner claims to be over valued by P32,000;
dentistry building valued by respondent Commissioner of Internal Revenue at
P36,191.34, which petitioner claims to be over valued by P6,191.34), We find no
sufficient reason to alter the conclusion of respondent Court of Tax Appeals sustaining
the respondent Commissioner of Internal Revenue's valuation of both properties.
Respondent Commissioner of Internal Revenue based his valuation of the hospital

building on the representation of Mr. Matias H. Aznar himself who, in his letter (Exh.
35) to the Philippine National Bank dated September 5, 1949, stated that the hospital
building cost him P132,000. However in view of the effect of a typhoon in 1949 upon
the building, the value allowed was P130,000. Exhibit 35, contrary to petitioner's
contention, should be given probative value because, although it is an unsigned plain
copy, that exhibit was taken by the investigating examiner of the B.I.R. from the files of
the Southwestern Colleges and formed part of his report of investigation as a public
official. The estimates of an architect and a civil engineer who agreed that a value of
P84,240 is fair for the hospital building, made years after the building was constructed,
cannot prevail over the petitioner's own estimate of his property's value.
Respondent Commissioner of Internal Revenue's valuation of P36,191.34 of the

Dentistry Building is based on the letter of Mr. and Mrs. Matias H. Aznar to the
Southwestern Colleges, dated December 15, 1950, which is embodied in the minutes
of the meeting of the Board of Trustees of the Southwestern Colleges held on May 7,
1951 (Exhibit G-1). In Exhibit 26 A, which is the cash book of the Southwestern
Colleges, this building was listed as of the same amount. Petitioner's estimate of
P30,000 for this building, based on Architect Paca's opinion, cannot stand against the
owner's estimate and that which appears in the cash book of the Southwestern
Colleges, if we take into consideration that the owner's (Mr. Matias H. Aznar) letter
was written long before this tax proceeding was initiated, while architect Paca's
estimate was made upon petitioner's request solely for the purpose of evidence in this
tax case.
In the inventory of assets of petitioner, respondent Commissioner of Internal Revenue

included the administrative building valued at P19,200 for the years 1947 and 1948,
and P16,700 for the years 1949 to 1951; and a high school building valued at P48,000
for 1947 and 1948, and P45,000 for 1949, 1950 and 1951. The reduced valuation for
the latter years are due to allowance for partial loss resulting from the 1949 typhoon.
61
Petitioner did not question the inclusion of these buildings in the inventory for the
years prior to 1950, but objected to their inclusion as assets as of January 1, 1950,
because both buildings were destroyed by a typhoon in November of 1949. There is
sufficient evidence (Exh. G-1, affidavit of Jesus S. Intan, employee in the office of City
Assessor of Cebu City, Exh. 18, Mr. Intan's testimony, a copy of a letter of the City
Assessor of Cebu City) to prove that the two buildings were really destroyed by
typhoon in 1949 and, therefore, should be eliminated from the petitioner's inventory of
assets beginning December 31, 1949.
On the issue of investment in the hollow blocks business, We see no compelling

reason to alter the lower court's conclusion that "whatever was spent in the hollow
blocks business is an investment, and being an investment, the same should be
treated as an asset. With respect to the amount representing the value of the building,
there is no duplication in the listing as the inventory of real property does not include
the building in question."
Respondent Commissioner of Internal Revenue included in the inventory, under the

heading of other asset, the amount of P8,663.22, treated as investment in the hollow
block business. Petitioner objects to the inclusion of P1,683.42 which was spent on
the building and in the business and of P674.35 which was spent for labor, fuel, raw
materials, office supplies etc., contending that the former amount is a duplication of
inventory (included among the list of properties) and the latter is a business expense
which should be eliminated from the list of assets.
The inclusion of expenses (labor and raw materials) as part of the hollow block
business is sanctioned in the inventory method of tax verification. It is a sound
accounting practice to include raw materials that will be used for future manufacture.
Inclusion of direct labor is also proper, as all these items are to be embodied in a
summary of assets (investment by the taxpayer credited to his capital account as
reflected in Exhibit 72-A, which is a working sheet with entries taken from the journal
of the petitioner concerning his hollow blocks business). There is no evidence to show
that there was duplication in the inclusion of the building used for hollow blocks
business as part of petitioner's investment as this building was not included in the
listing of real properties of petitioner (Exh. 45-C p. 187 B.I.R. rec.).
As to the question of the real value of the surplus goods purchased by Mr. Matias H.
Aznar from the U.S. Army, the best evidence, as observed correctly by the lower
court, is the statement of Mr. Matias H. Aznar, himself, as appearing Exh. 35 (copy of
a letter dated September 5, 1949 to the Philippine National Bank), to the effect "as
part of my assets I have different merchandise from Warehouse 35, Tacloban, Leyte
at a total cost of P43,000.00 and valued at no less than P20,000 at present market
value." Petitioner's claim that the goods should be valued at only P20,000 in
accordance with an alleged invoice is not supported by evidence since the invoice
was not presented as exhibit. The lower court's act in giving more credence to the
statement of Mr. Aznar cannot be questioned in the light of clear indications that it was
never controverted and it was given at a time long before the tax controversy arose.
62
The last issue on propriety of inclusion in petitioner's assets made by respondent
Commissioner of Internal Revenue concerns several buildings which were included in
the list of petitioner's assets as of December 31, 1950. Petitioner contends that those
buildings were conveyed and ceded to Southwestern Colleges on December 15,
1950, in consideration of P100,723.99 to be paid in cash. The value of the different
buildings are listed as: hospital building, P130,000; gymnasium, P43,000; dentistry
building, P36,191.34; bodega 1, P781.18; bodega 2, P7,250; college of law, P10,950;
laboratory building, P8,164; home economics, P5,621; morgue, P2,400; science
building, P23,600; faculty house, P5,760. It is suggested that the value of the buildings
be eliminated from the real estate inventory and the sum of P100,723.99 be included
as asset as of December 31, 1950.
The lower court could not find any evidence of said alleged transfer of ownership from
the taxpayer to the Southwestern Colleges as of December 15, 1950, an allegation
which if true could easily be proven. What is evident is that those buildings were used
by the Southwestern Colleges. It is true that Exhibit G-1 shows that Mr. and Mrs.
Matias H. Aznar offered those properties in exchange for shares of stocks of the
Southwestern Colleges, and Exhibit "G" which is the minutes of the meeting of the
Board of Trustees of the Southwestern Colleges held on August 6, 1951, shows that
Mr. Aznar was amenable to the value fixed by the board of trustees and that he
requested to be paid in cash instead of shares of stock. But those are not sufficient
evidence to prove that transfer of ownership actually happened on December 15,
1950. Hence, the lower court did not commit any error in sustaining the respondent
Commissioner of Internal Revenue's act of including those buildings as part of the
assets of petitioner as of December 31, 1950.
Petitioner also contends that properties allegedly ceded to the Southwestern Colleges
in 1951 for P150,000 worth of shares of stocks, consisting of: land, P22,684; house,
P13,700; group of houses, P8,000; building, P12,000; nurses home, P4,100; nurses
home, P2,080, should be excluded from the inventory of assets as of December 31,
1951. The evidence (Exh. H), however, clearly shows that said properties were
formally conveyed to the Southwestern Colleges only on September 25, 1952.
Undoubtedly, petitioner was the owner of those properties prior to September 25,
1952 and said properties should form part of his assets as of December 31, 1951.
The uncontested portions of the lower court's decision consisting of its conclusions
that library books valued at P7,041.03, appearing in a journal of the Southwestern
Colleges marked as' Exhibit 25-A, being an investment, should be treated as an asset
beginning December 31, 1950; that the expenses for construction to the amount of
P113,353.70, which were spent for the improvement of the buildings appearing in
Exhibit 24 are deemed absorbed in the increased value of the buildings as appraised
by respondent Commissioner of Internal Revenue at cost after improvements were
made, and should be taken out as additional assets; that the amount receivable of
P5,776 from a certain Benito Chan should be treated as petitioner's asset but the
amount of P5,776 representing the value of a house and lot given as collateral to
secure said loan should not be considered as an asset of petitioner since to do so
63
would result in a glaring duplication of items, are all affirmed. There seems to be no
controversy as to the rest of the items listed in the inventory of assets.
III
The second issue which appears to be of vital importance in this case centers on the
lower court's imposition of the fraud penalty (surcharge of 50% authorized in Section
72 of the Tax Code). The petitioner insists that there might have been false returns by
mistake filed by Mr. Matias H. Aznar as those returns were prepared by his
accountant employees, but there were no proven fraudulent returns with intent to
evade taxes that would justify the imposition of the 50% surcharge authorized by law
as fraud penalty.
The lower court based its conclusion that the 50% fraud penalty must be imposed on
the following reasoning: .
It appears that Matias H. Aznar declared net income of P9,910.94,

P10,200, P9,148.34, P8,990.66, P8,364.50 and P6,800 for the years
1946, 1947, 1948, 1949, 1950 and 1951, respectively. Using the net
worth method of determining the net income of a taxpayer, we find that he
had net incomes of P32,470.45, P67,751.19, P17,880.44, P52,709.11,
P254,813.56 and P40,155.80 during the respective years 1946, 1947,
1948, 1949, 1950, and 1951. In consequence, he underdeclared his
income by 227% for 1946, 564% for 1947, 95%, for 1948, 486% for 1949,
2,946% for 1950 and 490% for 1951. These substantial under
declarations of income for six consecutive years eloquently demonstrate
the falsity or fraudulence of the income tax return with an intent to
evade the payment of tax. Hence, the imposition of the fraud penalty is
proper (Perez vs. Court of Tax Appeals, G.R. No. L-10507, May 30,
1958). (Emphasis supplied)
As could be readily seen from the above rationalization of the lower court, no
distinction has been made between false returns (due to mistake, carelessness or
ignorance) and fraudulent returns (with intent to evade taxes). The lower court based
its conclusion on the petitioner's alleged fraudulent intent to evade taxes on the
substantial difference between the amounts of net income on the face of the returns
as filed by him in the years 1946 to 1951 and the net income as determined by the
inventory method utilized by both respondents for the same years. The lower court
based its conclusion on a presumption that fraud can be deduced from the very
substantial disparity of incomes as reported and determined by the inventory method
and on the similarity of consecutive disparities for six years. Such a basis for
determining the existence of fraud (intent to evade payment of tax) suffers from an
inherent flaw when applied to this case. It is very apparent here that the respondent
Commissioner of Internal Revenue, when the inventory method was resorted to in the
first assessment, concluded that the correct tax liability of Mr. Aznar amounted to
P723,032.66 (Exh. 1, B.I.R. rec. pp. 126-129). After a reinvestigation the same
64
respondent, in another assessment dated February 16, 1955, concluded that the tax
liability should be reduced to P381,096.07. This is a crystal-clear, indication that even
the respondent Commissioner of Internal Revenue with the use of the inventory
method can commit a glaring mistake in the assessment of petitioner's tax liability.
When the respondent Court of Tax Appeals reviewed this case on appeal, it
concluded that petitioner's tax liability should be only P227,788.64. The lower court in
three instances (elimination of two buildings in the list of petitioner's assets beginning
December 31, 1949, because they were destroyed by fire; elimination of expenses for
construction in petitioner's assets as duplication of increased value in buildings, and
elimination of value of house and lot in petitioner's assets because said property was
only given as collateral) supported petitioner's stand on the wrong inclusions in his
lists of assets made by the respondent Commissioner of Internal Revenue, resulting in
the very substantial reduction of petitioner's tax liability by the lower court. The
foregoing shows that it was not only Mr. Matias H. Aznar who committed mistakes in
his report of his income but also the respondent Commissioner of Internal Revenue
who committed mistakes in his use of the inventory method to determine the
petitioner's tax liability. The mistakes committed by the Commissioner of Internal
Revenue which also involve very substantial amounts were also repeated yearly, and
yet we cannot presume therefrom the existence of any taint of official fraud.
From the above exposition of facts, we cannot but emphatically reiterate the well
established doctrine that fraud cannot be presumed but must be proven. As a
corollary thereto, we can also state that fraudulent intent could not be deduced from
mistakes however frequent they may be, especially if such mistakes emanate from
erroneous entries or erroneous classification of items in accounting methods utilized
for determination of tax liabilities The predecessor of the petitioner undoubtedly filed
his income tax returns for "the years 1946 to 1951 and those tax returns were
prepared for him by his accountant and employees. It also appears that petitioner in
his lifetime and during the investigation of his tax liabilities cooperated readily with the
B.I.R. and there is no indication in the record of any act of bad faith committed by him.
The lower court's conclusion regarding the existence of fraudulent intent to evade
payment of taxes was based merely on a presumption and not on evidence
establishing a willful filing of false and fraudulent returns so as to warrant the
imposition of the fraud penalty. The fraud contemplated by law is actual and not
constructive. It must be intentional fraud, consisting of deception willfully and
deliberately done or resorted to in order to induce another to give up some legal right.
Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade
the tax contemplated by the law. It must amount to intentional wrong-doing with the
sole object of avoiding the tax. It necessarily follows that a mere mistake cannot be
considered as fraudulent intent, and if both petitioner and respondent Commissioner
of Internal Revenue committed mistakes in making entries in the returns and in the
assessment, respectively, under the inventory method of determining tax liability, it
would be unfair to treat the mistakes of the petitioner as tainted with fraud and those
of the respondent as made in good faith.
65
We conclude that the 50% surcharge as fraud penalty authorized under Section 72 of
the Tax Code should not be imposed, but eliminated from the income tax deficiency
for each year from 1946 to 1951, inclusive. The tax liability of the petitioner for each
year should, therefore, be:
1946 P 3,687.10
1947 13,288.38
1948 960.77
1949 8,918.85
1950 117,320.00
1951 7,684.00
P151,859.10
The total sum of P151,859.10 should be decreased by P96.87 representing the tax
credit for 1945, thereby leaving a balance of P151,762.23.
WHEREFORE, the decision of the Court of Tax Appeals is modified in so far as the
imposition of the 50% fraud penalty is concerned, and affirmed in all other respects.
The petitioner is ordered to pay to the Commissioner of Internal Revenue, or his duly
authorized representative, the sum of P151,762.23, representing deficiency income
taxes for the years 1946 to 1951, inclusive, within 30 days from the date this decision
becomes final. If the said amount is not paid within said period, there shall be added
to the unpaid amount the surcharge of 5%, plus interest at the rate of 12% per annum
from the date of delinquency to the date of payment, in accordance with Section 51 of
the National Internal Revenue Code.
With costs against the petitioner.
DIGEST
Aznar vs. Court of Tax Appeals

GR No. 20569, 23 August 1974
Facts: Petitioner, as administrator of the estate of the deceased, Matias H. Aznar,

seeks a review and nullification of the decision of the Court of Tax Appeals ordering
the petitioner to pay the government the sum of P227,691.77 representing deficiency
income taxes for the years 1946 to 1951. An investigation by the Commissioner of
Internal Revenue (CIR) ascertained the assets and liabilities of the taxpayer and it
was discovered that from 1946 to 1951, his net worth had increased every year, which
increases in net worth was very much more than the income reported during said
years. The findings clearly indicated that the taxpayer did not declare correctly the
income reported in his income tax returns for the aforesaid years. Petitioner avers that
66
according to the NIRC, the right of the CIR to assess deficiency income taxes of the
late Aznar for the years 1946, 1947, and 1948 had already prescribed at the time the
assessment was made on November 28, 1952; there being a five year limitation upon
assessment and collection from the filing of the returns. Meanwhile, respondents
believe that the prescription period in the case at bar that is applicable is under Sec.
332 of the NIRC which provides that: "(a) In the case of a false or fraudulent return
with intent to evade tax or of a failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be begun without assessment,
at any time within ten years after the discovery of the falsity, fraud or omission".
Petitioner argues said provision does not apply because the taxpayer did not file false
and fraudulent returns with intent to evade tax.
Issue: Whether or not the deceased Aznar filed false or fraudulent income tax returns
and subsequently, whether the action has not prescribed.
Held: The petition is without merit.

The respondent CTA concluded that the very "substantial under declarations of
income for six consecutive years eloquently demonstrate the falsity or fraudulence of
the income tax returns with an intent to evade the payment of tax." The ordinary
period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of
the NIRC should be applicable to normal circumstances, but whenever the
government is placed at a disadvantage so as to prevent its lawful agents from proper
assessment of tax liabilities due to false returns, fraudulent return intended to evade
payment of tax, or failure to file returns, the period of ten years from the time of the
discovery of the falsity, fraud or omission even seems to be inadequate. There being
undoubtedly false tax returns in this case, We affirm the conclusion of the respondent
Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that the period of
ten years within which to assess petitioner's tax liability had not expired at the time
said assessment was made.
67
G.R. No. L-29485 November 21, 1980
COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
AYALA SECURITIES CORPORATION and THE HONORABLE COURT OF TAX
APPEALS, respondents.
TEEHANKEE, J.:
Before the Court is petitioner Commissioner of Internal Revenue's motion for

reconsideration of the Court's decision of April 8, 1976 wherein the Court affirmed in
toto the appealed decision of respondent Court of Tax Appeals, the dispositive portion
of which provides as follows:
WHEREFORE, the decision of the respondent Commissioner of Internal

Revenue assessing petitioner the amount of P758,687.04 as 25% surtax
and interest is reversed. Accordingly, said assessment of respondent for
1955 is hereby cancelled and declared of no force and effect, Without
pronouncement as to costs.
This Court's decision under reconsideration held that the assessment made on
February 21, 1961 by petitioner against respondent corporation (and received by the
latter on March 22, 1961) in the sum of P758,687.04 on its surplus of P2,758,442.37
for its fiscal year ending September 30, 1955 fell under the five-year prescriptive
period provided in section 331 of the National Internal Revenue Code and that the
assessment had, therefore, been made after the expiration of the said five-year
prescriptive period and was of no binding force and effect .
Petitioner has urged that
A perusal of Sections 331 and 332(a) will reveal that they refer to a tax,
the basis of which is required by law to be reported in a return such as for
example, income tax or sales tax. However, the surtax imposed by
Section 25 of the Tax Code is not one such tax. Accumulated surplus are
never returned for tax purposes, as there is no law requiring that such
surplus be reported in a return for purposes of the 25% surtax. In fact,
taxpayers resort to all means and devices to cover up the fact that they
have unreasonably accumulated surplus.
Petitioner, therefore, submits that
As there is no law requiring taxpayers to file returns of their accumulated

surplus, it is obvious that neither Section 33 nor Section 332(a) of the Tax
68
Code applies in a case involving the 25% surtax imposed by Section 25
of the Tax Code. ...
Petitioner cites the Court of Tax Appeals' ruling in the earlier case of United
Equipment & Supply Company vs. Commissioner of Internal Revenue (CTA Case No.
1795, October 30, 1971) which was appealed by petitioner taxpayer to this Court in G.
R. No. L-35653 bearing the same title, which appeal was denied by this Court en banc
for lack of merit as per its Resolution of October 25, 1972, In said case, the tax court
squarely ruled that the provisions of sections 331 and 332 of the National Internal
Revenue Code for prescriptive periods of five 5 and ten (10) years after the filing of
the return do not apply to the tax on the taxpayer's unreasonably accumulated surplus
under section 25 of the Tax Code since no return is required to be filed by law or by
regulation on such unduly ac cumulated surplus on earnings, reasoning as follows:
In resisting the assessment amounting to P10,864.26 as accumulated earnings tax for

1957, petitioner also invoked the defense of prescription against the right of
respondent to assess the said tax. It is contended that since its income tax return for
1957 was filed in 1958, and with the clarification by respondent in his letter dated May
14, 1963, that the amount sought to be collected was petitioner's surtax liability under
Section 25 rather than deficiency corporate income tax under Section 24 of the
National Internal Revenue Code, the assessment has already prescribed under
Section 331 of the same Code.
Section 331 of the Revenue Code provides:
SEC. 331. 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 purpose 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.
Obviously, Section 331 applies to, assessment of National Internal

Revenue Taxes which requires the filing of returns. A return, the filing of
which is necessary to start the running of tile five-year period for making
an assessment, must be one which is required for the particular tax.
Consequently, it has been held that the filing of an income tax return does
not start the running of the statute of limitation for assessment of the
sales tax. (Butuan Sawmill, Inc. v. Court of Tax Appeals, G.R. No. L-
20601, Feb. 28, 1966, 16 SCRA 277).
Although petitioner filed an income tax return, no return was filed covering
its surplus profits which were improperly accumulated. In fact, no return
could have been filed, and the law could not possibly require, for obvious
69
reasons, the filing of a return covering unreasonable accumulation of
corporate surplus profits. A tax imposed upon unreasonable accumulation
of surplus is in the nature of a penalty. (Helvering v. National Grocery
Co., 304 U.S. 282). It would not be proper for the law to compel a
corporation to report improper accumulation of surplus. Accordingly,
Section 331 limiting the right to assess internal revenue taxes within five
years from the date the return was filed or was due does not apply.
Neither does Section 332 apply. Said Section provides:
SEC. 332 Exceptions as to period of limitation of assessment and

collection of taxes.— (a) In the case of a false or fraudulent return with
intent to evade tax or of failure to file a return, the tax may be assessed,
or a proceeding in court for the collection of such tax may be begun
without assessment, at any time within ten years after the discovery of
the falsity, fraud, or omission.
(b) Where before the expiration of the time prescribed in the

preceding section for the assessment of the tax, both the
Commissioner of Internal Revenue and the taxpayer have
consented in writing to its assessment after such time, the
tax may be assessed at any time prior to the expiration of the
period agreed upon. The period so agreed upon may be
extended by subsequent agreements in writing made before
the expiration of the period previously agreed upon.
(c) Where the assessment of any internal revenue tax has

been made within the period of limitation above-prescribed
such tax may be collected by distraint or levy by a
proceeding in court, but only if begun (1) within five years
after the assessment of the tax, or (2) prior to the expiration
of any period for collection agreed upon in writing by the
Commissioner of Internal Revenue and the taxpayer before
the expiration of such five-year period. The period so agreed
upon may be extended by subsequent agreements in writing
made before the expiration of the period previously agreed
upon.
It will be noted that Section 332 has reference to national internal revenue
taxes which require the filing of returns. This is implied, from the provision
that the ten-year period for assessment specified therein treats of the
filing of a false or fraudulent return or of a failure to file a return. There
can be no failure or omission to file a return where no return is required to
be filed by law or by regulation. It is, therefore, our opinion that the ten-
year period for making in assessment under Section 332 does not apply
to internal revenue taxes which do not require the filing of a return.
70
It is well settled limitations upon the right of the government to assess
and collect taxes will not be presumed in the absence of clear legislation
to the contrary. The existence of a time limit beyond which the
government may recover unpaid taxes is purely dependent upon some
express statutory provision, (51 Am. Jur. 867; 10 Mertens Law of Federal
Income Taxation, par. 57. 02.). It follows that in the absence of express
statutory provision, the right of the government to assess unpaid taxes is
imprescriptible. Since there is no express statutory provision limiting the
right of the Commissioner of Internal Revenue to assess the tax on
unreasonable accumulation of surplus provided in Section 25 of the
Revenue Code, said tax may be assessed at any time. (Emphasis
supplied)
Such ruling was in effect upheld by this Court en banc upon its dismissal of the
taxpayer's appeal for lack of merit as above stated.
The Court is persuaded by the fundamental principle invoked by petitioner that

limitations upon the right of the government to assess and collect taxes will not be
presumed in the absence of clear legislation to the contrary and that where the
government has not by express statutory provision provided a limitation upon its right
to assess unpaid taxes, such right is imprescriptible.
The Court, therefore, reconsiders its ruling in its decision under reconsideration that
the right to assess and collect the assessment in question had prescribed after five
years, and instead rules that there is no such time limit on the right of the
Commissioner of Internal Revenue to assess the 25% tax on unreasonably
accumulated surplus provided in section 25 of the Tax Code, since there is no express
statutory provision limiting such right or providing for its prescription. The underlying
purpose of the additional tax in question on a corporation's improperly accumulated
profits or surplus is as set forth in the text of section 25 of the Tax Code itself 1 to
avoid the situation where a corporation unduly retains its surplus instead of declaring
and paving dividends to its shareholders or members who would then have to pay the
income tax due on such dividends received by them. The record amply shows that
respondent corporation is a mere holding company of its shareholders through its
mother company, a registered co-partnership then set up by the individual
shareholders belonging to the same family and that the prima facie evidence and
presumption set up by the Tax Code, therefore applied without having been
adequately rebutted by the respondent corporation.
Thus, Mr. Lamberto J. Cabral, the accountant of the corporation, testified before the
court as follows:
Atty. Garces
The investigation, Your Honor, shows that for the year 1955,
the Ayala Securities Corporation had 175,000 outstanding
71
shares of stock and out of these shares of Ayala Securities
Corporation, the Ayala and Company owned 174,996 shares
of stock.
Q. Is that right, Mr. Cabral?
Atty. Ong
Objection, Your Honor, on the materiality of the

question.
Judge Alvarez
What is the materiality of the question?
Atty. Garces
We want to prove to this honorable Court that Ayala

Securities Corporation is a holding or investment company,
the parent company being Ayala and Company.
Judge Alvarez
Witness may answer.
A. I think so; yes.
Q. And Ayala and Company's owned almost wholly by the

Zobel Family and the Ayala Family?
Atty. Ong
If Your Honor please, objection again on the materiality.

What would counsel for the respondent prove on this point?
Atty. Garces
Same purpose, Your If Honor to prove that Ayala Securities

corporation is a mere investment or holding company
Atty. Ong
What is the materiality of the case if it is a mere investment

company. In fact, we are here in court to prove the
reasonableness or unreasonableness of the accumulation of
profit. I think counsel for the respondent is trying to harp on
presumption; but actually we will not be delving on
72
presumption but on actual facts proving the reasonableness
of the accumulation based on actual evidence.
Judge Alvarez
In order to determine the reasonableness or

unreasonableness, there must be a basis. witness will have
to answer the question.
A. Yes.
xxx xxx xxx
Q. As of September 30, 1955 when the Ayala Securities

Corporation tiled its income tax return, were the officers of
the Ayala Securities Corporation and the Ayala and
Company housed in the same building?
A. Yes, sir; they were.
Q. And also are the employees of the Ayala Securities

corporation and the Ayala and Company the same - meaning
that the employees of the Ayala Securities Corporation are
also the employees of the Ayala and Company?
A. At the time, if I remember right, Ayala and Company was

the operating company and the employees were the
employees of the Ayala and Company; (t.s.n., pp. 32-37).
Another witness, Mr. Salvador J. Lorayes the Secretary and head of the Legal
Department of the corporation, also testified that:
Judge Alvarez questions
Q. May we know from you whether Ayala Securities

corporation is an affiliate of Ayala and Company?
A. Yes, Your honor.
Q. Do we understand from you that Ayala and Company is

the mother corporation of this affiliate?
A. That is correct.
Q. And that the policy of Ayala Securities Corporation is

practically governed by the officers or partners of Ayala and
company
73
A. They have a strong influence over the policy of Ayala
Securities Corporation.
Q. So that whatever is decided by the partners of Ayala and

Company for a certain investment or project would also be
followed by Ayala Securities Corporation?
A. If the project is assigned to Ayala Securities Corporation it

will be followed by Ayala Securities Corporation; if to another
affiliate, no (t.s.n., pp. 149-150). ...
Respondent corporation was therefore fully shown to fall under Revenue Regulation
No. 2 implementing the provisions of the income tax law which provides on holding
and investment companies that
SEC. 20. Holding and Investment Companies. — A corporation having

practically no activities except holding property, and collecting the income
therefrom or investing therein, shall be considered a holding company
within the meaning of section 25.
Petitioner commissioner's plausible alternative contention is that even if the 25%

surtax were to be deemed subject to prescription, computed from the filing of the
income tax return in 1955, the intent to evade payment of the surtax is an inherent
quality of the violation and the return filed must necessarily partake of a false and/or
fraudulent character which would make applicable the 10-year prescriptive period
provided in section 332(a) of the Tax Code and since the assessment was made in
1961 (the sixth year), the assessment was clearly within the 10-year prescriptive
period. The Court sees no necessity, however, for ruling on this point in view of its
adherence to the ruling in the earlier raise of United Equipment & Supply
Co., supra, holding that the 25% surtax is not subject to any statutory prescriptive
period.
ACCORDINGLY, the Court's decision of April 8, 1976 is set aside and in lieu thereof,
judgment is hereby rendered ordering respondent corporation to pay the assessment
in the sum of P758,687.04 as 25% surtax on its unreasonably accumulated surplus,
plus the 5% surcharge and 1% monthly interest thereon, pursuant to section 51 (e) of
the National Internal Revenue Code, as amended by R. A. 2343. With Costs.
DIGEST
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 Commissioner’s decision and held that the
74
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.
75
5.IMPOSITION OF PENALTIES
Sections 247-252 Tax Code[G.R. No. 118794. May 8, 1996]
PHILIPPINE REFINING COMPANY (now known as

UNILEVER PHILIPPINES [PRC], INC.), petitioner, vs. COURT OF APPEALS,
COURT OF TAX APPEALS, and THE COMMISSIONER OF INTERNAL
REVENUE, respondents.
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF THE COURT OF TAX
APPEALS, GENERALLY UPHELD ON APPEAL; CASE AT BENCH. The Court
of Tax Appeals is a highly specialized body specifically created for the purpose of
reviewing tax cases. Through its expertise, it is undeniably competent to
determine the issue of whether or not the debt is deductible through the evidence
presented before it. Because of this recognized expertise, the findings of the CTA
will not ordinarily be reviewed absent a showing of gross error or abuse on its part.
The findings of fact of the CTA are binding on this Court and in the absence of
strong reasons for this Court to delve into facts, only questions of law are open for
determination. Were it not, therefore, due to the desire of this Court to satisfy
petitioners calls for clarification and to use this case as a vehicle for
exemplification, this appeal could very well have been summarily dismissed.
2. TAXATION; NATIONAL INTERNAL REVENUE CODE; INCOME TAX; BAD
DEBTS; REQUISITES FOR DEDUCTION. For debts to be considered as
worthless, and thereby qualify as bad debts making them deductible, the taxpayer
should show that (1) there is a valid and subsisting debt; (2) the debt must be
actually ascertained to be worthless and uncollectible during the taxable year; (3)
the debt must be charged off during the taxable year; and (4) the debt must arise
from the business or trade of the taxpayer. Additionally, before a debt can be
considered worthless, the taxpayer must also show that it is indeed uncollectible
even in the future. Furthermore, there are steps outlined to be undertaken by the
taxpayer to prove that he exerted diligent efforts to collect the debts, viz: (1)
sending of statement of accounts; (2) sending of collection letters; (3) giving the
account to a lawyer for collection; and (4) filing a collection case in court.
3. ID.; ID.; ID.; DEFICIENCY TAX ASSESSMENT; FAILURE TO PAY WITHIN 30
DAYS RENDERS TAXPAYER LIABLE FOR PAYMENT OF 25% SURCHARGE
AND 20% INTEREST. As correctly pointed out by the Solicitor General, the
deficiency tax assessment in this case, which was the subject of the demand letter
of respondent Commissioner dated April 11, 1989, should have been paid within
thirty (30) days from receipt thereof. By reason of petitioners default thereon, the
delinquency penalties of 25% surcharge and interest of 20% accrued from April
11, 1989. The fact that petitioner appealed the assessment to the CTA and that
the same was modified does not relieve petitioner of the penalties incident to
delinquency. The reduced amount of P237,381.25 is but a part of the original
assessment of P1,892,584.00.
76
4. ID.; TAX LAWS IMPOSING PENALTIES FOR DELINQUENCIES, INTENDED TO
HASTEN PAYMENT OF TAXES. Tax laws imposing penalties for delinquencies,
so we have long held, are intended to hasten tax payments by punishing evasions
or neglect of duty in respect thereof. If penalties could be condoned for flimsy
reasons, the law imposing penalties for delinquencies would be rendered
nugatory, and the maintenance of the Government and its multifarious activities
will be adversely affected.
5. ID.; NATIONAL INTERNAL REVENUE CODE; COLLECTION OF PENALTY AND
INTEREST IN CASE OF DELINQUENCY, MANDATORY. We have likewise
explained that it is mandatory to collect penalty and interest at the stated rate in
case of delinquency. The intention of the law is to discourage delay in the payment
of taxes due the Government and, in this sense, the penalty and interest are not
penal but compensatory for the concomitant use of the funds by the taxpayer
beyond the date when he is supposed to have paid them to the Government.
APPEARANCES OF COUNSEL
Antonio H. Garces for petitioner.
The Solicitor General for respondents.
DECISION
REGALADO, J.:
This is an appeal by certiorari from the decision of respondent Court of

Appeals1 affirming the decision of the Court of Tax Appeals which disallowed
petitioners claim for deduction as bad debts of several accounts in the total sum of
P395,324.27, and imposing a 25% surcharge and 20% annual delinquency interest on
the alleged deficiency income tax liability of petitioner.
Petitioner Philippine Refining Company (PRC) was assessed by respondent
Commissioner of Internal Revenue (Commissioner) to pay a deficiency tax for the
year 1985 in the amount of P1,892,584.00, computed as follows:
Net Income per investigation P197,502,568.00

Add: Disallowances
Bad Debts P 713,070.93
Interest Expense P2.666.545.49 P3.379.616.00
Net Taxable Income P200.882.184.00
Tax Due Thereon P 70,298,764.00

Less: Tax Paid P 69,115,899.00
Deficiency Income Tax P 1,182,865.00
Add: 20% Interest (60% max.) P 709.719.00
77
Total Amount Due and Collectible P 1.892.584.002
The assessment was timely protested by petitioner on April 26, 1989, on the
ground that it was based on the erroneous disallowances of bad debts and interest
expense although the same are both allowable and legal deductions. Respondent
Commissioner, however, issued a warrant of garnishment against the deposits of
petitioner at a branch of City Trust Bank, in Makati, Metro Manila, which action the
latter considered as a denial of its protest.
Petitioner accordingly filed a petition for review with the Court of Tax Appeals
(CTA) on the same assignment of error, that is, that the bad debts and interest
expense are legal and allowable deductions. In its decision3 of February 3, 1993 in
C.T.A. Case No. 4408, the CTA modified the findings of
the Commissioner by reducing the deficiency income tax assessment to
P237,381.26, with surcharge and interest incident to delinquency. In said decision, the
Tax Court reversed and set aside the Commissioners disallowance of the supposed
interest expense of P2,666,545.19 but maintained the disallowance of the bad debts
of thirteen (13) debtors in the total sum of P395,324.27.
Petitioner then elevated the case to respondent Court of Appeals which, as earlier
stated, denied due course to the petition for review and dismissed the same
on August 24, 1994 in CA-G.R. S.P. No. 31190,4 on the following ratiocination:
We agree with respondent Court of Tax Appeals:
Out of the sixteen (16) accounts alleged as bad debts, We find that only three (3)
accounts have met the requirements of the worthlessness of the accounts, hence
were properly written off as bad debts, namely:
1. Petronila Catap P29,098.30
(Pet Mini Grocery)
2. Esther Guinto 254,375.54
(Esther Sari-sari Store)
3. Manuel Orea 34,272.82
(Elman Gen. Mdsg.)
TOTAL P317,746.66
xxx xxx xxx
With regard to the other accounts, namely:
1. Remoblas Store P 11,961.00

2. Tomas Store 16,842.79
3. AFPCES 13,833.62
4. CM Variety Store 10,895.82
5. URen Mart Enterprise 10,487.08
78
6. Aboitiz Shipping Corp. 89,483.40
7. J. Ruiz Trucking 69,640.34
8. Renato Alejandro 13,550.00
9. Craig, Mostyn Pty. Ltd. 23,738.00
10. C. Itoh 19,272.22
11. Crocklaan B. V. 77,690.00
12. Enriched Food Corp. 24,158.00
13. Lucito Sta. Maria 13,772.00
TOTAL P395,324.27
We find that said accounts have not satisfied the requirements of the
worthlessness of a debt. Mere testimony of the Financial Accountant of the Petitioner
explaining the worthlessness of said debts is seen by this Court as nothing more than
a self-serving exercise which lacks probative value. There was no iota of documentary
evidence (e. g., collection letters sent, report from investigating fieldmen, letter of
referral to their legal department, police report/affidavit that the owners were bankrupt
due to fire that engulfed their stores or that the owner has been murdered, etc.), to
give support to the testimony of an employee of the Petitioner. Mere allegations
cannot prove the worthlessness of such debts in 1985. Hence, the claim for deduction
of these thirteen (13) debts should be rejected.5
1. This pronouncement of respondent Court of Appeals relied on the ruling of this
Court in Collector vs. Goodrich International Rubber Co.,6 which established the rule
in determining the worthlessness of a debt. In said case, we held that for debts to be
considered as worthless, and thereby qualify as bad debts making them deductible,
the taxpayer should show that (1) there is a valid and subsisting debt; (2) the debt
must be actually ascertained to be worthless and uncollectible during the taxable year;
(3) the debt must be charged off during the taxable year; and (4) the debt must arise
from the business or trade of the taxpayer. Additionally, before a debt can be
considered worthless, the taxpayer must also show that it is indeed uncollectible even
in the future.
Furthermore, there are steps outlined to be undertaken by the taxpayer to prove
that he exerted diligent efforts to collect the debts, viz: (1) sending of statement of
accounts; (2) sending of collection letters; (3) giving the account to a lawyer for
collection; and (4) filing a collection case in court.
On the foregoing considerations, respondent Court of Appeals held that petitioner
did not satisfy the requirements of worthlessness of a debt as to the thirteen (13)
accounts disallowed as deductions.
It appears that the only evidentiary support given by PRC for its aforesaid claimed
deductions was the explanation or justification posited by its financial adviser or
accountant. Guia D. Masagana. Her allegations were not supported by any
documentary evidence, hence, both the Court of Appeals and the CTA ruled that said
contentions per se cannot prove that the debts were indeed uncollectible and can be
considered as bad debts as to make them deductible. That both lower courts are
79
correct is shown by petitioners own submission and the discussion thereof which we
have taken time and patience to cull from the antecedent proceedings in this case,
albeit bordering on factual settings.
The accounts of Remoblas Store in the amount of P11,961.00 and CM Variety
Store in the amount of P10,895.82 are uncollectible, according to petitioner, since the
stores were burned in November, 1984 and in early 1985, respectively, and there are
no assets belonging to the debtors that can be garnished by PRC. 7 However, PRC
failed to show any documentary evidence for said allegations. Not a single document
was offered to show that the stores were burned, even just a police report or an
affidavit attesting to such loss by fire. In fact, petitioner did not send even a single
demand letter to the owners of said stores.
The account of Tomas Store in the amount of P16,842.79 is uncollectible, claims
petitioner PRC, since the owner thereof was murdered and left no visible assets which
could satisfy the debt. Withal, just like the accounts of the two other stores just
mentioned, petitioner again failed to present proof of the efforts exerted to collect the
debt, other than the aforestated asseverations of its financial adviser.
The accounts of Aboitiz Shipping Corporation and J. Ruiz Trucking in the amounts
of P89,483.40 and P69,640.34, respectively, both of which allegedly arose from the
hijacking of their cargo and for which they were given 30% rebates by PRC, are
claimed to be uncollectible. Again, petitioner failed to present an iota of proof, not
even a copy of the supposed policy regulation of PRC that it gives rebates to clients in
case of loss arising from fortuitous events or force majeure, which rebates it now
passes off as uncollectible debts.
As to the account of P13,550.00 representing the balance collectible from Renato
Alejandro, a former employee who failed to pay the judgment against him, it is
petitioners theory that the same can no longer be collected since his whereabouts are
unknown and he has no known property which can be garnished or levied upon. Once
again, petitioner failed to prove the existence of the said case against that debtor or to
submit any documentation to show that Alejandro was indeed bound to pay any
judgment obligation.
The amount of P13,772.00 corresponding to the debt of Lucito Sta. Maria is
allegedly due to the loss of his stocks through robbery and the account is uncollectible
due to his insolvency. Petitioner likewise failed to submit documentary evidence, not
even the written reports of the alleged investigation conducted by its agents as
testified to by its aforenamed financial adviser. Regarding the accounts of C. Itoh in
the amount of P19,272.22, Crocklaan B.V. in the sum of P77,690.00, and Craig,
Mostyn Pty. Ltd. with a balance of P23,738.00, petitioner contends that these debtors
being foreign corporations, it can sue them only in their country of incorporation; and
since this will entail expenses more than the amounts of the debts to be collected,
petitioner did not file any collection suit but opted to write them off as bad debts.
Petitioner was unable to show proof of its efforts to collect the debts, even by a single
demand letter therefor. While it is not required to file suit, it is at least expected by the
80
law to produce reasonable proof that the debts are uncollectible although diligent
efforts were exerted to collect the same.
The account of Enriched Food Corporation in the amount of P24,158.00 remains
unpaid, although petitioner claims that it sent several letters. This is not sufficient to
sustain its position, even if true, but even smacks of insouciance on its part. On top of
that, it was unable to show a single copy of the alleged demand letters sent to the said
corporation or any of its corporate officers.
With regard to the account of AFPCES for unpaid supplies in the amount of
P13,833.62, petitioner asserts that since the debtor is an agency of the government,
PRC did not file a collection suit therefor. Yet, the mere fact that AFPCES is a
government agency does not preclude PRC from filing suit since said agency, while
discharging proprietary functions, does not enjoy immunity from suit. Such pretension
of petitioner cannot pass judicial muster.
No explanation is offered by petitioner as to why the unpaid account of URen Mart
Enterprise in the amount of P10,487.08 was written off as a bad debt. However, the
decision of the CTA includes this debtor in its findings on the lack of documentary
evidence to justify the deductions claimed, since the worthlessness of the debts
involved are sought to be established by the mere self-serving testimony of its
financial consultant.
The contentions of PRC that nobody is in a better position to determine when an
obligation becomes a bad debt than the creditor itself, and that its judgment should not
be substituted by that of respondent court as it is PRC which has the facilities in
ascertaining the collectibility or uncollectibility of these debts, are presumptuous and
uncalled for. The Court of Tax Appeals is a highly specialized body specifically
created for the purpose of reviewing tax cases. Through its expertise, it is undeniably
competent to determine the issue of whether or not the debt is deductible through the
evidence presented before it.8
Because of this recognized expertise, the findings of the CTA will not ordinarily be
reviewed absent a showing of gross error or abuse on its part.9 The findings of fact of
the CTA are binding on this Court and in the absence of strong reasons for this Court
to delve into facts, only questions of law are open for determination.10 Were it not,
therefore, due to the desire of this Court to satisfy petitioners calls for clarification and
to use this case as a vehicle for exemplification, this appeal could very well have been
summarily dismissed.
The Court vehemently rejects the absurd thesis of petitioner that despite the
supervening delay in the tax payment, nothing is lost on the part of the Government
because in the event that these debts are collected, the same will be returned as
taxes to it in the year of the recovery. This is an irresponsible statement which
deliberately ignores the fact that while the Government may eventually recover
revenues under that hypothesis, the delay caused by the non-payment of taxes under
such a contingency will obviously have a disastrous effect on the revenue collections
necessary for governmental operations during the period concerned.
81
2. We need not tarry at length on the second issue raised by petitioner. It argues
that the imposition of the 25% surcharge and the 20% delinquency interest due to
delay in its payment of the tax assessed is improper and unwarranted, considering
that the assessment of the Commissioner was modified by the CTA and the decision
of said court has not yet become final and executory.
Regarding the 25% surcharge penalty, Section 248 of the Tax Code provides:
SEC 248. Civil Penalties. (a) There shall be imposed, in addition to the tax required to
be paid, a penalty equivalent to twenty-five percent (25%) of the amount due, in the
following cases:
xxx xxx xxx
(3) Failure to pay the tax within the time prescribed for its payment.
With respect to the penalty of 20% interest, the relevant provision is found in
Section 249 of the same Code, as follows:
SEC. 249. Interest. (a) In general. There shall be assessed and collected on any
unpaid amount of tax, interest at the rate of twenty percent (20%) per annum, or such
higher rate as may be prescribed by regulations, from the date prescribed for payment
until the amount is fully paid.
xxx xxx xxx
(c) Delinquency interest. In case of failure to pay:
(1) The amount of the tax due on any return required to be filed, or
(2) The amount of the tax due for which no return is required, or
3) A deficiency tax, or any surcharge or interest thereon, on the due date appearing in
the notice and demand of the Commissioner,
there shall be assessed and collected, on the unpaid amount, interest at the rate
prescribed in paragraph (a) hereof until the amount is fully paid, which interest shall
form part of the tax. (Italics supplied)
xxx xxx xxx
As correctly pointed out by the Solicitor General, the deficiency tax assessment in
this case, which was the subject of the demand letter of respondent Commissioner
dated April 11, 1989, should have been paid within thirty (30) days from receipt
thereof. By reason of petitioners default thereon, the delinquency penalties of 25%
surcharge and interest of 20% accrued from April 11, 1989. The fact that petitioner
appealed the assessment to the CTA and that the same was modified does not relieve
82
petitioner of the penalties incident to delinquency. The reduced amount of
P237,381.25 is but a part of the original assessment of P1,892,584.00.
Our attention has also been called to two of our previous rulings and these we set
out here for the benefit of petitioner and whosoever may be minded to take the same
stance it has adopted in this case. Tax laws imposing penalties for delinquencies, so
we have long held, are intended to hasten tax payments by punishing evasions or
neglect of duty in respect thereof. If penalties could be condoned for flimsy reasons,
the law imposing penalties for delinquencies would be rendered nugatory, and the
maintenance of the Government and its multifarious activities will be adversely
affected.11
We have likewise explained that it is mandatory to collect penalty and interest at
the stated rate in case of delinquency. The intention of the law is to discourage delay
in the payment of taxes due the Government and, in this sense, the penalty and
interest are not penal but compensatory for the concomitant use of the funds by the
taxpayer beyond the date when he is supposed to have paid them to the
Government.12 Unquestionably, petitioner chose to turn a deaf ear to these
injunctions.
ACCORDINGLY, the petition at bar is DENIED and the judgment of respondent
Court of Appeals is hereby AFFIRMED, with treble costs against petitioner.
SO ORDERED.
DIGEST
Phil. Refining Company v. CA G.R. No. 118794 May 8, 1996
Lessons Applicable: deductibility of bad debts, penalties of 25% surcharge, interest of

20, civil penalties are compensatory (not penal), civil penalties and interest are
automatic
FACTS:
Petitioner Philippine Refining Company (PRC) was assessed by respondent

Commissioner of Internal Revenue (Commissioner) to pay a deficiency tax for the
year 1985 in the amount of P1,892,584
PRC protested that the amounts are bad debts and interest expense which are
allowable and legl deductions. But, CIR ignored it and issued a warrant of
garnishment against PRC's deposits at City Trust Bank.
PRC filed a Petition for Review with the CTA who reversed the interest expense
disallowance but maintained the 13 bad debts disallowance.
83
PRC elevated the case to CA who dismissed the case for failing to satisfy the
requirements of worthlessness of a debt:
(1) there is a valid and subsisting debt
(2) debt must be actually ascertained to be worthless and uncollectible during the
taxable year
(3) debt must be charged off during the taxable year
(4) debt must arise from the business or trade of the taxpayer
(5) uncollectible even in the future
(6) exerted diligent effort to collect
ISSUES:
1. W/N bad debts requirements are met to be deductible as assessed by the CA
2. W/N PRC should be liable for penalties and interests
HELD: petition at bar is DENIED
1. NO.
Furthermore, there are steps outlined to be undertaken by the taxpayer to prove that
he exerted diligent efforts to collect the debts, viz: (1) sending of statement of
accounts; (2) sending of collection letters; (3) giving the account to a lawyer for
collection; and (4) filing a collection case in court.
The only evidentiary support given by PRC for its aforesaid claimed deductions was
the explanation or justification posited by its financial adviser or accountant. Not a
single document was offered to show that the Remoblas Store and CM Variety Store
were burned, even just a police report or an affidavit attesting to such loss by fire. The
account of Tomas Store in the amount of P16,842.79 is uncollectible, claims petitioner
PRC, since the owner thereof was murdered and left no visible assets which could
satisfy the debt. Withal, just like the accounts of the two other stores just mentioned,
petitioner again failed to present proof of the efforts exerted to collect the debt, other
than the aforestated asseverations of its financial adviser. The accounts of Aboitiz
Shipping Corporation and J. Ruiz Trucking in the amounts of P89,483.40 and
P69,640.34, respectively, both of which allegedly arose from the hijacking of their
cargo and for which they were given 30% rebates by PRC, are claimed to be
uncollectible. Again, petitioner failed to present an iota of proof, not even a copy of the
84
supposed policy regulation of PRC that it gives rebates to clients in case of loss
arising from fortuitous events or force majeure, which rebates it now passes off as
uncollectible debts.
Findings of the CTA having recognized expertise will not ordinarily be reviewed absent
a showing of gross error or abuse on its part.
2. YES.
Sec. 248 and 249 of the tax code clearly provides that civil penalty is imposed in case
of failure to pay the tax within the prescribed time for its payment and deficiency tax or
any surcharge or interest on the due date appearing in the notice and demand of the
commissioner. Thus, penalties of 25% surcharge and interest of 20% shall accrue
from April 11, 1989.
Tax laws imposing penalties for delinquencies, so we have long held, are intended to
hasten tax payments by punishing evasions or neglect of duty in respect thereof. If
penalties could be condoned for flimsy reasons, the law imposing penalties for
delinquencies would be rendered nugatory, and the maintenance of the Government
and its multifarious activities will be adversely affected.
G.R. No. L-35668-72, L-35683 August 10, 1983

vs.
REPUBLIC CEMENT CORPORATION, FILIPINAS CEMENT CORPORATION, APO
CEMENT CORPORATION, BACNOTAN CONSOLIDATED INDUSTRIES, INC.,
RIZAL CEMENT COMPANY, INC., PHILIPPINE PORTLAND CEMENT CO., INC.,
and THE COURT OF TAX APPEALS, respondents.
G.R. No. L-35677. August 10, 1983.*

vs.
CEPOC INDUSTRIES, INC, and THE COURT OF TAX APPEALS, respondents,
The Solicitor General for petitioner.
Artemio M. Lobrin for respondents.
PLANA, J.:
85
The sales tax assessments involved in these cases run to a magnitude of about P38.5
million. 1
Briefly put, the crucial issue is whether cement is a "mineral product" the sale of which
is exempt from sales tax, or a "manufactured product "which is subject to sales tax.
Petitioner Commissioner of Internal Revenue had ruled that cement is a

"manufactured product" and therefore subject to sales tax.
On appeal, this ruling was overruled by the Court of Tax Appeals (CTA) which
adjudged cement to be a "mineral product" within the meaning of Section 246 of the
Tax Code and consequently exempt from sales tax under Section 188 (c) of the same
Code, as said laws stood at the time of the questioned assessments.
The undisputed facts are narrated in the Petitioners 'brief in G.R. Nos. 35668-72 and
35683:
Respondents are domestic corporations engaged in the manufacture of

cement . . .
On separate dates, petitioner Commissioner of Internal Revenue issued

assessments against the respondents for deficiency sales tax and
surcharge due as manufacturers of cement, to wit:
Dat Year Amount

e s
Respond Iss Cove Assessed
ent ued red
Rep. 11- 1963 P10,969,16
Cement 20- - 6.45
Corp. 68 1967
Filipinas 5- 1964 6,275,134.
Cement 15- - 95
69 1967
Corp.
Apo 2- 10- 1,341,814.
Cement 20- 30- 78
Corp. 68 63 to
6-30-
65
Bacnota 4- 1963 7,066,651.
86
n 23- - 56
Consolid 69 1967
ated
Industrie
s Inc.
Rizal 3- 1964 1,156,518,
Cement 12- - 49 2
68 1967
Compan
y, Inc.
Phil. 2- 1963 893,341.92
Portland 10- -
69 1967
Cement
Co., Inc.
based on the ruling of this Honorable Court in the case between the same parties,
entitled 'Republic Cement Corporation vs. The Commissioner of Internal Revenue, et
al.' (G.R. No. L-20660 dated June 13, 1968, and the other cases of 'Cebu Portland
Cement Company vs. Commissioner of Internal Revenues (G.R. No. L-18649)
decision promulgated on February 27, 1965, and resolution in the same case dated
December 29, 1967; G.R. No. L-22605 dated January 17, 1968 and in G.R. No. L-
20563 dated October 29, 1968. The aforementioned cases involved claims for refund
of overpaid ad valorem taxes. In the aforesaid cases, this Honorable Court ruled that
cement is a manufactured product.
The foregoing assessments were protested by the respective cement

companies...
xxx xxx xxx
In a letter to counsel for the cement companies dated July 9, 1969 . . .,

petitioner herein denied the joint protest of the respondent cement
companies, and from the aforesaid decision of the petitioner, respondents
interposed separate appeals with the respondent Court of Tax Appeals by
filing amended petitions for review on July 24, 1969,
After the filing of the responsive pleadings by the petitioner, respondent

cement companies in a motion dated November 7, 1970, moved for a
summary judgment, which motion was, however, opposed by the
petitioner, but was acceded to by the respondent Court in a resolution
dated March 12, 1971.
87
On June 28, 1972, the Tax Court rendered a joint decision in these cases
reversing the rulling of the petitioner Commissioner of Internal Revenue.
We are called upon to construe Section 246 of the Tax Code, particularly after it was
amended by Republic Act 1299, in relation to Section 188 (c) of the same Code.
Petitioner recounts the history of the said Section 246:
The original text of Section 246 of the Tax Code heretofore stated
provides as follows:
Sec. 246. Definition of the term 'gross output — The term

'gross output' shall be interpreted as the actual market value
of minerals or mineral products, or of bullion from each mine
or mineral lands operated as a separate entity without any
deduction from mining, milling, refining, transporting,
handling, marketing, or any other expenses: Provided,
however, that if the minerals or mineral products are sold or
consigned abroad by the lessee or owner of the mine under
C.I.F. terms, the actual cost of ocean freight and insurance
shall be deducted. The output of any group of contiguous
mining claims shall not be subdivided. All the royalties or ad
valorem taxes herein provided shall accrue to the National
Treasury
The foregoing provisions of Section 246 of Commonwealth Act No. 466

were subsequently amended by the following amendatory acts:
1. Republic Act No. 834, sections 1 and 2, approved on March 6, 1953;
2. Republic Act No. 1299, sections 1 and 2, approved on June 16, 1955;
3. Republic Act No. 1510, sections 1 and 2, approved on June 16, 1956.
It will be noted that the provisions of Section 246 of Commonwealth Act

No. 466, as amended by Republic Act No. 834, approved on March 6,
1953, defines only the term 'gross output' but does not define the words
'minerals' and 'mineral products', thus, resulting in confusion among the
taxpayers and the tax-collecting agencies in the fixing of the proper ad
valorem tax due from the miners and/or owners of mineral lands.
(Congressional Record, House of Representatives, Vol. I I, No. 50, p.
1573, April 12, 1955)
In order to remedy the apparent vacuum in the provisions of Section 246

of the Tax Code, Congress enacted Republic Act No. 1299 (House Bill
No. 3251) on June 16, 1955, for the sole purpose of clarifying the
collection of royalties and ad valorem taxes.
88
This is borne out by the explanatory note to House Bill No. 3251,
reproduced as follows:
EXPLANATORY NOTE
See. 246 of the National Internal Revenue Code, as

amended by Republic Act No. 834, fails to define the words
'minerals' and 'mineral products' used therein, although the
phrase 'gross output' is clearly delimited. This ommission has
caused considerable difficulty in the collection of mining
royalties and ad valorem taxes and confusion among
taxpayers.
The attached bill seeks to remedy the situation by giving

clear-cut definitions of 'minerals' and 'mineral products'.
Citing the American case of McCombs vs. Stephenson 44
So. 867, and the English case of Hext vs. Gill, L.R. 7 Ch.
App. 699 and Johnstone vs. Crompton L.R. 2 Ch. 197. Soto
and Morrison define mineral as 'any form of earth, rock or
metal of greater value while in place than the enclosing
country or the superficial soil', Soto and Morrison Mining
Rights, 16th Edition, p. 250. But since the word 'minerals' has
been defined by prior legislation, the definition in Section 7 of
Commonwealth Act No. 137 is herein substantially adopted
to preserve consistency in the concept of the nomenclature
in our statutes. In defining the phrase 'mineral products', due
weight has been given to its construction in the case
of Spiller vs. McGehee 68 S.W. 2d 1093, and the usual
acceptation of its significance among local miners and mining
businessmen.
It is believed that the approval of this bill will not only

accelerate the collection of mining royalties and ad
valorem taxes but also clarify the doubt of the taxpaying
public on the interpretative scope of the two terms.
(Sgd.) ISIDRO C. KINTANAR

Congressman, 4th District
Cebu
As it stood after the amendment by Republic Act No. 1299, Section 246 reads as
follows:
Sec. 246. Definitions of the terms 'gross output, minerals and

'mineral products — Disposition of royalties and ad
valorem taxes. — The term 'gross output' shall be interpreted
89
as the actual market value of minerals or mineral products, or
of bullion from each mine or mineral lands operated as a
separate entity without any deduction from mining, milling,
refining transporting, handling, marketing, or any other
expenses: Provided, however, that if the minerals or mineral
products are sold or consigned abroad by the lessee or
owner of the mine under C.I.F. terms, the actual cost of
ocean freight and insurance shall be deducted. The output of
any group of contiguous mining claims shall not be
subdivided. The word 'minerals' shall mean all inorganic
substances found in nature whether in solid, liquid, gaseous,
or any intermediate state. The term 'mineral products' shall
mean things produced by the lessee, concessionaire or
owner of mineral lands, at least eighty per cent of which
things must be minerals extracted by such lessee,
concessionaire or owner of mineral lands. Five per centum of
the royalties and ad valorem taxes herein provided shall
accrue to the municipality where the mines are situated, and
ninety-five per centum to the National Treasury
The question whether cement is a mineral product within the purview of Section 246 of
the Tax Code, as amended by Republic Act No. 1299 as of June 16, 1955, has
already been answered in the negative in several decisions of this Court beginning
with Cebu Portland Cement Co. vs. Commissioner of Internal Revenue, L-18649,
February 27, 1965, 13 SCRA 333.
The Court held that cement is not a mineral product (rather it is a manufactured
product); but the quarried minerals used in the production of cement are mineral
products. The latter therefore are subject to ad valorem tax which should be computed
on the basis of the value of the quarried minerals, and not the selling price or value of
the cement. On this basis, the Court declared that there was an overpayment of ad
valorem tax which should be refunded because it was assessed on the basis of the
selling price of the cement, instead of the quarried limestone, shale, etc. which were
used in the production of cement. Said the Court:
There can be no question that quarried minerals have their own market
value. The dispute here arose, however, from the construction given to
the term mineral products, which was defined in Section 246 of the Tax
Code as 'things produced by the lessee, concessionaire, or owner of
mineral lands, at least eighty per cent of which things must be minerals
extracted by such lessee, concessionaire or owner of mineral lands.'
Respondent argues that since the portland cement produced by petitioner
consists of 80% minerals quarried from its mines, such cement falls within
the definition of a mineral product and the imposable ad valorem tax
should be based on its selling price which is its actual market value.
90
This line of argument suffers from two infirmities First, while cement is
composed of 80% minerals, it is not merely an admixture or blending of
raw materials, as lime, silica, shale and others. It is the result of a definite
process — the crushing of minerals, grinding, mixing, calcining cooling,
adding of retarder or raw gypsum. In short before cement reaches its
saleable for the minerals had already undergone a chemical change
through manufacturing process. This could not have been the state of
'mineral products' that the law contemplates for purposes of imposing the
ad valorem tax. It must be remembered that, as aforestated, this tax is
imposed on the privilege of extracting or severing the minerals from the
mines, To our mind, therefore, the inclusion of the term mineral products
is intended to comprehend cases where the mined or quarried elements
may not be usable in its original state without application of simple
treatments, such as washing, or cutting them into sizes, which process
does not necessarily involve the change or transformation of the raw
materials into a composite, distinct product. Secondly, respondent cannot
use the selling price of the product in this case as gauge of its actual
market value. The cement here is manufactured by petitioner itself out of
materials quarried from its mines. While the selling price of cement may
reflect the actual market value of cement, said selling price cannot be
taken as the market value also of the minerals composing the cement.
And it was not the cement that was mined, only the minerals composing
the finished product. (13 SCRA 333 at 336-338.)
The above ruling clearly indicates that cement as such is a manufactured product
(although unaccompanied by a pronouncement that it is subject to sales tax, because
this was not in issue), and is not a mineral product within the meaning of' the law
imposing the ad valorem tax.
That cement is a product of a manufacturing process, finds support in the definition of

"manufacturer" in Section 194 (x) of the Tax Code:
Manufacturer' includes every person who by physical or chemical process

alters the exterior texture or form or inner substance of any raw material
or manufactured or partially manufactured product in such manner as to
prepare it for a special use or uses to which it could not have been put in
its original condition, or who by any such process alters the quality of any
such raw material or manufactured or partially manufactured product so
as to reduce it to marketable shape or prepare it for any of the uses of
industry, or who by any such process combines any such raw material or
manufactured or partially manufactured products with other materials or
products of the same or of different kinds and in such manner that the
finished product of such process of manufacture can be put to a special
use or uses to which such raw material or manufactured or partially
manufactured product in their original condition could not have been put,
and who in addition alters such raw materials or manufactured or partially
91
manufactured products, or combines the same to produce such finished
products for the purpose of their sale or distribution to others and not for
his own use or consumption.
In the subsequent case of CEPOC vs. Commissioner of Internal Revenue, L-22605,

Jan. 17, 1968 (22 SCRA 56), this Court had occasion to reiterate its previous ruling:
The issue tendered concerns the correct basis of the 1-1/2 ad

valorem tax under Sec. 243, in connection with Sec. 246, of the Tax Code
when made to apply on cement. (Sec. 243 levies 'on the actual market
value of the annual gross output of the minerals or mineral products
extracted or produced from all mineral lands, not covered by lease, an ad
valorem tax, payable to the Collector of Internal Revenue, in the amount
of one and one- half per centum of the value of said output while Sec.
246 defines the term 'mineral product' as 'things produced by the lessee,
concessionaire, or owner of mineral lands, at least eighty per cent of
which things must be minerals extracted by such lessee, concessionaire
or owner of mineral lands.') The State says it is the gross selling price of
cement qua cement. Petitioner insists that it cannot be the gross selling
price.
The parties here have assumed that cement is a mineral product within
the purview of Sec. 243 of the Tax Code, Our view is otherwise. As we
expressed it in Cebu Portland Cement Co. vs. Commissioner, L-18649,
February 27, 1965, cement qua cement is no longer a mineral product in
the condition envisaged by the Tax law. Very recently We reiterated and
reaffirmed this stand thru Justice J.B.L. Reyes when We denied a plea to
reconsider the original decision rendered therein. (Cebu Portland Cement
v. Commissioner, L- 18649, Dec. 29,1967)
It results that Sec. 243 of the Tax Code cannot be applied directly to
cement. What is taxable thereunder are the minerals constituting cement,
i.e., limestone, silica and shale. (Gypsum though also a constituent of
cement, cannot be included since it is imported from abroad.) Hence, the
correct basis of the 1 1/2 ad valorem tax is the market value of the
quarried raw materials. (22 SCRA 56 at 57. Emphasis supplied.)
Still later, in Republic Cement Corp. vs. Commissioner of Internal Revenue (June 13,
1968), 23 SCRA 967, the issue once again was whether the ad valorem tax should be
based on the value of the finished product (cement) or upon the value of the raw
materials or minerals used in the manufacture of said finished product. Speaking for
the Court, the then Chief Justice Concepcion said:
The first question is far from being one of first impression. It has already
been settled adversely to respondent herein. In CEPOC v. Commissioner
of Int. Revenue, (L 18649, Feb. 27, 1965) this Court, speaking through
92
Mr. Justice Barrera, held: Ad valorem tax is a tax not on the minerals, but
upon the privilege of severing or extracting the same from the earth, the
government's right to exact the said impost springing from the Regalian
theory of State ownership of its natural resources. ...
... While cement is composed of 80% minerals, it is not merely an

admixture or blending of raw materials, as lime, silica shale and others. It
is the result of a definite process — the crushing of minerals, grinding,
mixing, calcining cooling, adding of retarder or raw gypsum. In short,
before cement reaches its saleable form, the minerals had already
undergone a chemical change through manufacturing process. This could
not have been the state of 'mineral products that the law contemplates for
purposes of imposing the ad valorem tax. ... this tax is imposed on the
privilege of extracting or severing the minerals from the mines. To our
minds, therefore, the inclusion of the term mineral products is intended to
comprehend cases where the mined or quarried elements may not be
usable in its original state without application of simple treatments ...
which process does not necessarily involve the change or transformation
of the raw materials into a composite distinct product. ... While the selling
price of cement may reflect the actual market value of cement, said
selling price cannot be taken as the market value also of the minerals
composing the cement. And it was not the cement that was mined only
the minerals composing the finished product.
We ratified this view in denying the motion for reconsideration of our

decision in the same case. It the language of Mr. Justice Reyes, J.B.L.:
... The ad valorem tax in question should be based on the actual market
value of the quarried minerals used in producing cement, ... the law
intended to impose the ad valorem tax upon the market value of the
component mineral products in their original state before processing into
cement. ... The law does not impose a tax on cement qua cement, but on
minerals products, at least 80% of which must be minerals extracted by
the lessee, concessionaire or owner of mineral lands.
The Court did not, and could not, rule that cement is a manufactured
product subject to sales tax, for the reason that such liability had never
been litigated by the parties. What it did declare is that, while cement is a
mineral product, it is no longer in the state or condition contemplated by
the law; hence the market value of the cement could not be the basis for
computing the ad valorem tax, since the ad valorem tax is a severance
tax, i.e., a charge upon the privilege of severing or extracting minerals
from the earth, (Dec. p. 4) and is due and payable, upon removal of the
mineral product from its bed or mine.
93
Soon later, we had occasion to reiterate that view. (CEPOC v. Comm. of
Int. Rev. L-22605, Jan. 17, 1968.)" (23 SCRA 967 at 969-970.)
From all the foregoing cases, it is clear that cement qua cement was never considered
as a mineral product within the meaning of Section 246 of the Tax Code,
notwithstanding that at least 80% of its components are minerals, for the simple
reason that cement is the product of a manufacturing process and is no longer the
mineral product" contemplated in the Tax Code (i.e., minerals subjected to simple
treatments) for the purpose of imposing the ad valorem tax.
What has apparently encouraged the herein respondents to maintain their present
posture is the case of Cebu Portland Cement Co. vs. Collector of Internal Revenue, L-
20563, Oct. 29, 1968 (28 SCRA 789) penned by Justice Eugenio Angeles. For some
portions of that decision give the impression that Republic Act 1299, which amended
Section 246, re-classified cement as a mineral product that was not subject to sales
tax:
This case involves petitioner's claim for refund of P458,241,45 sales tax
paid from November 1, 1954 to March, 1955, and P427,552.95 ad
valorem tax paid from April 1955 to September 30, 1956 from the sale of
APO Portland cement produced by the petitioner. 'Prior to the effectivity
of Republic Act No. 1299 on June 16, 1955, (An Act amending further
section 246 of the Internal Revenue Code, as amended, by defining the
words 'minerals' and 'mineral products'), the petitioner had been paying
the sales tax (known also as percentage tax) of APO Portland Cement
produced by it (pursuant to sec. 196 of the Tax Code), computed at 7% of
the gross selling price inclusive of the cost of the bag containers of
cement and the gypsum (a constituent of cement, imported from abroad)
used in the manufacture of said product. After the approval of the
amendment of the law petitioner stopped paying sales tax on its gross
sales and instead paid the ad valorem tax (see Sec. 243, Tax Code) on
the selling price of the product after deducting therefrom the
corresponding cost of the containers thereof.
xxx xxx xxx
It was alleged in the petition that the percentage taxes collected by

respondent are refundable since under Republic Act 1299, producers of
cement are exempt from the payment of said tax, ...
After hearing and consideration of the evidence submitted in connection

therewith, the Court of Tax Appeals rendered judgment dismissing the
petition for review, holding: (1) that petitioner was not exempt from
payment of the sales taxes on its APO Portland Cement prior to the
effectivity of Republic Act No. 1299, it being then considered a
manufactured product.
94
xxx xxx xxx
The first assigned error calls for a ruling on the prospective or

retrospective application of Republic Act No, 1299, which became
effective upon its approval on June 16, 1955, amending section 246 of
the National Internal Revenue Code, as follows:
xxx xxx xxx
... The only change brought about by said amendment is the

incorporation of the definition of the word 'minerals' and the term 'mineral
products'.
It is urged by petitioner that since the purpose of the amendment was

merely to clarify the meaning of said terms, the section should be
construed as if it had been originally passed in its amended form, so that
cement should be considered as 'mineral product' even before the
enactment of Republic Act 1299, and therefore exempt from the sales or
percentage tax, pursuant to the provision of section 188 (c) of the
National Internal Revenue Code.
We cannot subscribe to this view. It is a settled rule in statutory

construction that statute operates prospectively only and never
retroactively, unless the legislative intent to the contrary is made manifest
either by the express terms of the statute or by necessary implication. In
every case of doubt, the doubt must be resolved against the retrospective
effect. There is nothing in the context of the provision in question that
would manifest the Legislature's intention to have the provision apply to
taxes due in the past. On the other hand, the use of the word 'shall' gives
the unmistakable impression that the lawmakers intended this enactment
to be effective only in futuro.
xxx xxx xxx
Indeed, like other statutes, tax laws operate prospectively, whether they
enact, amend or repeal, unless, as aforesaid, the purpose of the
Legislature to give retrospective effect is expressly declared or may
clearly be implied from the language used. It thus results that before the
enactment of the amendment to section 246 of the Tax Code, when
cement was not yet placed under the category of either 'minerals' or
'mineral products' it was not exempt from the percentage tax imposed by
section 186 of said Code, and was, therefore, taxable as a manufactured
product. (pp. 791-795)
After a careful study of the foregoing, we conclude that reliance on the decision
penned by Justice Angeles is misplaced. The said decision is no authority for the
95
proposition that after the enactment of Republic Act No. 1299 in 1955 (defining
mineral product as things with at least 80% mineral content), cement became a
"Mineral product", as distinguished from a "manufactured product' , and therefore
ceased to be subject to sales tax. It was not necessary for the Court to so rule. It was
enough for the Court to say in effect that even assuming Republic Act 1299 had re-
classified cement as a mineral product, 3 the reclassification could not be given
retrospective application (so as to justify the refund of sales taxes paid before
Republic Act 1299 was adopted) because laws operate prospectively only, unless the
legislative intent to the contrary is manifest, which was not so in the case of Republic
Act 1266. [The situation would have been different if the Court instead had ruled in
favor of refund, in which case it would have been absolutely necessary (1) to make an
unconditional ruling that Republic Act 1299 re-classified cement as a mineral product
(not subject to sales tax), and (2) to declare the law retroactive, as a basis for granting
refund of sales taxes paid before Republic Act 1299.]
In any event, we overrule the CEPOC decision of October 29, 1968 (G.R. No. L-
20563) insofar as its pronouncements or any implication therefrom conflict with the
instant decision.
In the above CEPOC decision, Justice Angeles refers to the Congressional

discussions on the bill which subsequently became Republic Act No. 1299. The said
discussions lend additional support for the view that cement qua cement remained
subject to sales tax as a manufactured product despite the adoption of Republic Act
1299.
As the sponsor of the bill, Representative Isidro C. Kintanar explained that no tax
change was envisioned by the bill, that its purpose was merely to define "minerals"
and "Mineral products" in order to clarify the position of our tax-collecting agencies.
Thus-
Mr. Villareal: What is the purpose of the bill?
Mr. Kintanar: The gentleman from Capiz will notice that the
provision of Section 246 of Commonwealth Act No. 466, as
amended by Republic Act No. 834, defines only the term
'gross output' but does not define the words 'minerals' and
'mineral products.' There is now a confusion in the fixing of
the ad valorem taxes.
xxx xxx xxx
Mr. Villareal: So, is it a question of the tax that the

amendment has been offered?
Mr. Kintanar: No.
96
Mr. Villareal: What is the purpose?
Mr. Kintanar: The purpose is only to define the words

minerals and ' mineral products in order to clarify the position
of our tax-collecting agencies.
Mr. Villareal: My distinguished friend cannot tell us whether it

will diminish or increase the taxes; so, in the face of this
uncertainty, I am asking the gentleman if he will be agreeable
to suspending the consideration of this bill.
Mr. Kintanar: We beg to inform that there will be no change

of taxes whatsoever. We only want to define these words
because there is a lack of a clear definition in the Code itself
regarding this matter. Therefore, in view of the absence of
any change in taxes, I was just wondering how the taxes that
would be coming to the government could be affected.
(Congressional Record, House of Representatives, Vol. II,
No. 50, pp. 1573, 1594, April 12, 1955. Emphasis supplied
Since cement as such was subject to sales tax immediately before the enactment of
Republic Act No. 1299, it should remain to be so subject thereafter, considering that
the law intended "no change of taxes whatsoever."
The foregoing discussion disposes of G.R. Nos. 35668- 72 and 35683, just as it also
resolves the Identical issue raised in G.R. No. 35677.
Some qualifications are, however, in order:
(1) The disputed assessments carry a 25% surcharge pursuant to Section 183 (a) of
the Tax Code [now Sec. 193 (a) (3)] which prescribes the said surcharge for late tax
payment.
In Connell Bros. Co. Phil vs. Collector of Internal Revenue, (10 SCRA 469 at 470-
471), the then Justice Makalintal, speaking for the Court, rejected therein the
imposition of 25% surcharge for late payment:
We do not think Section 183 (a) of the National Internal Revenue Code is
applicable. The same imposes the penalty of 25% when the percentage
tax is not paid on time, and contemplates a case where the liability for the
tax is undisputed or indisputable. In the present case the taxes were paid,
the delay being with reference to the deficiency, owing to a controversy
as to the proper interpretation of Circulars Nos. 431 and 440 of the office
of respondent-appellee. The controversy was generated in good faith,
since that office itself appears to have formerly taken the view that the
inclusion of the words "tax included" on invoices issued by the
97
taxpayer was sufficient compliance with the requirements of said
circulars. (See BIR Ruling 105.2, Aug. 3,1953; BIR Quarterly Bulletin Vol.
7, Sept. 30 and Dec. 31,1953; in re Fred Wilson Tax Appeal No. 63.)
The cases cited in the motion for reconsideration are likewise

inapplicable. In every one of those cases the liability for the tax was not
disputed, the only question being whether or not the delay in the payment
thereof was justified under the particular circumstances relied upon by the
taxpayer. Here the question is whether or not the deficiency sales tax in
question was deu at all. This question does not involve the power of
respondent-appellee to condone the penalty, but rather the justifiability of
its imposition in the first place. And where respondent-appellee
apparently had himself originally adopted an incorrect interpretation of its
own circulars, it would not be just to penalize appellant for falling into the
same error... (To the same effect, see Escudero Electric Service Co. vs.
Tobias, 33 SCRA 547; Tuason Jr. vs. Lingad, 58 SCRA 170.)
In the case at bar the assessments are not undisputed or indisputable. The dispute as
to the tax liability of private respondents for sales tax on the sale of cement arose not
simply because of ordinary divergence of views in good faith vis-a-vis the
interpretation of the law; 4 the position of private respondents was founded upon the
original stand of the Bureau of Internal Revenue itself that cement is a mineral product
rather than a manufactured product and is therefore subject to ad valorem tax, not
sales tax. As pointed out above, this stand was apparently given implied support
in CEPOC vs. Collector, G.R. No. L-20563 (1968), 25 SCRA 789, penned by Justice
Angeles. That the posture of private respondents is plausible — despite the
subsequent BIR position that cement is a manufactured product subject to sales tax
— is supported by the fact that the Court of Tax Appeals, the specialized body
handling tax cases, sustained the private respondents in the decisions under review.
Under the circumstances, the 25% surcharge imposed in the disputed assessment
must be deleted.
(a) The assessments in question seem to have computed the sales tax liability of
private respondents on the basis of the total selling price of cement sold. If this was
so, a recomputation is in order so as to deduct from the tax base the costs of raw
materials used in the production of cement, such as gypsum conformably with the
provisions of Section 186 [now Sec. 199 (a)] of the Tax Code as it stood during the tax
period here involved.
SEC. 186. Percentage tax on sales of other articles. — There shall be

levied, assessed and collected once only on every original sale, barter,
exchange, and similar transaction either for nominal or valuable
considerations, intended to transfer ownership of, or title to, the articles
not enumerated in sections one hundred and eighty-four and one
hundred and eighty-five a tax equivalent to seven per centum of the gross
98
selling price or gross value in money of the articles so sold, bartered,
exchanged, or transferred, such tax to be paid by the manufacturer or
producer: Provided, That where the articles subject to tax under this
section are manufactured out of materials likewise subject to tax under
this section and section one hundred and eighty nine, the total cost of
such materials, as duly establishes shall be deductible from the gross
selling price or gross value in money of such manufactured articles.
Before closing, it may be noted in passing that in order to obviate any further
controversy, cement qua cement has been expressly made subject to sales tax at the
reduced rate of 5% of the implicit assumption that it is a manufactured product and
therefore outside the purview of "mineral product" under Section 246 of the Tax Code.
(See Presidential Decree No. 1358.)
WHEREFORE, the joint decision of the Court of Tax Appeals in G.R. Nos. L-35668-72
and L-35683 and its separate decision in G.R. No. 35677 are hereby reversed and set
aside; and it is hereby ordered that private respondents pay the 7% sales tax on
cement, the same to be computed on the basis of the gross selling price, less
appropriate deductions corresponding to the costs of raw materials used in the
manufacture of cement, conformably with the aforequoted Section 186 of the Tax
Code, and without the imposition of 25% surcharge. No costs.
SO ORDERED.
DIGEST
Commissioner of Internal Revenue vs. Republic Cement Corp.
FACTS:
The sales tax assessments involved in these cases run to a magnitude of about P38.5
million.
● Briefly put, the crucial issue is whether cement is a "mineral product" the sale of
which is exempt from sales tax, or a "manufactured product "which is subject to sales
tax.
● Petitioner Commissioner of Internal Revenue had ruled that cement is a

"manufactured product" and therefore subject to sales tax.
● On appeal, this ruling was overruled by the Court of Tax Appeals (CTA) which
adjudged cement to be a "mineral product" within the meaning of Section 246 of the
Tax Code and consequently exempt from sales tax under Section 188 (c) of the same
Code, as said laws stood at the time of the questioned assessments.
● Respondents are domestic corporations engaged in the manufacture of cement . . .
99
● On separate dates, petitioner Commissioner of Internal Revenue issued
assessments against the respondents for deficiency sales tax and surcharge due as
manufacturers of cement based on the ruling of this Honorable Court in the case
between the same parties, entitled 'Republic Cement Corporation vs. The
Commissioner of Internal Revenue, et al.
Issue:
WON cement is a "manufactured product" and therefore subject to sales tax.
Ruling:
The Court held that cement is not a mineral product (rather it is a manufactured
product); but the quarried minerals used in the production of cement are mineral
products. The latter therefore are subject to ad valorem tax which should be computed
on the basis of the value of the quarried minerals, and not the selling price or value of
the cement. On this basis, the Court declared that there was an overpayment of ad
valorem tax which should be refunded because it was assessed on the basis of the
selling price of the cement, instead of the quarried limestone, shale, etc. which were
used in the production of cement. The assessments in question seem to have
computed the sales tax liability of private respondents on the basis of the total selling
price of cement sold. If this was so, a re-computation is in order so as to deduct from
the tax base the costs of raw materials used in the production of cement, such as
gypsum, conformably with the provisions of Section 186 [now Sec. 199 (a)] of the Tax
Code as it stood during the tax period here involved.
In the case at bar, the assessments are not undisputed or indisputable. The dispute
as to the tax liability of private respondents for sales tax on the sale of cement arose
not simply because of ordinary divergence of views in good faith vis-a-vis the
interpretation of the law; the position of private respondents was founded upon the
original stand of the Bureau of Internal Revenue itself that cement is a mineral product
rather than a manufactured product and is therefore subject to ad valorem tax, not
sales tax. As pointed out above, this stand was apparently given implied support in
CEPOC vs. Collector, G.R. No. L-20563 (1968) 25 SCRA 789, penned by Justice
Angeles.
That the posture of private respondents is plausible—despite the subsequent BIR

position that cement is a manufactured product subject to sales tax—is supported by
the fact that the Court of Tax Appeals, the specialized body handling tax cases,
sustained the private respondents in the decisions under review. Under the
circumstances, the 25% surcharge imposed in the disputed assessment must be
deleted.
---------------------
100
in Commissioner of Internal Revenue v. Republic Cement Corporation, 11decided on
August 10, 1983, where Justice Efren L. Plana, after an exhaustive review of the
pertinent cases, declared for a unanimous Court:
From all the foregoing cases, it is clear that cement qua cement was
never considered as a mineral product within the meaning of Section 246
of the Tax Code, notwithstanding that at least 80% of its components are
minerals, for the simple reason that cement is the product of
a manufacturingprocess and is no longer the mineral product
contemplated in the Tax Code (i.e.; minerals subjected to simple
treatments) for the purpose of imposing the ad valorem tax.
What has apparently encouraged the herein respondents to maintain their

present posture is the case of Cebu Portland Cement Co. v. Collector of
Internal Revenue, L-20563, Oct. 29, 1968 (28 SCRA 789) penned by
Justice Eugenio Angeles. For some portions of that decision give the
impression that Republic Act No. 1299, which amended Section 246,
reclassified cement as a mineral product that was not subject to sales tax.
...
xxx xxx xxx
After a careful study of the foregoing, we conclude that reliance on the

decision penned by Justice Angeles is misplaced. The said decision is no
authority for the proposition that after the enactment of Republic Act No.
1299 in 1955 (defining mineral product as things with at least 80%
mineral content), cement became a 'mineral product," as distinguished
from a "manufactured product," and therefore ceased to be subject to
sales tax. It was not necessary for the Court to so rule. It was enough for
the Court to say in effect that even assuming Republic Act No. 1299 had
reclassified cement was a mineral product, the reclassification could not
be given retrospective application (so as to justify the refund of sales
taxes paid before Republic Act 1299 was adopted) because laws operate
prospectively only, unless the legislative intent to the contrary is manifest,
which was not so in the case of Republic Act 1266. [The situation would
have been different if the Court instead had ruled in favor of refund, in
which case it would have been absolutely necessary (1) to make an
unconditional ruling that Republic Act 1299 re-classified cement as a
mineral product (not subject to sales tax), and (2) to declare the law
retroactive, as a basis for granting refund of sales tax paid before
Republic Act 1299.]
In any event, we overrule the CEPOC decision of October 29, 1968 (G.R.
No. L-20563) insofar as its pronouncements or any implication therefrom
conflict with the instant decision.
101
The above views were reiterated in the resolution 12 denying reconsideration of the
said decision, thus:
The nature of cement as a "manufactured product" (rather than a "mineral

product") is well-settled. The issue has repeatedly presented itself as a
threshold question for determining the basis for computing the ad
valorem mining tax to be paid by cement Companies. No pronouncement
was made in these cases that as a "manufactured product" cement is
subject to sales tax because this was not at issue.
The decision sought to be reconsidered here referred to the legislative

history of Republic Act No. 1299 which introduced a definition of the
terms "mineral" and "mineral products" in Sec. 246 of the Tax Code.
Given the legislative intent, the holding in the CEPOC case (G.R. No. L-
20563) that cement was subject to sales tax prior to the effectivity •f
Republic Act No. 1299 cannot be construed to mean that, after the law
took effect, cement ceased to be so subject to the tax. To erase any and
all misconceptions that may have been spawned by reliance on the case
of Cebu Portland Cement Co. v. Collector of Internal Revenue, L-20563,
October 29, 1968 (28 SCRA 789) penned by Justice Eugenio Angeles,
the Court has expressly overruled it insofar as it may conflict with the
decision of August 10, 1983, now subject of these motions for
reconsideration.
On the question of prescription, the private respondent claims that the five-year
reglementary period for the assessment of its tax liability started from the time it filed
its gross sales returns on June 30, 1962. Hence, the assessment for sales taxes
made on January 16, 1968 and March 4, 1968, were already out of time. We disagree.
This contention must fail for what CEPOC filed was not the sales returns required in
Section 183(n) but the ad valorem tax returns required under Section 245 of the Tax
Code. As Justice Irene R. Cortes emphasized in the aforestated resolution:
In order to avail itself of the benefits of the five-year prescription period

under Section 331 of the Tax Code, the taxpayer should have filed the
required return for the tax involved, that is, a sales tax return. (Butuan
Sawmill, Inc. v. CTA, et al., G.R. No. L-21516, April 29, 1966, 16 SCRA
277). Thus CEPOC should have filed sales tax returns of its gross sales
for the subject periods. Both parties admit that returns were made for
the ad valorem mining tax. CEPOC argues that said returns contain the
information necessary for the assessment of the sales tax. The
Commissioner does not consider such returns as compliance with the
requirement for the filing of tax returns so as to start the running of the
five-year prescriptive period.
We agree with the Commissioner. It has been held in Butuan Sawmill Inc.
v. CTA, supra, that the filing of an income tax return cannot be
102
considered as substantial compliance with the requirement of filing sales
tax returns, in the same way that an income tax return cannot be
considered as a return for compensating tax for the purpose of computing
the period of prescription under Sec. 331. (Citing Bisaya Land
Transportation Co., Inc. v. Collector of Internal Revenue, G.R. Nos. L-
12100 and L-11812, May 29, 1959). There being no sales tax returns filed
by CEPOC, the statute of stations in Sec. 331 did not begin to run against
the government. The assessment made by the Commissioner in 1968 on
CEPOC's cement sales during the period from July 1, 1959 to December
31, 1960 is not barred by the five-year prescriptive period. Absent a
return or when the return is false or fraudulent, the applicable period is
ten (10) days from the discovery of the fraud, falsity or omission. The
question in this case is: When was CEPOC's omission to file tha return
deemed discovered by the government, so as to start the running of said
period? 13
CAGAYAN ELECTRIC POWER & LIGHT CO., INC., petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF
APPEALS, respondents.
Quasha, De Guzman Makalintal & Barot for petitioner.
AQUINO, J.:
This is about the liability of petitioner Cagayan Electric Power & Light Co., Inc. for
income tax amounting to P75,149.73 for the more than seven-month period of the
year 1969 in addition to franchise tax.
The petitioner is the holder of a legislative franchise, Republic Act No. 3247, under
which its payment of 3% tax on its gross earnings from the sale of electric current is
"in lieu of all taxes and assessments of whatever authority upon privileges, earnings,
income, franchise, and poles, wires, transformers, and insulators of the grantee, from
which taxes and assessments the grantee is hereby expressly exempted" (Sec. 3).
On June 27, 1968, Republic Act No. 5431 amended section 24 of the Tax Code by
making liable for income tax all corporate taxpayers not specifically exempt under
paragraph (c) (1) of said section and section 27 of the Tax Code notwithstanding the
"provisions of existing special or general laws to the contrary". Thus, franchise
companies were subjected to income tax in addition to franchise tax.
103
However, in petitioner's case, its franchise was amended by Republic Act No. 6020,
effective August 4, 1969, by authorizing the petitioner to furnish electricity to the
municipalities of Villanueva and Jasaan, Misamis Oriental in addition to Cagayan de
Oro City and the municipalities of Tagoloan and Opol. The amendment reenacted the
tax exemption in its original charter or neutralized the modification made by Republic
Act No. 5431 more than a year before.
By reason of the amendment to section 24 of the Tax Code, the Commissioner of

Internal Revenue in a demand letter dated February 15, 1973 required the petitioner
to pay deficiency income taxes for 1968-to 1971. The petitioner contested the
assessments. The Commissioner cancelled the assessments for 1970 and 1971 but
insisted on those for 1968 and 1969.
The petitioner filed a petition for review with the Tax Court, which on February 26,
1982 held the petitioner liable only for the income tax for the period from January 1 to
August 3, 1969 or before the passage of Republic Act No. 6020 which reiterated its
tax exemption. The petitioner appealed to this Court.
It contends that the Tax Court erred (1) in not holding that the franchise tax paid by
the petitioner is a commutative tax which already includes the income tax; (2) in
holding that Republic Act No. 5431 as amended, altered or repealed petitioner's
franchise; (3) in holding that petitioner's franchise is a contract which can be impaired
by an implied repeal and (4) in not holding that section 24(d) of the Tax Code should
be construed strictly against the Government.
We hold that Congress could impair petitioner's legislative franchise by making it liable
for income tax from which heretofore it was exempted by virtue of the exemption
provided for in section 3 of its franchise.
The Constitution provides that a franchise is subject to amendment, alteration or

repeal by the Congress when the public interest so requires (Sec. 8, Art. XIV, 1935
Constitution; Sec. 5, Art. XIV, 1973 Constitution),
Section 1 of petitioner's franchise, Republic Act No. 3247, provides that it is subject to
the provisions of the Constitution and to the terms and conditions established in Act
No. 3636 whose section 12 provides that the franchise is subject to amendment,
alteration or repeal by Congress.
Republic Act No. 5431, in amending section 24 of the Tax Code by subjecting to
income tax all corporate taxpayers not expressly exempted therein and in section 27
of the Code, had the effect of withdrawing petitioner's exemption from income tax.
The Tax Court acted correctly in holding that the exemption was restored by the
subsequent enactment on August 4, 1969 of Republic Act No. 6020 which reenacted
the said tax exemption. Hence, the petitioner is liable only for the income tax for the
104
period from January 1 to August 3, 1969 when its tax exemption was modified by
Republic Act No. 5431.
It is relevant to note that franchise companies, like the Philippine Long Distance
Telephone Company, have been paying income tax in addition to the franchise tax.
However, it cannot be denied that the said 1969 assessment appears to be highly
controversial. The Commissioner at the outset was not certain as to petitioner's
income tax liability. It had reason not to pay income tax because of the tax exemption
in its franchise.
For this reason, it should be liable only for tax proper and should not be held liable for
the surcharge and interest. (Advertising Associates, Inc. vs. Commissioner of Internal
Revenue and Court of Tax Appeals, G. R. No. 59758, December 26, 1984,133 SCRA
765; Imus Electric Co., Inc. vs. Commissioner of Internal Revenue, 125 Phil. 1024;
C.M. Hoskins & Co., Inc. vs. Commissioner of Internal Revenue, L-28383, June 22,
1976, 71 SCRA 511.)
WHEREFORE, the judgment of the Tax Court is affirmed with the modification that the
petitioner is liable only for the tax proper and that it should not pay the delinquency
penalties. No costs.
SO ORDERED.
DIGEST
Cagayan Electric Power & Light Co. Inc. v CIR GR No. L-60126, September 25,
1985
FACTS:
Cagayan Electric is a holder of a legislative franchise under RA 3247 where payment
of 3% tax on gross earning is in lieu of all taxes and assessments upon privileges. In
1968, RA 5431 amended the franchise by making all corporate taxpayers liable for
income tax. In 1969, through RA 6020, its franchise was extended to two other towns
and the tax exemption was reenacted. The commissioner required the company to
pay deficiency income taxes for the intervening period (1968-1969).
ISSUE:
Is CEPALCO liable for the tax?
RULING:
Yes. Congress could impair the company’s legislative franchise by making it liable for
income tax. The Constitution
provides that a franchise is subject to amendment, alteration or repeal by the
105
Congress when the public interest so requires. However, it cannot be denied that the
said 1969 assessment appears to be highly controversial. It had reason not to pay
income tax because of the tax exemption its franchise. For this reason, it should be
liable only for tax proper and should not be held liable for surcharge and interest.
G.R. No. 72443 January 29, 1988

vs.
AIR INDIA and THE COURT OF TAX APPEALS, respondents.
GANCAYCO, J.:
This is a Petition which seeks the review of a Decision of the Court of Tax Appeals.
The private respondent Air India is a foreign corporation organized under the laws of
India. It is not licensed to do business in the Philippines as an international carrier. Its
airplanes do not operate within Philippine territory nor service passengers embarking
from Philippine ports. The firm is represented in the Philippines by its general sales
agent, Philippine Air Lines, Inc., a corporate entity duly organized under the laws of
the Philippines. Air India sells airplane tickets in the Philippine through this agent.
These tickets are serviced by Air India airplanes outside the Philippines. In sum, Air
India's status in the Philippines is that of an off-line international carrier not engaged in
the business of air transportation in the Philippines.
The total sales of airplane tickets transacted by Philippine Air Lines, Inc. for the private
respondent during the fiscal year ending March 31, 1976 amounted to P2,968,156.00.
On account of the same, the herein petitioner Commissioner of Internal Revenue held
the private respondent liable for the payment of P142,471.68. 1 The amount
represents the 2.5% income tax on the private respondent's gross Philippine billings
for the said fiscal year pursuant to Section 24 (b) (2) of the National Internal Revenue
Code, as amended, inclusive of the 50% surcharge and interest for willful neglect to
file a return as provided under Section 72 of the same code. The computation is as
follows-
Gross Philippine billings P2,968,156.00

Income Tax due thereon at 74,204.00
2.5%
Add: 50% surcharge 37,102.00
14% interest per annum (42% 31,165.68
maximum)
106
Total Amount Due and P142,471.68
Collectible
From the action taken by the petitioner, the private respondent brought an Appeal to
the Court of Tax Appeals. 2 The thrust of the Appeal is, inter alia, that the private
respondent cannot be held liable to pay the said imposition because it did not derive
any income from sources with the Philippines during the said fiscal year and that the
amount of P2,968,156.00 mentioned in the assessment made by the petitioner was
derived exclusively from sources outside the Philippines.
On the other hand, the petitioner argued that the amount of P2,968,156.00 was
realized in the Philippines and was, therefore, derived from sources within the
Philippines. Petitioner also stressed that in case of any doubt, the presumption is that
the tax assessment is correct. 3
In its Decision dated June 27, 1985, the Court of Tax Appeals ruled in favor of the
private respondent and set aside the decision of the petitioner. 4 The tax court likewise
held that the surcharge and interest imposed upon the private respondent are
improper. The pertinent portions of the Decision are as follows:
Under the law, the situs of the income derived from labor or performance
of service is determined by the place where the labor is performed or the
service rendered, not by the place where payment is made (Sec. 37, Nat.
Int. Rev. Code.) It follows that the situs of the income derived by foreign
international carriers from the business of air transportation is the place
where the airplane service is rendered or performed. Accordingly, to tax
the income derived by petitioner (Air India) from the transportation service
rendered or performed outside the Philippines would violate not only the
National Internal Revenue Code but also the due process clause of the
Constitution.
xxx xxx xxx
... we fully agree with petitioner (Air India) that it is not liable ,for
surcharge of 50%, ...
... The surcharge of 50% of the unpaid tax or deficiency tax is sought to
be imposed in this case under Section 72 of the Revenue Code which
provides that the said surcharge is to be imposed -
In case of willful neglect to file the return or list required

under this Title within the time prescribed by law, or in case
a false or fraudulent return or list is willfully made ...
There is no claim or pretense that herein petitioner (Air

India) willfully failed to file an income tax return for the fiscal year 1976.
107
Neither the report of the examiner nor the Amended Answer filed by
respondent (the Commissioner) makes mention of any fact or
circumstance to prove that the failure of petitioner (Air India) to file the
return was willful. Petitioner is charged with failure to file a return.
Willful failure to file an income tax return which justifies the imposition of
the 50% surcharge, or what is commonly called the fraud penalty,
requires that the failure to file a return was due to an intent to evade
payment of tax legally due, in other words an intention to defraud the
Government of lawful revenue. Mere failure to file a return is not in itself,
standing alone, evidence of fraud .... (Citing Aznar v. Court of Tax
Appeals, 58 SCRA 519.)
Petitioner (Air India) can not be charged with an intention to defraud the
Government because it honestly and sincerely believes that not liable for
the tax sought to be imposed upon it.
Hence, this petition for Review. 5 The Petition is anchored on the argument that the
private respondent is liable for the imposition in question.
Complying with the instructions of this Court, the private respondent submitted its
Comment on the Petition. 6
After subsequent pleadings were filed by the parties, the case was deemed submitted
for decision.
We find merit in the Petition.
The principal issue raised in this Petition is whether or not the revenue derived by an
international air carrier from sales of tickets in the Philippines for air transportation,
while having no landing rights in the country, constitutes income of the said
international air carrier from Philippine sources and, accordingly, taxable under
Section 24 (b) (2) of the National Internal Revenue Code.
This issue has been settled in the affirmative in Commissioner of Internal Revenue v.
British Overseas Airways Corporation. 7 This Court, speaking, through Mme. Justice
Ameurfina A. Melencio-Herrera, held that such revenue constitutes taxable income.
The pertinent portions of the said Decision are as for follows-
The Tax Code defines gross income thus:
"Gross Income" includes gains, profits, and income derived from salaries,
wages or compensation for personal service of whatever kind and in
whatever form paid, or from profession, vocations, trades, business,
commerce, sales, or dealings in property, whether real or personal,
growing out of the ownership or use of or interest in such property; also
from interests, rents, dividends, securities or the transactions of any
108
business carried on for gain or profit, or gains, profits, and income derived
from any source whatever. ...
The definition is broad and comprehensive to include proceeds from

sales of transport documents. "The words "income from any source
whatever" disclose a legislative policy to include all income not expressly
exempted within the class of taxable income under our laws." Income
means "cash received or its equivalent"; it is the amount of money coming
to a person within a specific time ...; it means something distinct from
principal or capital. For, while capital is a fund, income is a flow. As used
in our income tax law, "income" refers to the flow of wealth. 8
xxx xxx xxx
The source of an income is the property, activity or service that produced

the income. 9 For the source of income to be considered as coming from
the Philippines, it is sufficient that the income is derived from activity
within the Philippines. In BOAC's case, the sale of tickets in the
Philippines is the activity that produces the income. The tickets
exchanged hands here and payments for fares were also made here in
Philippine currency. The situs of the source of payments is the
Philippines. The flow of wealth proceeded from, and occurred within,
Philippine territory, enjoying the protection accorded by the Philippine
government. In consideration of such protection, the flow of wealth should
share the burden of supporting the government.
xxx xxx xxx
BOAC, however, would impress upon this Court that income derived from
transportation is income for services, with the result that the place where
the services are rendered determines the source; and since BOAC's
service of transportation is performed outside the Philippines, the income
derived is from sources without the Philippines and, therefore, not taxable
under income tax laws, ...
The absence of flight operations to and from the Philippines is not

determinative of the source of income or the situs of income taxation.
Admittedly, BOAC was an off-line international airline at the time pertinent
to this case.The test of taxability is the "source"; and the source of an
income is that activity ... which produced the income. 10 Unquestionably,
the passage documentations in these cases were sold in the Philippines
and the revenue therefrom was derived from a business activity regularly
pursued within the Philippines. And even if the BOAC tickets sold covered
the "transport of passengers and cargo to and from foreign cities," it
cannot alter the fact that income from the sale of tickets was derived from
109
the Philippines. The word source conveys one essential Idea, that of
origin, and the origin of the income herein is the Philippines.
Moreover, the taxable income involved in this case is for the fiscal year ending March
31, 1976. In the concurring opinion of Chief Justice Teehankee in aforesaid case he
made the following observations:
I just wish to point out that the conflict between the majority opinion
penned by Mme. Justice Melencio-Herrera and the dissenting opinion
penned by Mr. Justice Feliciano as to the proper characterization of the
taxable income derived by respondent BOAC from the sales in the
Philippines of tickets for BOAC flights as sold and issued by its general
sales agent in the Philippines has become moot after November 24,
1972. Both opinions state that by amendment through P.D. No. 69,
promulgated on November 24, 1972, of section 24(b) (2) of the Tax Code
providing for the rate of income tax on foreign corporations, international
carriers such as respondent BOAC, have since then been taxed at a
reduced rate of 2-1/2% on their gross Philippine billings. There is,
therefore, no longer any source of substantial conflict between the two
opinions as to the present 2-1/2% tax on their gross Philippine billings
charged against such international carriers as herein respondent foreign
corporation.
On the basis of the doctrine announced in British Overseas Airways Corporation, the
revenue derived by the private respondent Air India from the sales of airplane tickets
through its agent Philippine Air Lines, Inc., here in the Philippines, must be considered
taxable income. As correctly assessed by the petitioner, such income is subject to a
2.5% tax pursuant to Presidential Decree No. 1355, amending Section 24 (b) (2) of
the tax code. The total Philippine billings of the private respondent for the taxable year
in question amounts to P2,968,156.00. 2.5% of this amount or P74,203.90 constitutes
the income tax due from the private respondent.
The tax liability of the private respondent thus settled, We come now to the propriety
of the 50% surcharge and the interest imposed upon it by the Commissioner of
Internal Revenue.
The 50% surcharge or fraud penalty provided in Section 72 of the National Internal
Revenue Code is imposed on a delinquent taxpayer who willfully neglects to file the
required tax return within the period prescribed by the law, or who willfully files a false
or fraudulent tax return, to wit —
Sec. 72. Surcharges for failure to render returns and for rendering false
and fraudulent returns.-In case of willful neglect to file the return or list
required under this Title within the time prescribed by law, or in case a
false or fraudulent return or list is willfully made, the Commissioner of
Internal Revenue shall add to the tax or to the deficiency tax, in case any
110
payment has been made on the basis of such return before the discovery
of the falsity or fraud, a surcharge of fifty per centum of the amount of
such tax or deficiency tax. In case of any failure to make and file a return
or list within the time prescribed by law or by the Commissioner or other
internal revenue officer, not due to willful neglect, the Commissioner of
Internal Revenue shall add to the tax twenty-five per centum of its
amount, except that, when a return is voluntarily and without notice from
the Commissioner or other officer filed after such time, and it is shown
that the failure to file it was due to a reasonable cause, no such addition
shall be made to the tax. The amount so added to any tax shall be
collected at the same time in the same manner and as part of the tax
unless the tax has been paid before the discovery of the neglect, falsity,
or fraud, in which case the amount so added shall be collected in the
same manner as the tax.
On the other hand, the same Section provides that if the failure to file the required tax
return is not due to willful neglect, a penalty of 25% is to be added to the amount of
the tax due from the taxpayer.
We have gone through the allegations of the petitioner as well as the Memorandum
submitted by the Solicitor General on behalf of the Commissioner and on the basis of
the same. We are not convinced that the private respondent can be considered to
have willfully neglected to file the required tax return thereby warranting the imposition
of the 50% fraud penalty provided in Section 72. At the most, there is the barren claim
that such failure was fraudulent in character, without any evidence or justification for
the same. The willful neglect to file the required tax return or the fraudulent intent to
evade the payment of taxes, considering that the same is accompanied by legal
consequences, cannot be presumed. At this point, We call attention to the
pronouncement of this Court in Aznar v. Court of Tax Appeals, 11 to wit -
The lower court's conclusion regarding the existence of fraudulent intent

to evade payment of taxes was based merely on a presumption and not
on evidence establishing a willful filing of false and fraudulent returns so
as to warrant the imposition of the fraud penalty. The fraud contemplated
by law is actual and not constructive. It must be intentional fraud,
consisting of deception willfully and deliberately done or resorted to in
order to induce another to give up some legal right. Negligence, whether
slight or gross, is not equivalent to the fraud with intent to give up some
legal right. Negligence, whether slight or gross, is not equivalent to the
fraud with intent to evade the tax contemplated by the law. It must
amount to intentional wrongdoing with the sole object of avoiding the tax.
It necessarily follows that a mere mistake cannot be considered as
fraudulent intent, and if both petitioner and respondent Commissioner of
Internal Revenue committed mistakes in making entries in the returns and
in the assessment, respectively, under the inventory method of
determining tax liability, it would be unfair to treat the mistakes of the
111
petitioner as tainted with fraud and those of the respondent as made in
good faith.
There being no cogent basis to find willful neglect to file the required tax return on the
part of the private respondent, the 50% surcharge or fraud penalty imposed upon it is
improper. Nonetheless, such failure subjects the private respondent to a 25% penalty
pursuant to Section 72 of the tax code cited earlier. P74,203.90 constitutes the tax
deficiency of the private respondent. 25% of this amount is P37,101.95.
As for the interest which the private respondent is liable to pay, We find the 42%
interest assessed by the petitioner to be in order. At the time the tax liability of the
private respondent accrued, Section 51 (d) of the tax code, before it was amended by
Presidential Decree No. 1705 12 prescribed an interest rate of 4% per annum,
provided that the maximum amount that could be collected as interest on the tax
deficiency will not exceed the amount corresponding to a period of three years. Thus,
the maximum interest rate then was 42%. This maximum interest rate is applicable to
the private respondent inasmuch as the period between March 31, 1976 (the end of
the fiscal year in question) and February 20, 1981 (the time when the petitioner made
the assessment in question) exceeds three years. P74,203.90 constitutes the tax
deficiency of the private respon dent 42% of this amount is P31,165.64.
We will now look into the propriety of the other impositions.
The petitioner prays that pursuant to Section 51 (e) (2) of the tax code, as amended
by Presidential Decree No. 1705, the private respondent is liable to pay additional
interest of 20% per annum (computed from February 20, 1981, the date when the
Commissioner sought the payment of the tax deficiency) on the total amount unpaid,
to wit -
(2) Deficiency.-Where a deficiency, or any interest assessed in

connection therewith under paragraph (d) of this section, or any addition
to the taxes provided for in Section seventy-two of this Code is not paid in
full within thirty days from the date of notice and demand from the
Commissioner of Internal Revenue, there shall be collected upon the
unpaid amount as part of the tax, interest at the rate of twenty per centum
per annum from the date of such notice and demand until it is
paid: Provided, That the maximum amount that may be collected as
interest on deficiency shall in no case exceed the amount corresponding
to a period of three years, the present provisions regarding prescription to
the contrary notwithstanding.
A careful reading of Section 51 (e) (2) shows that this interest is in addition to the
interest provided in Section 51 (d). This view can be gleaned from the use of the
phrase "Where a deficiency, or any interest assessed in connection therewith under
paragraph (d) of this section" in Section 51 (e) (2). The additional interest is to be
computed upon the entire amount of the tax liability (previous interest included) which
112
remains unpaid. This is manifested by the use of the phrase "there shall be collected
upon the unpaid amount as part of the tax" in Section 51 (e) (2). However, the same
Section provides that the maximum amount that may be collected as interest cannot
exceed the amount corresponding to a period of three years. In this case, the
maximum rate would be 60%.
The petitioner also prays that pursuant to Section 51 (e) (3) of the same code, as
amended by the said Decree, the private respondent is likewise liable to pay an
additional surcharge of 10% (flat rate) of the total amount of tax unpaid to wit —
(3) Surcharge.-If any amount of tax shown on the return is not paid in full
on or before the date prescribed for its payment under paragrah (a) of this
Section, or any amount of deficiency, and any interest assessed in
connection therewith, is not paid in full within the period prescribed in the
assessment notice and demand required under paragraph (b) of this
Section, there shall be collected in addition to the interest precribed
herein and in paragraph (d) above and as part of the tax a surcharge of
ten per centum of the amount of tax unpaid.
An examination of Section 51 (e) (3) reveals that this surcharge is imposed for the late
payment of the unpaid tax deficiency and/or unpaid interest assessed in connection
therewith, in addition to all other charges. This is confirmed by the use of the words
"there shall be collected in addition to the interest prescribed herein [referring to the
entire Section 51 (e)] and in paragraph (d) above [referring to Section 51 (d)]." The
additional surcharge is computed on the amount of tax unpaid, exclusive of all other
impositions. This is confirmed by the phrase "ten per centum of the amount of
tax unpaid." The failure to pay the tax deficiency within the required period of time
upon demand is penalized by this additional surcharge. Upon such failure to pay, the
surcharge is automatically due; its imposition is mandatory. 13
Under the aforementioned provisions of the tax code, the private respondent became
liable to pay the additional interest provided in Section 51 (e) (2) and the 10%
surcharge provided in Section 51 (e) (3) thirty days after February 20, 1981, the date
when the Commissioner of Internal Revenue sought the payment of the deficiency.
More than three years have passed since and yet the account remains unsettled.
Thus, the additional interest and surcharge can be imposed on the private respondent
as asserted by the petitioner. Presidential Decree No. 1705 took effect on August 1,
1980. It was, therefore, the law in effect when the additional interest and surcharge
could be legally imposed on the private respondent.
Let Us now apply the additional interest to the tax liability of the private respondent.
The income tax due from the private respondent for the taxable year ending March 31,
1976 is P74,204.00. The 25% surcharge under Section 72 is P37,101.95. The 42%
interest under Section 51 (d) is P31,165.64. The sum of these figures is
P142,471.59.14
113
More than three years have passed since February 20, 1981. Hence, the three-year or
60% maximum interest provided in Section 51 (e) (2) calls for application. It is
computed against the total amount unpaid by the private respondent-Pl42,471.59.
60% of this amount is P85,482.95. The tax liability of the private respondent, exclusive
of interest and surcharge is P74,204.00. 10% of this amount is P7,420.40,
representing the 10% surcharge provided in Section 51 (e) (3).
In sum, the following schedule illustrates the total tax liability of the private respondent
—
Income Tax for

Fiscal year
ending March P74,204.00
31, 1976
Add: 25%
surcharge
under Section 72 37,101.95
42% maximum
interest
under Section 51 31,165.64
(d)
Total P142,471.59
Add: 60%
maximum
additional
interest under
Presidential
Decree No. 1705
(computed
on P142.471.59) 85,482.95
Total P227,954.54
Add: 10%
additional
surcharge
under Presidential
114
Decree No. 1705
(computed
on unpaid tax of P 7,420.40
P74,204.00
TOTAL TAX DUE
FROM THE
PRIVATE P235,374.94
RESPONDENT
Accordingly, We hold that the private respondent is liable for unpaid taxes and
charges in the total amount of Two Hundred Thirty-Five Thousand, Three Hundred
Seventy-Four Pesos and Ninety-Four Centavos (P235,374.94).
WHEREFORE, in view of the foregoing, the Decision of the Court of Tax Appeals in
CTA Case No. 3441 is hereby SET ASIDE. The private respondent Air India is hereby
ordered to pay the amount of P235,374.94 as deficiency tax, inclusive of interest and
surcharges. We make no pronouncement as to costs.
SO ORDERED.
DIGEST
G.R. No. 72443 January 29, 1988

vs.
AIR INDIA and THE COURT OF TAX APPEALS, respondents.
FACTS:
The private respondent Air India is a foreign corporation organized under the laws of
India. It is not licensed to do business in the Philippines as an international carrier. Air
India's status in the Philippines is that of an off-line international carrier not engaged in
the business of air transportation in the Philippines.
Commissioner of Internal Revenue held the private respondent liable for the payment
of P142,471.68. 1 The amount represents the 2.5% income tax on the private
respondent's gross Philippine billings for the said fiscal year pursuant to Section 24 (b)
(2) of the National Internal Revenue Code, as amended, inclusive of the 50%
surcharge and interest for willful neglect to file a return as provided under Section 72
of the same code.
115
Respondent’s contention: It cannot be held liable to pay the said imposition because
it did not derive any income from sources with the Philippines during the said fiscal
year and that the amount of P2,968,156.00 mentioned in the assessment made by the
petitioner was derived exclusively from sources outside the Philippines.
Petitioner’s contention: It was realized in the Philippines and was, therefore, derived
from sources within the Philippines. Petitioner also stressed that in case of any doubt,
the presumption is that the tax assessment is correct. 3
Court of Tax Appeals ruled in favor of the private respondent and set aside the
decision of the petitioner. 4 The tax court likewise held that the surcharge and interest
imposed upon the private respondent are improper.
ISSUE: whether or not the revenue derived by an international air carrier from sales of
tickets in the Philippines for air transportation, while having no landing rights in the
country, constitutes income of the said international air carrier from Philippine sources
and, accordingly, taxable under Section 24 (b) (2) of the National Internal Revenue
Code.
HELD: Yes.
The source of an income is the property, activity or service that produced the
income. For the source of income to be considered as coming from the Philippines, it
is sufficient that the income is derived from activity within the Philippines.
The revenue derived by the private respondent Air India from the sales of airplane
tickets through its agent Philippine Air Lines, Inc., here in the Philippines, must be
considered taxable income. As correctly assessed by the petitioner, such income is
subject to a 2.5% tax pursuant to Presidential Decree No. 1355, amending Section 24
(b) (2) of the tax code. The total Philippine billings of the private respondent for the
taxable year in question amounts to P2,968,156.00. 2.5% of this amount or
P74,203.90 constitutes the income tax due from the private respondent.
The 50% surcharge or fraud penalty provided in Section 72 of the National Internal
Revenue Code is imposed on a delinquent taxpayer who willfully neglects to file the
required tax return within the period prescribed by the law, or who willfully files a false
or fraudulent tax return.
On the other hand, the same Section provides that if the failure to file the required tax
return is not due to willful neglect, a penalty of 25% is to be added to the amount of
the tax due from the taxpayer.
116
There being no cogent basis to find willful neglect to file the required tax return on the
part of the private respondent, the 50% surcharge or fraud penalty imposed upon it is
improper. Nonetheless, such failure subjects the private respondent to a 25% penalty
pursuant to Section 72.
INTEREST
As for the interest which the private respondent is liable to pay, We find the 42%
interest assessed by the petitioner to be in order. At the time the tax liability of the
private respondent accrued, Section 51 (d) of the tax code, before it was amended by
Presidential Decree No. 1705 12 prescribed an interest rate of 4% per annum,
provided that the maximum amount that could be collected as interest on the tax
deficiency will not exceed the amount corresponding to a period of three years. Thus,
the maximum interest rate then was 42%.
DEFICIENCY
Section 51 (e) (2) shows that this interest is in addition to the interest provided in
Section 51 (d). This view can be gleaned from the use of the phrase "Where a
deficiency, or any interest assessed in connection therewith under paragraph (d) of
this section" in Section 51 (e) (2). The additional interest is to be computed upon the
entire amount of the tax liability (previous interest included) which remains unpaid.
This is manifested by the use of the phrase "there shall be collected upon the unpaid
amount as part of the tax" in Section 51 (e) (2). However, the same Section provides
that the maximum amount that may be collected as interest cannot exceed the
amount corresponding to a period of three years. In this case, the maximum rate
would be 60%.
SURCHARGE
An examination of Section 51 (e) (3) reveals that this surcharge is imposed for the late
payment of the unpaid tax deficiency and/or unpaid interest assessed in connection
therewith, in addition to all other charges. This is confirmed by the use of the words
"there shall be collected in addition to the interest prescribed herein [referring to the
entire Section 51 (e)] and in paragraph (d) above [referring to Section 51 (d)]." The
additional surcharge is computed on the amount of tax unpaid, exclusive of all other
impositions. This is confirmed by the phrase "ten per centum of the amount of
tax unpaid." The failure to pay the tax deficiency within the required period of time
upon demand is penalized by this additional surcharge. Upon such failure to pay, the
surcharge is automatically due; its imposition is mandatory. 13
117
Under the aforementioned provisions of the tax code, the private respondent became
liable to pay the additional interest provided in Section 51 (e) (2) and the 10%
surcharge provided in Section 51 (e) (3) thirty days after February 20, 1981, the date
when the Commissioner of Internal Revenue sought the payment of the deficiency.
More than three years have passed since and yet the account remains unsettled.
Thus, the additional interest and surcharge can be imposed on the private respondent
as asserted by the petitioner. Presidential Decree No. 1705 took effect on August 1,
1980. It was, therefore, the law in effect when the additional interest and surcharge
could be legally imposed on the private respondent.
The three-year or 60% maximum interest provided in Section 51 (e) (2) calls for
application. It is computed against the total amount unpaid by the private respondent.
WHEREFORE, in view of the foregoing, the Decision of the Court of Tax Appeals in
CTA Case No. 3441 is hereby SET ASIDE. The private respondent Air India is hereby
ordered to pay the amount of P235,374.94 as deficiency tax, inclusive of interest and
surcharges. We make no pronouncement as to costs.
118
6. CRIMINAL ACTION AND OTHER PENALTIES
SECTIONS 253-280 TAX CODE
RA 9282 SEC 7. 1
G.R. No. L-41919-24 May 30, 1980
QUIRICO P. UNGAB, petitioner,

vs.
HON. VICENTE N. CUSI, JR., in his capacity as Judge of the Court of First
Instance, Branch 1, 16TH Judicial District, Davao City, THE COMMISSIONER OF
INTERNAL REVENUE, and JESUS N. ACEBES, in his capacity as State
Prosecutor, respondents.
CONCEPCION JR., J:
Petition for certiorari and prohibition with preliminary injunction and restraining order to
annul and set aside the informations filed in Criminal Case Nos. 1960, 1961, 1962,
1963, 1964, and 1965 of the Court of First Instance of Davao, all entitled: "People of
the Philippines, plaintiff, versus Quirico Ungab, accused;" and to restrain the
respondent Judge from further proceeding with the hearing and trial of the said cases.
It is not disputed that sometime in July, 1974, BIR Examiner Ben Garcia examined the
income tax returns filed by the herein petitioner, Quirico P. Ungab, for the calendar
year ending December 31, 1973. In the course of his examination, he discovered that
the petitioner failed to report his income derived from sales of banana saplings. As a
result, the BIR District Revenue Officer at Davao City sent a "Notice of Taxpayer" to
the petitioner informing him that there is due from him (petitioner) the amount of
P104,980.81, representing income, business tax and forest charges for the year 1973
and inviting petitioner to an informal conference where the petitioner, duly assisted by
counsel, may present his objections to the findings of the BIR Examiner. 1 Upon
receipt of the notice, the petitioner wrote the BIR District Revenue Officer protesting
the assessment, claiming that he was only a dealer or agent on commission basis in
the banana sapling business and that his income, as reported in his income tax
returns for the said year, was accurately stated. BIR Examiner Ben Garcia, however,
was fully convinced that the petitioner had filed a fraudulent income tax return so that
he submitted a "Fraud Referral Report," to the Tax Fraud Unit of the Bureau of
Internal Revenue. After examining the records of the case, the Special Investigation
Division of the Bureau of Internal Revenue found sufficient proof that the herein
petitioner is guilty of tax evasion for the taxable year 1973 and recommended his
prosecution: têñ.£îhqwâ£
119
(1) For having filed a false or fraudulent income tax return for 1973 with
intent to evade his just taxes due the government under Section 45 in
relation to Section 72 of the National Internal Revenue Code;
(2) For failure to pay a fixed annual tax of P50.00 a year in 1973 and
1974, or a total of unpaid fixed taxes of P100.00 plus penalties of 175.00
or a total of P175.00, in accordance with Section 183 of the National
Internal Revenue Code;
(3) For failure to pay the 7% percentage tax, as a producer of banana

poles or saplings, on the total sales of P129,580.35 to the Davao Fruit
Corporation, depriving thereby the government of its due revenue in the
amount of P15,872.59, inclusive of surcharge. 2
In a second indorsement to the Chief of the Prosecution Division, dated December 12,
1974, the Commissioner of Internal Revenue approved the prosecution of the
petitioner. 3
Thereafter, State Prosecutor Jesus Acebes who had been designated to assist all
Provincial and City Fiscals throughout the Philippines in the investigation and
prosecution, if the evidence warrants, of all violations of the National Internal Revenue
Code, as amended, and other related laws, in Administrative Order No. 116 dated
December 5, 1974, and to whom the case was assigned, conducted a preliminary
investigation of the case, and finding probable cause, filed six (6) informations against
the petitioner with the Court of First Instance of Davao City, to wit: têñ.£îhqwâ£
(1) Criminal Case No. 1960 — Violation of Sec. 45, in relation to Sec. 72
of the National Internal-Revenue Code, for filing a fraudulent income tax
return for the calendar year ending December 31, 1973; 4
(2) Criminal Case No. 1961 — Violation of Sec. 182 (a), in relation to
Secs. 178, 186, and 208 of the National Internal Revenue Code, for
engaging in business as producer of saplings, from January, 1973 to
December, 1973, without first paying the annual fixed or privilege tax
thereof; 5
Secs. 186 and 209 of the National Internal Revenue Code, for failure to
render a true and complete return on the gross quarterly sales, receipts
and earnings in his business as producer of banana saplings and to pay
the percentage tax due thereon, for the quarter ending December 31,
1973; 6
render a true and complete return on the gross quarterly sales receipts
120
and earnings in his business as producer of saplings, and to pay the
percentage tax due thereon, for the quarter ending on March 31, 1973; 7
and earnings in his business as producer of banana saplings for the
quarter ending on June 30, 1973, and to pay the percentage tax due
thereon; 8
and earnings as producer of banana saplings, for the quarter ending on
September 30, 1973, and to pay the percentage tax due thereon. 9
On September 16, 1975, the petitioner filed a motion to quash the informations upon
the grounds that: (1) the informations are null and void for want of authority on the part
of the State Prosecutor to initiate and prosecute the said cases; and (2) the trial court
has no jurisdiction to take cognizance of the above-entitled cases in view of his
pending protest against the assessment made by the BIR Examiner. 10 However, the
trial court denied the motion on October 22, 1975. 11 Whereupon, the petitioner filed
the instant recourse. As prayed for, a temporary restraining order was issued by the
Court, ordering the respondent Judge from further proceeding with the trial and
hearing of Criminal Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965 of the Court
of First Instance of Davao, all entitled: "People of the Philippines, plaintiff, versus
Quirico Ungab, accused."
The petitioner seeks the annulment of the informations filed against him on the ground
that the respondent State Prosecutor is allegedly without authority to do so. The
petitioner argues that while the respondent State Prosecutor may initiate the
investigation of and prosecute crimes and violations of penal laws when duly
authorized, certain requisites, enumerated by this Court in its decision in the case
of Estrella vs. Orendain, 12 should be observed before such authority may be
exercised; otherwise, the provisions of the Charter of Davao City on the functions and
powers of the City Fiscal will be meaningless because according to said charter he
has charge of the prosecution of all crimes committed within his jurisdiction; and since
"appropriate circumstances are not extant to warrant the intervention of the State
Prosecution to initiate the investigation, sign the informations and prosecute these
cases, said informations are null and void." The ruling adverted to by the petitioner
reads, as follows: têñ.£îhqwâ£
In view of all the foregoing considerations, it is the ruling of this Court that
under Sections 1679 and 1686 of the Revised Administrative Code, in
any instance where a provincial or city fiscal fails, refuses or is unable, for
any reason, to investigate or prosecute a case and, in the opinion of the
121
Secretary of Justice it is advisable in the public interest to take a different
course of action, the Secretary of Justice may either appoint as acting
provincial or city fiscal to handle the investigation or prosecution
exclusively and only of such case, any practicing attorney or some
competent officer of the Department of Justice or office of any city or
provincial fiscal, with complete authority to act therein in all respects as if
he were the provincial or city fiscal himself, or appoint any lawyer in the
government service, temporarily to assist such city of provincial fiscal in
the discharge of his duties, with the same complete authority to act
independently of and for such city or provincial fiscal provided that no
such appointment may be made without first hearing the fiscal concerned
and never after the corresponding information has already been filed with
the court by the corresponding city or provincial fiscal without the
conformity of the latter, except when it can be patently shown to the court
having cognizance of the case that said fiscal is intent on prejudicing the
interests of justice. The same sphere of authority is true with the
prosecutor directed and authorized under Section 3 of Republic Act 3783,
as amended and/or inserted by Republic Act 5184. The observation
in Salcedo vs. Liwag, supra, regarding the nature of the power of the
Secretary of Justice over fiscals as being purely over administrative
matters only was not really necessary, as indicated in the above relation
of the facts and discussion of the legal issues of said case, for the
resolution thereof. In any event, to any extent that the opinion therein may
be inconsistent herewith the same is hereby modified.
The contention is without merit. Contrary to the petitioner's claim, the rule therein
established had not been violated. The respondent State Prosecutor, although
believing that he can proceed independently of the City Fiscal in the investigation and
prosecution of these cases, first sought permission from the City Fiscal of Davao City
before he started the preliminary investigation of these cases, and the City Fiscal,
after being shown Administrative Order No. 116, dated December 5, 1974,
designating the said State Prosecutor to assist all Provincial and City fiscals
throughout the Philippines in the investigation and prosecution of all violations of the
National Internal Revenue Code, as amended, and other related laws, graciously
allowed the respondent State Prosecutor to conduct the investigation of said cases,
and in fact, said investigation was conducted in the office of the City Fiscal. 13
The petitioner also claims that the filing of the informations was precipitate and
premature since the Commissioner of Internal Revenue has not yet resolved his
protests against the assessment of the Revenue District Officer; and that he was
denied recourse to the Court of Tax Appeals.
The contention is without merit. What is involved here is not the collection of taxes
where the assessment of the Commissioner of Internal Revenue may be reviewed by
the Court of Tax Appeals, but a criminal prosecution for violations of the National
Internal Revenue Code which is within the cognizance of courts of first instance. While
122
there can be no civil action to enforce collection before the assessment procedures
provided in the Code have been followed, there is no requirement for the precise
computation and assessment of the tax before there can be a criminal prosecution
under the Code. têñ.£îhqwâ£
The contention is made, and is here rejected, that an assessment of the

deficiency tax due is necessary before the taxpayer can be prosecuted
criminally for the charges preferred. The crime is complete when the
violator has, as in this case, knowingly and willfully filed fraudulent returns
with intent to evade and defeat a part or all of the tax. 14
An assessment of a deficiency is not necessary to a criminal prosecution

for willful attempt to defeat and evade the income tax. A crime is
complete when the violator has knowingly and willfuly filed a fraudulent
return with intent to evade and defeat the tax. The perpetration of the
crime is grounded upon knowledge on the part of the taxpayer that he
has made an inaccurate return, and the government's failure to discover
the error and promptly to assess has no connections with the commission
of the crime. 15
Besides, it has been ruled that a petition for reconsideration of an assessment may
affect the suspension of the prescriptive period for the collection of taxes, but not the
prescriptive period of a criminal action for violation of law. 16Obviously, the protest of
the petitioner against the assessment of the District Revenue Officer cannot stop his
prosecution for violation of the National Internal Revenue Code. Accordingly, the
respondent Judge did not abuse his discretion in denying the motion to quash filed by
the petitioner.
WHEREFORE, the petition should be, as it is hereby dismissed. The temporary

restraining order heretofore issued is hereby set aside. With costs against the
petitioner.
SO ORDERED.
DIGEST
UNGAB vs. CUSI

97 SCRA 877
GR No. L-41919-24 May 30, 1980
"An assessment of a deficiency is not necessary to a criminal prosecution for wilful
attempt to defeat and evade the income tax."
FACTS: The BIR filed six criminal charges against Quirico Ungab, a banana saplings
producer, for allegedly evading payment of taxes and other violations of the NIRC.
Ungab, subsequently filed a motion to quash on the ground that (1) the information
123
are null and void for want of authority on the part of the State Prosecutor to initiate and
prosecute the said cases; and (2)that the trial court has no jurisdiction to take
cognizance of the case in view of his pending protest against the assessment made
by the BIR examiner. The trial court denied the motion prompting the petitioner to file
a petition for certiorari and prohibition with preliminary injunction and restraining order
to annul and set aside the information filed.
ISSUE: Is the contention that the criminal prosecution is premature since the CIR has
not yet resolved the protest against the tax assessment tenable?
HELD: No. The contention is without merit. What is involved here is not the collection
of taxes where the assessment of the Commissioner of Internal Revenue may be
reviewed by the Court of Tax Appeals, but a criminal prosecution for violations of the
National Internal Revenue Code which is within the cognizance of courts of first
instance. While there can be no civil action to enforce collection before the
assessment procedures provided in the Code have been followed, there is no
requirement for the precise computation and assessment of the tax before there can
be a criminal prosecution under the Code.
An assessment of a deficiency is not necessary to a criminal prosecution for wilful
attempt to defeat and evade the income tax. A crime is complete when the violator
has knowingly and wilfully filed a fraudulent return with intent to evade and defeat the
tax. The perpetration of the crime is grounded upon knowledge on the part of the
taxpayer that he has made an inaccurate return, and the government's failure to
discover the error and promptly to assess has no connections with the commission of
the crime.
G.R. No. 119322 June 4, 1996
COMMISSIONER ON INTERNAL REVENUE, SENIOR STATE PROSECUTOR

AURORA S. LAGMAN, SENIOR STATE PROSECUTOR BERNELITO R.
FERNANDEZ, SENIOR STATE PROSECUTOR HENRICK P. GINGOYON,
ROGELIO F. VISTA, STATE PROSECUTOR ALFREDO AGCAOILI,
PROSECUTING ATTORNEY EMMANUEL VELASCO, CITY PROSECUTOR
CANDIDO V. RIVERA, AND ASSISTANT CITY PROSECUTOR LEOPOLDO E.
BARAQUIA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, THE HONORABLE TIRSO D'C
VELASCO, PRESIDING JUDGE, REGIONAL TRIAL COURT OF QUEZON CITY,
BRANCH 88, FORTUNE TOBACCO CORPORATION, LUCIO TAN, HARRY C.
TAN, CARMEN KAO TAN, FLORENCIO SANTOS, SALVADOR MISON, CHUNG
124
POE KEE, ROJAS CHUA, MARIANO TANENGLIAN, JUANITA LEE AND
ANTONIO P. ABAYA, respondents.
DAGUPAN COMBINED COMMODITIES, INC., TOWNSMAN COMMERCIALS, INC.,

LANDMARK SALES AND MARKETING INC., CRIMSON CROCKER
DISTRIBUTORS, INC., MOUNT MATUTUM MARKETING CORP., FIRST UNION
TRADING CORP., CARLSBURG AND SONS, INC., OMAR ALI DISTRIBUTORS,
INC., ORIEL AND COMPANY, NEMESIO TAN, QUINTIN CALLEJA, YOLANDA
MANALILI, CARLOS CHAN, ROMEO TAN, VICENTE CO, WILLIAM YU, LETICIA
LIM, GLORIA LOPEZ, ROBERT TANTAMCO, FELIPE LOY, ROLANDO CHUA,
HONORINA TAN, WILLIE TANTAMCO, HENRY WEECHEE, JESUS LIM,
TEODORO TAN, ANTONIO APOSTOL, DOMINGO TENG, CANDELARIO LI,
ERLINDA CRUZ, CARLOS TUMPALAN, LARRY JOHN SY, ERNESTO ONG,
WILFREDO MACROHON, ANTONIO TIU, ROSARIO LESTER, WILFREDO ONG,
BONIFACIO CHUA, GO CHING CHUAN, HENRY CHUA, LOPE LIM GUAN, EMILIO
TAN, FELIPE TAN SEH CHUAN, ANDRES CO, FELIPE KEE, HENRY GO CO,
NARCISO GO, ADOLFO LIM, CO SHU, DANIEL YAO CABIGUN, GABRIELLE.
QUINTELA, NELSON TE, EMILLIO GO, EDWIN LEE, CESAR LEDESMA, JR., JAO
CHEP SENG, ARNULFO TAN, BENJAMIN T. HONG, PHILIP JAO, JOSE P. YU,
AND DAVID R. CORTES, respondents-intervenors.
KAPUNAN, J.:p
The pivotal issue in this petition for review is whether or not respondent Court of
Appeals in its decision1 in CA-G.R. SP No. 33599 correctly ruled that the Regional
Trial Court of Quezon City (Branch 88) in Civil Case No. Q-94- 18790 did not commit
grave abuse of discretion amounting to lack of jurisdiction in issuing four (4) orders
directing the issuance of writs of preliminary injunction restraining petitioner
prosecutors from continuing with the preliminary injunction of I.S. Nos. 93-508 and 93-
584 in the Department of Justice and I.S. No. 93-17942 in the Office of the City
Prosecutors of Quezon City wherein private respondents were respondents and
denying petitioners' Motion to Dismiss said Civil Case No. 94-18790.2
In resolving the issue raised in the petition, the Court may be guided by its definition of
what constitutes grave abuse of discretion. By grave abuse of discretion is meant
such capricious and whimsical exercise of judgment as is equivalent to lack of
jurisdiction. The abuse of discretion must be patent and gross as to amount to an
evasion of positive duty or a virtual refusal to perform a duty enjoined by law, or to act
at all in contemplation of law as where the power is exercised in an arbitrary and
despotic manner by reason of passion and hostility.3
On June 1, 1993, the President issued a Memorandum creating a Task Force to

investigate the tax liabilities of manufacturers engaged in tax evasion scheme, such
as selling products through dummy marketing corporations to avoid payment of
125
correct internal revenue tax, to collect from them any tax liabilities discovered from
such investigation, and to file the necessary criminal actions against those who may
have violated the tax code. The task force was composed of the Commissioner of
Internal Revenue as Chairman, a representative of the Department of Justice and a
representative of the Executive Secretary.
On July 1, 1993, the Commissioner of Internal Revenue issued a Revenue

Memorandum Circular No. 37-93 reclassifying best selling cigarettes bearing the
brands "Hope," "More," and "Champion" as cigarettes of foreign brands subject to a
higher rate of tax.
On August 3, 1993, respondent Fortune Tobacco Corporation (Fortune) questioned

the validity of the reclassification of said brands of cigarettes as violative of its right to
due process and equal protection of law. Parenthetically, on September 8, 1993, the
Court of Tax Appeals by resolution ruled that the reclassification made by the
Commissioner "is of doubtful legality" and enjoined its enforcement.
In a letter of August 13, 1993 which was received by Fortune on August 24, 1993, the
Commissioner assessed against Fortune the total amount of P7,685,942,221.66
representing deficiency income, ad valorem and value-added tax for the year 1992
with the request that the said amount be paid within thirty (30) days upon receipt
thereof.4 Fortune on September 17, 1993 moved for reconsideration of the
assessments.
On September 7, 1993, the Commissioner of Internal Revenue filed a complaint with

the Department of Justice against respondent Fortune, its corporate officers, nine (9)
other corporations and their respective corporate officers for alleged fraudulent tax
evasion for supposed non-payment by Fortune of the correct amount of income tax,
ad valorem tax and value-added tax for the year 1992. The complaint alleged, among
others, that:
In the said income tax return, the taxpayer declared a net taxable income
of P183,613,408.00 and an income tax due of P64,264,693.00. Based
mainly on documentary evidence submitted by the taxpayer itself, these
declarations are false and fraudulent because the correct taxable income
of the corporation for the said year is P1,282,959,399.25.
This underdeclaration which resulted in the evasion of the amount of

P723,773,759.79 as deficiency income tax for the year 1992 is a violation
of Section 45 of the Tax Code, penalized under Section 253 in relation to
Sections 252(b) and (d) and 253 thereof, thus: . . .
xxx xxx xxx
Fortune Tobacco Corporation, through its Vice-President for Finance,

Roxas Chua, likewise filed value-added tax returns for the 1st, 2nd, 3rd
126
and 4th quarters of 1992 with the Rev. District Office of Marikina, Metro
Manila, declaring therein gross taxable sales, as follows:
1st Qtr. P 2,924,418,055.00
2nd Qtr. 2,980,335,235.00
3rd Qtr. 2,839,519,325.00
4th Qtr. 2,992,386,005.00
However, contrary to what have been reported in the said value- added
tax returns, and based on documentary evidence obtained from the
taxpayer, the total actual taxable sales of the corporation for the year
1992 amounted to P16,158,575,035.00 instead of P11,929,322,334.52 as
declared by the corporation in the said VAT returns.
These fraudulent underdeclarations which resulted in the evasion of

value-added taxes in the aggregate amount of P1,169,688,645.63 for the
entire year 1992 are violations of Section 110 in relation to Section 100 of
the Tax Code, which are likewise penalized under the aforequoted
Section 253, in relation to Section 252, thereof. Sections 110 and 100
provide:
xxx xxx xxx
Furthermore, based on the corporation's VAT returns, the corporation

reported its taxable sales for 1992 in the amount of P11,736,658,580.
This declaration is likewise false and fraudulent because, based on the
daily manufacturer's sworn statements submitted to the BIR by the
taxpayer, its total taxable sales during the year 1992 is
P16,686,372,295.00. As a result thereof, the corporation was able to
evade the payment of ad valorem taxes in the aggregate amount of
P5,792,479,816.24 in violation of Section 127 in relation to Section 142,
as amended by R.A. 6956, penalized under the aforequoted Section 253,
in relation to Section 252, all of the Tax Code. Sections 127 and 142, as
amended by R.A. 6956, are quoted as follows: . . .
The complaint docketed as I.S. No. 93-508, was referred to the Department of Justice
Task Force on revenue cases which found sufficient basis to further investigate the
allegations that Fortune, through fraudulent means, evaded payment of income tax,
ad valorem tax, and value-added tax for the year 1992 thus, depriving the government
of revenues in the amount of Seven and One-half (P7.5) Billion Pesos.
The fraudulent scheme allegedly adopted by private respondents consisted of making

fictitious and simulated sales of Fortune's cigarette products to non-existing individuals
and to entities incorporated and existing only for the purpose of such fictitious sales by
127
declaring registered wholesale prices with the BIR lower than Fortune's actual
wholesale prices which are required for determination of Fortune's correct income, ad
valorem, and value-added tax liabilities. The "ghosts wholesale buyers" then
ostensibly sold the products to customers and other wholesalers/retailers at higher
wholesale prices determined by Fortune. The tax returns and manufacturer's sworn
statements filed by Fortune would then declare the fictitious sales it made to the
conduit corporators and non-existing individual buyers as its gross sales.5
On September 8, 1993, the Department of Justice Task Force issued a subpoena

directing private respondents to submit their counter-affidavits not later than
September 20, 1993. 6
Instead of filing their counter-affidavits, the private respondents on October 15, 1993
filed a Verified Motion to Dismiss; Alternatively Motion to Suspend,7 based principally
on the following grounds:
1. The complaint of petitioner Commissioner follows a pattern of

prosecution against private respondents in violation of their right to due
process and equal protection of the law.
2. Petitioner Commissioner and the Court of Tax Appeals have still to

determine Fortune's tax liability for 1992 in question; without any tax
liability, there can be no tax evasion.
3. Exclusive jurisdiction to determine tax liability is vested in the Court of

Tax Appeals; therefore, the DOJ is without jurisdiction to conduct
preliminary investigation.
4. The complaint of petitioner Commissioner is not supported by any

evidence to serve as adequate basis for the issuance of subpoena to
private respondents and to put them to their defense.
At the scheduled preliminary investigation on October 15, 1993, private respondents

were asked by the panel of prosecutors to inform it of the aspects of the Verified
Motion to Dismiss which counsel for private respondents did so briefly. Counsel for the
Commissioner of Internal Revenue asked for fifteen (15) days within which to file a
reply in writing to private respondents' Verified Motion to Dismiss. Thereupon, the
panel of prosecutors declared a recess. Upon reconvening, the panel of prosecutors
denied the motion to dismiss and treated the same as private respondents' counter-
affidavits.8
On October 20, 1993, private respondents filed a motion for reconsideration of the
order of October 15, 1993.9 On October 21, 1993, private respondents filed a motion
to require the submission by the Bureau of Internal Revenue of certain documents in
further support of their Verified Motion to Dismiss. Among the documents sought to be
produced are the "Daily Manufacturer's Sworn Statements" which according to
128
petitioner Commissioner in her complaint were submitted by Fortune to the BIR and
which were the basis of her conclusion that Fortune's tax declarations were false and
fraudulent. Fortune claimed that without the "Daily Manufacturer's Sworn Statements,"
there is no evidence to support the complaint, hence, warranting its outright dismissal.
On October 26, 1993, private respondents moved for the inhibition of the State
prosecutors assigned to the case for alleged lack of impartiality.10 Private respondents
also sought the production of the "Daily Manufacturer's Sworn Statements" submitted
by certain cigarette companies similarly situated as Fortune but were not proceeded
against, thus, private respondents charged that Fortune and its officers were being
singled out for criminal prosecution which is discriminatory and in violation of the equal
protection clause of the Constitution.
On December 20, 1993, the panel of prosecutors issued an Omnibus Order11 denying
private respondents' motion for reconsideration, motion for suspension of
investigation, motion to inhibit the State Prosecutors, and motion to require
submission by the BIR of certain documents to further support private respondents'
motion to dismiss.
On January 4, 1994, private respondents filed a petition for certiorari and prohibition
with prayer for preliminary injunction with the Regional Trial Court, Branch 88, Quezon
City, docketed as Q-94-18790, praying that the complaint of the Commissioner of
Internal Revenue and the orders of the prosecutors in I.S. No. 93-508 be dismissed or
set aside, alternatively, the proceedings on the preliminary investigation be suspended
pending final determination by the Commissioner of Fortune's motion for
reconsideration/ reinvestigation of the August 13, 1993 assessment of the taxes due.12
On January 17, 1994, petitioners filed a motion to dismiss the petition 13 on the
grounds that (a) the trial court is bereft of jurisdiction to enjoin a criminal prosecution
under preliminary investigation; (b) a criminal prosecution for tax fraud can proceed
independently of criminal or administrative action; (c) there is no prejudicial question
to justify suspension of the preliminary investigation; (d) private respondents' rights to
due process was not violated; and (e) selective prosecution is not a valid defense in
this jurisdiction.
On January 19, 1994, at the hearing of the incident for the issuance of a writ of
preliminary injunction in the petition, private respondents offered in evidence their
verified petition for certiorari and prohibition and its annexes. Petitioners responded by
praying that their motion to dismiss the petition for certiorari and prohibition be
considered as their opposition to private respondents' application for the issuance of a
writ of preliminary injunction.
On January 25, 1994, the trial court issued an order granting the prayer for the
issuance of a preliminary injunction.14 The trial court rationalized its order in this wise:
129
a) It is private respondents' claim that the ad valorem tax for the year
1992 was levied, assessed and collected by the BIR under Section 142(c)
of the Tax Code on the basis of the "manufacturer's registered wholesale
price" duly approved by the BIR. Fortune's taxable sales for 1992 was in
the amount of P11,736,658,580.00.
b) On the other hand, it is petitioners' contention that Fortune's

declaration was false and fraudulent because, based on its daily
manufacturer's sworn statements submitted to the BIR, its taxable sales
in 1992 were P16,686,372,295.00, as a result of which, Fortune was able
to evade the payment of ad valorem tax in the aggregate amount of
P5,792,479,816.24.
c) At the hearing for preliminary investigation, the "Daily Manufacturer's

Sworn Statements" which, according to petitioners, were submitted to the
BIR by private respondents and made the basis of petitioner
Commissioner's complaint that the total taxable sales of Fortune in 1992
amounted to P16,686,372, 295.00 were not produced as part of the
evidence for petitioners. In fact, private respondents had filed a motion to
require petitioner Commissioner to submit the aforesaid daily
manufacturer's sworn statements before the DOJ panel of prosecutors to
show that Fortune's actual taxable sales totaled P16,686,373,295.00, but
the motion was denied.
d) There is nothing on record in the preliminary investigation before the

panel of investigators which supports the allegation that Fortune made a
fraudulent declaration of its 1992 taxable sales.
e) Since, as alleged by private respondents, the ad valorem tax for the

year 1992 should be based on the "manufacturer's registered wholesale
price" while, as claimed by petitioners, the ad valorem taxes should be
based on the wholesale price at which the manufacturer sold the
cigarettes, which is a legal issue as admitted by a BIR lawyer during the
hearing for preliminary injunction, the correct interpretation of the law
involved, which is Section 142(c) of the Tax Code, constitutes a
prejudicial question which must first be resolved before criminal
proceedings for tax evasion may be pursued. In other words, the BIR
must first make a final determination, which it has not, of Fortune's tax
liability relative to its 1992 ad valorem, value-added and income taxes
before the taxpayer can be made liable for tax evasion.
f) There was a precipitate issuance by the panel of prosecutors of

subpoenas to private respondents, on the very day following the filing of
the complaint with the DOJ consisting of about 600 pages, and the
precipitate denial by the panel of prosecutors, after a recess of about
130
twenty (20) minutes, of private respondents' motion to dismiss, consisting
of one hundred and thirty five (135) pages.
g) Private respondents had been especially targeted by the government

for prosecution. Prior to the filing of the complaint in I.S. No. 93-508,
petitioner Commissioner issued Revenue Memorandum Circular No. 37-
93 reclassifying Fortune's best selling cigarettes, namely "Hope," "More,"
and "Champion" as cigarettes bearing a foreign brand, thereby imposing
upon them a higher rate of tax that would price them out of the market.
h) While in petitioner Commissioner's letter of August 13, 1993, she gave

Fortune a period of thirty (30) days from receipt thereof within which to
pay the alleged tax deficiency assessments, she filed the criminal
complaint for tax evasion before the period lapsed.
i) Based on the foregoing, the criminal complaint against private

respondents was filed prematurely and in violation of their constitutional
right to equal protection of the laws.
On January 26, 1994, private respondents filed with the trial court a Motion to Admit
Supplemental Petition and sought the issuance of a writ of preliminary injunction to
enjoin the State Prosecutors from continuing with the preliminary investigation filed by
them against private respondents with the Quezon City Prosecutor's Office, docketed
as I.S. 93-17942, for alleged fraudulent tax evasion, committed by private respondents
for the taxable year 1990. Private respondents averred in their motion that no
supporting documents or copies of the complaint were attached to the subpoena in
I.S. 93-17942; that the subpoena violates private respondents' constitutional right to
due process, equal protection and presumption of innocence; that I.S. 93-17942 is
substantially the same as I.S. 93-508; that no tax assessment has been issued by the
Commission of Internal Revenue and considering that taxes paid have not been
challenged, no tax liability exists; and that since Assistant City Prosecutor Baraquia
was a former classmate of Presidential Legal Counsel Antonio T. Carpio, the former
cannot conduct the preliminary investigation in an impartial manner.
On January 28, 1994, private respondents filed with the trial court a second
supplemental petition,15 also seeking to stay the preliminary investigation in I.S. 93-
584, which was the third complaint filed against private respondents with the DOJ for
alleged fraudulent tax evasion for the taxable year 1991.
On January 31, 1994, the lower court admitted the two (2) supplemental petitions and
issued a temporary restraining order in I.S. 93-17942 and I.S. 93-584.16 Also, on the
same day, petitioners filed an Urgent Motion for Immediate Resolution of petitioners'
motion to dismiss.
On February 7, 1994, the trial court issued an order denying petitioners' motion to
dismiss private respondents' petition seeking to stay preliminary investigation in I.S.
131
93-508, ruling that the issue of whether Sec. 127(b) of the National Tax Revenue
Code should be the basis of private respondents' tax liability as contended by the
Bureau of Internal Revenue, or whether it is Section 142(c) of the same Code that
applies, as argued by herein private respondents, should first be settled before any
complaint for fraudulent tax evasion can be initiated.17
On February 14, 1994, the trial court issued an order granting private respondents'
petition for a supplemental writ of preliminary injunction, likewise enjoining the
preliminary investigation of the two (2) other complaints filed with the Quezon City
Prosecutor's Office and the DOJ for fraudulent tax evasion, I.S. 93-17942 and I.S. 93-
584, for alleged tax evasion for the taxable years 1990 and 1991 respectively. 18 In
granting the supplemental writ, the trial court stated that the two other complaints are
the same as in I.S. 93-508, except that the former refer to the taxable years 1990 and
1991.
On March 7, 1994, petitioners filed a petition for certiorari and prohibition with prayer
for preliminary injunction before this Court. However, the petition was referred to the
Court of Appeals for disposition by virtue of its original concurrent jurisdiction over the
petition.
On December 19, 1994, the Court of Appeals in CA-G.R No. SP-33599 rendered a
decision denying the petition. The Court of Appeals ruled that the trial court committed
no grave abuse of discretion in ordering the issuance of writs of preliminary injunction
and in denying petitioners' motion to dismiss. In upholding the reasons and
conclusions given by the trial court in its orders for the issuance of the questioned
writs, the Court of Appeals said in part:
In making such conclusion the respondent Court must have understood

from herein petitioner Commissioner's letter-complaint of 14 pages (pp.
477-490, rollo of this case) and the joint affidavit of eight revenue officers
of 17 pages attached thereto (pp. 491-507, supra) and its annexes (pp.
508-1077, supra), that the charge against herein respondents is for tax
evasion for non-payment by herein respondent Fortune of the correct
amounts of income tax, ad valorem tax and value added tax, not
necessarily "fraudulent tax evasion." Hence, the need for previous
assessment of the correct amount by herein petitioner Commissioner
before herein respondents may be charged criminally. Certiorari will not
be issued to cure errors in proceedings or correct erroneous conclusions
of law or fact. As long as a Court acts within its jurisdictions, any alleged
error committed in the exercise of its jurisdiction, will amount to nothing
more than errors of judgment which are reviewable by timely appeal and
not by a special civil action of certiorari (Santos, Jr. vs. Court of Appeals,
152 SCRA 378; Gold City Integrated Port Services, Inc. vs. Intermediate
Appellate Court, 171 SCRA 579).
132
The questioned orders issued after hearing (Annexes A, B, C and D,
petition) being but interlocutory, review thereof by this Court is
inappropriate until final judgment is rendered, absent a showing of grave
abuse of discretion on the part of the issuing court (See Van Dorn vs.
Romillo, 139 SCRA 139, 141; Newsweek, Inc. vs. IAC, 171, 177;
Mendoza vs. Court of Appeals, 201 SCRA 343, 352). The factual and
legal issues involved in the main case still before the respondent Court
are best resolved after trial. Petitioners, therefore, instead of resorting to
this petition for certiorari and prohibition should have filed an answer to
the petition as ordained in Section 4, Rule 16, in connection with Rule 11
of the Revised Rules of Court, interposing as defense or defenses the
objection or objections raised in their motion to dismiss, then proceed to
trial in order that thereafter the case may be decided on the merits by the
respondent Court. In case of an adverse decision, they may appeal
therefrom by which the entire record of the case would be elevated for
review (See Mendoza vs. Court of Appeals, supra).
Therefore, certiorari and prohibition resorted to by herein petitioners will
not lie in view of the remedy open to them. Thus, the resulting delay in
the final disposition of the case before the respondent Court would not
have been incurred.
Grave abuse of discretion as a ground for issuance of writs

of certiorari and prohibition implies capricious and whimsical exercise of
judgment as is equivalent to lack of jurisdiction, or where the power is
exercised in an arbitrary or despotic manner by reason of passion,
prejudice, or personal hostility, amounting to an evasion of positive duty
or to a virtual refusal to perform the duty enjoined, or to act at all in
contemplation of law (Confederation of Citizens Labor Union vs. NLRC,
60 SCRA 84; Bustamante vs. Commission on Audit, 216 SCRA 134). For
such writs to lie, there must be capricious, arbitrary and whimsical
exercise of power, the very antithesis of the judicial prerogative in
accordance with centuries of both civil law and common law traditions
(Young vs. Sulit, 162 SCRA 659, 664; FCC vs. IAC, 166 SCRA 155;
Purefoods Corp. vs. NLRC, 171 SCRA 45). Certiorari and prohibition are
remedies narrow in scope and inflexible in character. They are not
general utility tools in the legal workshop (Vda. de Guia vs. Veloso, 158
SCRA 340, 344). Their function is but limited to correction of defects of
jurisdiction solely, not to be used for any other purpose (Garcia vs.
Ranada, 166 SCRA 9), such as to cure errors in. proceedings or to
correct erroneous conclusions of law or fact (Gold City Integrated Ports
Services vs. IAC, 171 SCRA 579). Due regard for the foregoing teachings
enunciated in the decisions cited can not bring about a decision other
than what has been reached herein.
Needless to say, the case before the respondent court involving those
against herein respondents for alleged non-payment of the correct
133
amounts due as income tax, ad valorem tax and value added tax for the
years 1990, 1991 and 1992 (Civil Case No. Q-94-18790) is not ended by
this decision. The respondent Court is still to try the case and decide it on
the merits. All that is decided here is but the validity of the orders of the
respondent Court granting herein respondents' application for preliminary
injunction and denying herein petitioners' motion to dismiss. If upon the
facts established after trial and the applicable law, dissolution of the writ
of preliminary injunction allowed to be issued by the respondent Court is
called for and a judgment favorable to herein petitioners is demanded, the
respondent Court is duty bound to render judgment accordingly.
WHEREFORE, the instant petition for certiorari and prohibition with

application for issuance of restraining order and writ of preliminary
injunction is DISMISSED. Costs de oficio.19
Their motion for reconsideration having been denied by respondent appellate court on
February 23, 1995, petitioners filed the present petition for review based on the
following grounds:
THE RESPONDENT COURTS COMMITTED GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
IN HOLDING THAT:
I. THERE IS A PREJUDICIAL AND/OR LEGAL QUESTION TO JUSTIFY

THE SUSPENSION OF THE PRELIMINARY INVESTIGATION.
II. PRIVATE RESPONDENTS' RIGHTS TO DUE PROCESS, EQUAL

PROTECTION AND PRESUMPTION OF INNOCENCE WERE
VIOLATED; ON THE CONTRARY, THE STATE ITSELF WAS
DEPRIVED OF DUE PROCESS.
III. THE ADMISSION OF PRIVATE RESPONDENTS' SUPPLEMENTAL

PETITIONS WERE PROPER.
IV. THERE WAS SELECTIVE PROSECUTION.
V. THE FACTUAL ALLEGATIONS IN THE PETITION ARE

HYPOTHETICALLY ADMITTED IN A MOTION TO DISMISS BASED ON
JURISDICTIONAL GROUNDS.
VI. THE ISSUANCE OF THE WRITS OF INJUNCTION IS NOT A

DECISION ON THE MERITS OF THE PETITION BEFORE THE LOWER
COURT.20
134
In essence, the complaints in I.S. Nos. 93-508, 93-584 and 93-17942 charged private
respondents with fraudulent tax evasion or wilfully attempting to evade or defeat
payment of income tax, ad valorem tax and value-added tax for the year 1992, as well
as for the years 1990-1991.
The pertinent provisions of law involved are Sections 127(b) and 142(c) of the
National Internal Revenue Code which state:
Sec. 127. . . .
(b) Determination of gross selling price of goods subject to ad valorem

tax. -- Unless otherwise provided, the price, excluding the value-added
tax, at which the goods are sold at wholesale in the place of production or
through their sales agents to the public shall constitute the gross selling
price. If the manufacturer also sells or allows such goods to be sold at
wholesale price in another establishment of which he is the owner or in
the profits at which he has an interest, the wholesale price in such
establishment shall constitute the gross selling price. Should such price
be less than the costs of manufacture plus expenses incurred until the
goods are finally sold, then a proportionate margin of profit, not less than
10% of such manufacturing costs and expenses, shall be added to
constitute the gross selling price.
Sec. 142. . . .
(c) Cigarettes packed in twenties. -- There shall be levied, assessed and

collected on cigarettes packed in twenties an ad valorem tax at the rates
prescribed below based on the manufacturer's registered wholesale price.
xxx xxx xxx
Private respondents contend that per Fortune's VAT returns, correct taxable sales for
1992 was in the amount of P11,736,658,580.00 which was the "manufacturer's
registered wholesale price" in accordance with Section 142(c) of the Tax Code and
paid the amount of P4,805,254,523 as ad valorem tax.
On the other hand, petitioners allege, as specifically worded in the complaint in I.S.
No. 93-508, that "based on the daily manufacturer's sworn statements submitted to
the BIR by the Taxpayer (Fortune's) total taxable sales during the year 1992 is
P16,686,372,295.00," as result of which Fortune "was able to evade the payment of
ad valorem taxes in the aggregate amount of P5,792,479,816.24 . . ."
Petitioners now argue that Section 127(b) lays down the rule that in determining the
gross selling price of goods subject to ad valorem tax, it is the price, excluding the
value-added tax, at which the goods are sold at wholesale price in the place of
production or through their sales agents to the public. The registered wholesale price
135
shall then be used for computing the ad valorem tax which is imposable upon removal
of the taxable goods from the place of production. However, petitioners claim that
Fortune used the "manufacturer's registered wholesale price" in selling the goods to
alleged fictitious individuals and dummy corporations for the purpose of evading the
payment of the correct ad valorem tax.
There can be no question that under Section 127(b), the ad valorem tax should be
based on the correct price excluding the value-added tax, at which goods are sold at
wholesale in the place of production. It is significant to note that among the goods
subject to ad valorem tax, the law -- specifically Section 142(c) -- requires that the
corresponding tax on cigarettes shall be levied, assessed and collected at the rates
based on the "manufacturer's registered wholesale price." Why does the wholesale
price need to be registered and what is the purpose of the registration? The reason is
self-evident, which is to ensure the payment of the correct taxes by the manufacturers
of cigarettes through close supervision, monitoring and checking of the business
operations of the cigarette companies. As pointed out by private respondents, no
industry is as intensely supervised by the BIR and also by the National Tobacco
Administration (NTA). Thus, the purchase and use of raw materials are subject to prior
authorization and approval by the NTA. Importations of bobbins or cigarette paper, the
manufacture, sale, and utilization of the same, are subject to BIR supervision and
approval.21
Moreover, as pointed to by private respondents, for purposes of closer supervision by

the BIR over the production of cigarettes, Revenue Enforcement Officers are detailed
on a 24-hour basis in the premises of the manufacturer to secure production and
removal of finished products. Composite Mobile Teams conduct counter-security on
the business operations as well as the performance of the Revenue Enforcement
Officers detailed thereat. Every transfer of any raw material is not allowed unless, in
addition to the required permits, accompanied by Revenue Enforcement Officer. For
the purpose of determining the "Manufacturer's Registered Wholesale Price" a
cigarette manufacturer is required to file a Manufacturer's Declaration (BIR Form No.
31.03) for each brand of cigarette manufactured, stating: a) Materials, b) Labor; c)
Overhead; d) Tax Burden and the Wholesale Price by Case. The data submitted
therewith is verified by the Revenue Officers and approved by the Commission of
Internal Revenue. Any change in the manufacturer's registered wholesale price of any
brand cannot be effected without submitting the corresponding Sworn Manufacturer's
Declaration and verified by the Revenue Officer and approved by the Commissioner
on Internal Revenue.22 The amount of ad valorem tax payments together with the
Payment Order and Confirmation Receipt Nos. must be indicated in the sales and
delivery invoices and together with the Manufacturer's Sworn Declarations on (a) the
quantity of raw materials used during the day's operations; (b) the total quantity
produced according to brand; and (c) the corresponding quantity removed during the
day, the corresponding wholesale price thereof, and the VAT paid thereon must be
presented to the corresponding BIR representative for authentication before removal.
136
Thus, as observed by the trial court in its order of January 25, 1994 granting private
respondents' prayer for the issuance of a writ of preliminary injunction, Fortune's
registered wholesale price (was) duly approved by the BIR, which fact is not disputed
by petitioners.23
Now, if every step in the production of cigarettes was closely monitored and
supervised by the BIR personnel specifically assigned to Fortune's premises, and
considering that the Manufacturer's Sworn Declarations on the data required to be
submitted by the manufacturer were scrutinized and verified by the BIR and, further,
since the manufacturer's wholesale price was duly approved by the BIR, then it is
presumed that such registered wholesale price is the same as, or approximates "the
price, excluding the value-added tax, at which the goods are sold at wholesale in the
place production," otherwise, the BIR would not have approved the registered
wholesale price of the goods for purposes of imposing the ad valorem tax due. In such
case, and in the absence of contrary evidence, it was precipitate and premature to
conclude that private respondents made fraudulent returns or wilfully attempted to
evade payment of taxes due. "Wilful" means "premeditated; malicious; done with
intent, or with bad motive or purpose, or with indifference to the natural consequence .
. ."24 "Fraud" in its general sense, "is deemed to comprise anything calculated to
deceive, including all acts, omissions, and concealment involving a breach of legal or
equitable duty, trust or confidence justly reposed, resulting in the damage to another,
or by which an undue and unconscionable advantage taken of another.25
Fraud cannot be presumed. If there was fraud or wilful attempt to evade payment of
ad valorem taxes by private respondents through the manipulation of the registered
wholesale price of the cigarettes, it must have been with the connivance or
cooperation of certain BIR officials and employees who supervised and monitored
Fortune's production activities to see to it that the correct taxes were paid. But there is
no allegation, much less evidence, of BIR personnel's malfeasance. In the very least,
there is the presumption that the BIR personnel performed their duties in the regular
course in ensuing the correct taxes were paid by Fortune.26
It is the opinion of both the trial court and respondent Court of Appeals, that before
Fortune and the other private respondents could be prosecuted for tax evasion under
Sections 253 and 255 of the Tax Code, the fact that the deficiency income, ad
valorem and value-added taxes were due from Fortune for the year 1992 should first
be established. Fortune received form the Commissioner of Internal Revenue the
deficiency assessment notices in the total amount of P7,685,942,221.06 on August
24, 1993. However, under Section 229 of the Tax Code, the taxpayer has the right to
move for reconsideration of the assessment issued by the Commissioner of Internal
Revenue within thirty (30) days from receipt of the assessment; and if the motion for
reconsideration is denied, it may appeal to the Court of Appeals within thirty (30) days
from receipt of the Commissioner's decision. Here, Fortune received the
Commissioner's assessment notice dated August 13, 1993 on August 24, 1993 asking
for the payment of the deficiency taxes. Within thirty (30) days from receipt thereof,
137
Fortune moved for reconsideration. The Commissioner has not resolved the request
for reconsideration up to the present.
We share with the view of both the trial court and court of Appeals that before the tax
liabilities of Fortune are first finally determined, it cannot be correctly asserted that
private respondents have wilfully attempted to evade or defeat the taxes sought to be
collected from Fortune. In plain words, before one is prosecuted for wilful attempt to
evade or defeat any tax under Sections 253 and 255 of the Tax code, the fact that a
tax is due must first be proved.
Suppose the Commissioner eventually resolves Fortune's motion for reconsideration

of the assessments by pronouncing that the taxpayer is not liable for any deficiency
assessment, then, the criminal complaints filed against private respondents will have
no leg to stand on.
In view of the foregoing reasons, we cannot subscribe to the petitioners' thesis

citing Ungad v. Cusi,27 that the lack of a final determination of Fortune's exact or
correct tax liability is not a bar to criminal prosecution, and that while a precise
computation and assessment is required for a civil action to collect tax deficiencies,
the Tax Code does not require such computation and assessment prior to criminal
prosecution.
Reading Ungad carefully, the pronouncement therein that deficiency assessment is

not necessary prior to prosecution is pointedly and deliberately qualified by the Court
with following statement quoted from Guzik v. U.S.:28"The crime is complete when the
violator has knowingly and wilfully filed a fraudulent return with intent to evade and
defeat apart or all of the tax." In plain words, for criminal prosecution to proceed
before assessment, there must be aprima facie showing of a wilful attempt to evade
taxes. There was a wilful attempt to evade tax in Ungad because of the taxpayer's
failure to declare in his income tax return "his income derived from banana sapplings."
In the mind of the trial court and the Court of Appeals, Fortune's situation is quite apart
factually since the registered wholesale price of the goods, approved by the BIR, is
presumed to be the actual wholesale price, therefore, not fraudulent and unless and
until the BIR has made a final determination of what is supposed to be the correct
taxes, the taxpayer should not be placed in the crucible of criminal prosecution. Herein
lies a whale of difference between Ungad and the case at bar.
This brings us to the erroneous disquisition that private respondents' recourse to the
trial court by way of special civil action of certiorari and prohibition was improper
because: a) the proceedings before the state prosecutors (preliminary injunction) were
far from terminated -- private respondents were merely subpoenaed and asked to
submit counter affidavits, matters that they should have appealed to the Secretary of
Justice; b) it is only after the submission of private respondents' counter affidavits that
the prosecutors will determine whether or not there is enough evidence to file in court
criminal charges for fraudulent tax evasion against private respondents; and c) the
proper procedure is to allow the prosecutors to conduct and finish the preliminary
138
investigation and to render a resolution, after which the aggrieved party can appeal
the resolution to the Secretary of Justice.
We disagree.
As a general rule, criminal prosecutions cannot be enjoined. However, there are

recognized exceptions which, as summarized in Brocka v. Enrile29 are:
a. To afford adequate protection to the constitutional rights of the accused

(Hernandez vs. Albano, et al., L-19272, January 25, 1967, 19 SCRA 95);
b. When necessary for the orderly administration of justice or to avoid

oppression or multiplicity of actions (Dimayuga, et al. vs. Fernandez, 43
Phil. 304; Hernandez vs. Albano, supra; Fortun vs. Labang, et al., L-
38383, May 27, 1981, 104 SCRA 607);
c. When there is a prejudicial question which is sub judice (De Leon vs.
Mabanag, 70 Phil 202);
d. When the acts of the officer are without or in excess of authority

(Planas vs. Gil, 67 Phil 62);
e. Where the prosecution is under an invalid law, ordinance or regulation

(Young vs. Rafferty, 33 Phil. 556; Yu Cong Eng vs. Trinidad, 47 Phil. 385,
389);
f. When double jeopardy is clearly apparent (Sangalang vs. People and

Alvendia, 109 Phil. 1140);
g. Where the court had no jurisdiction over the offense (Lopez vs. City
Judge, L-25795, October 29, 1966, 18 SCRA 616);
h. Where it is a case of persecution rather than prosecution (Rustia vs.

Ocampo, CA-G.R. No. 4760, March 25, 1960);
i. Where the charges are manifestly false and motivated by the lust for
vengeance (Recto vs. Castelo, 18 L.J. [1953], cited in Rano vs. Alvenia,
CA-G.R. No. 30720-R, October 8, 1962; Cf. Guingona, et al. vs. City
Fiscal, L-60033, April 4, 1984, 128 SCRA 577); and
j. When there is clearly no prima facie case against the accused and a
motion to quash on that ground has been denied (Salonga vs. Pane, et
al., L-59524, February 18, 1985, 134 SCRA 438).
In issuing the questioned orders granting the issuance of a writ of preliminary

injunction, the trial court believed that said orders were warranted to afford private
respondents adequate protection of their constitutional rights, particularly in reference
139
to presumption of innocence, due process and equal protection of the laws. The trial
court also found merit in private respondents' contention that preliminary injunction
should be issued to avoid oppression and because the acts of the state prosecutors
were without or in excess of authority and for the reason that there was a prejudicial
question.
Contrary to petitioners' submission, preliminary investigation may be enjoined where

exceptional circumstances so warrant. In Hernandez v. Albano30 and Fortun
v. Labang,31 injunction was issued to enjoin a preliminary investigation. In the case at
bar, private respondents filed a motion to dismiss the complaint against them before
the prosecution and alternatively, to suspend the preliminary investigation on the
grounds cited hereinbefore, one of which is that the complaint of the Commissioner is
not supported by any evidence to serve as adequate basis for the issuance of the
subpoena to them and put them to their defense.
Indeed, the purpose of a preliminary injunction is to secure the innocent against hasty,
malicious and oppressive prosecution and to protect him from an open and public
accusation of crime, from the trouble, expense and anxiety of a public trial and also to
protect the state from useless and expensive trials. 32 Thus, the pertinent provisions of
Rule 112 of the Rules of Court state:
Sec. 3. Procedure. -- Except as provided for in Section 7 hereof, no

complaint or information for an offense cognizable by the Regional Trial
Court shall be filed without a preliminary investigation having been first
conducted in the following manner:
(a) The complaint shall state the known address of the respondent and be
accompanied by affidavits of the complainant and his witnesses as well
as other supporting documents, in such number of copies as there are
respondents, plus two (2) copies for the official file. The said affidavits
shall be sworn to before any fiscal, state prosecutor or government official
authorized to administer oath, or, in their absence or unavailability, a
notary public, who must certify that he personally examined the affiants
and that he is satisfied that they voluntarily executed and understood their
affidavits.
(b) Within ten (10) days after the filing of the complaint, the investigating
officer shall either dismiss the same if he finds no ground to continue with
the inquiry, or issue a subpoena to the respondent, attaching thereto a
copy of the complaint, affidavits and other supporting documents. Within
ten (10) days from receipt thereof, the respondent shall submit counter-
affidavits and other supporting documents. He shall have the right to
examine all other evidence submitted by the complainant.
(c) Such counter-affidavits and other supporting evidence submitted by

the respondent shall also be sworn to and certified as prescribed in
140
paragraph (a) hereof and copies thereof shall be furnished by him to the
complainant.
(d) If the respondent cannot be subpoenaed, or if subpoenaed, does not

submit counter-affidavits within the ten (10) day period, the investigating
officer shall base his resolution on the evidence presented by the
complainant.
(e) If the investigating officer believes that there are matters to be

clarified, he may set a hearing to propound clarificatory questions to the
parties or their witnesses, during which the parties shall be afforded an
opportunity to be present but without the right to examine or cross-
examine. If the parties so desire, they may submit questions to the
investigating officer which the latter may propound to the parties or
witnesses concerned.
(f) Thereafter, the investigation shall be deemed concluded, and the

investigating officer shall resolve the case within ten (10) days therefrom.
Upon the evidence thus adduced, the investigating officer shall determine
whether or not there is sufficient ground to hold the respondent for trial.
As found by the Court of Appeals, there was obvious haste by which the subpoena
was issued to private respondents, just the day after the complaint was filed, hence,
without the investigating prosecutors being afforded material time to examine and
study the voluminous documents appended to the complaint for them to determine if
preliminary investigation should be conducted. The Court of Appeals further added
that the precipitate haste in the issuance of the subpoena justified private
respondents' misgivings regarding the objectivity and neutrality of the prosecutors in
the conduct of the preliminary investigation and so, the appellate court concluded, the
grant of preliminary investigation by the trial court to afford adequate protection to
private respondents' constitutional rights and to avoid oppression does not constitute
grave abuse of discretion amounting to lack of jurisdiction.
The complaint filed by the Commissioner on Internal Revenue states itself that the
primary evidence establishing the falsity of the declared taxable sales in 1992 in the
amount of P11,736,658,580.00 were the "daily Manufacturer's Sworn Statements"
submitted by the taxpayer which would show that the total taxable sales in 1992 are in
the amount of P16,686,372,295.00. However, the Commissioner did not present the
"Daily Manufacturer's Sworn Statements" supposedly submitted to the BIR by the
taxpayer, prompting private respondents to move for their production in order to verify
the basis of petitioners' computation. Still, the Commissioner failed to produce the
declarations. In Borja v. Moreno,33 it was held that the act of the investigator in
proceeding with the hearing without first acting on respondents' motion to dismiss is a
manifest disregard of the requirement of due process. Implicit in the opinion of the trial
court and the Court of Appeals is that, if upon the examination of the complaint, it was
clear that there was no ground to continue, with the inquiry, the investigating
141
prosecutor was duty bound to dismiss the case. On this point, the trial court stressed
that the prosecutor conducting the preliminary investigation should have allowed the
production of the "Daily Manufacturer's Sworn Statements" submitted by Fortune
without which there was no valid basis for the allegation that private respondents
wilfully attempted to evade payment of the correct taxes. The prosecutors should also
have produced the "Daily Manufacturer's Sworn Statements" by other cigarette
companies, as sought by private respondents, to show that these companies which
had paid the ad valorem taxes on the same basis and in the same manner as Fortune
were not similarly criminally charged. But the investigating prosecutors denied private
respondents' motion, thus, indicating that only Fortune was singled out for
prosecution. The trial court and the Court of Appeals maintained that at that stage of
the preliminary investigation, where the complaint and the accompanying affidavits
and supporting documents did not show any violation of the Tax Code providing penal
sanctions, the prosecutors should have dismissed the complaint outright because of
total lack of evidence, instead of requiring private respondents to submit their counter
affidavits under Section 3(b) of Rule 112.
We believe that the trial court in issuing its questioned orders, which are interlocutory
in nature, committed no grave abuse of discretion amounting to lack of jurisdiction.
There are factual and legal bases for the assailed orders. On the other hand, the
burden is upon the petitioners to demonstrate that the questioned orders constitute a
whimsical and capricious exercise of judgment, which they have not. For certiorari will
not be issued to cure errors in proceedings or correct erroneous conclusions of law or
fact. As long as a court acts within its jurisdiction, any alleged errors committed in the
exercise of its jurisdiction will amount to nothing more than errors of judgment which
are reviewable by timely appeal and not by a special civil action
of certiorari. 34 Consequently, the Regional Trial Court acted correctly and judiciously,
and as demanded by the facts and the law, in issuing the orders granting the writs of
preliminary injunction, in denying petitioners' motion to dismiss and in admitting the
supplemental petitions. What petitioners should have done was to file an answer to
the petition filed in the trial court, proceed to the hearing and appeal the decision of
the court if adverse to them.
WHEREFORE, the instant petition is hereby DISMISSED.
SO ORDERED.
DIGEST
CIR vs. CA
Facts: A task force was created on June 1, 1993 to investigate taxliabilities of

manufacturers engaged in tax evasion schemes. On July 1, 1993, the CIR issued
Rev. Memo Circ. No. 37-93 which reclassified certain cigarette brands manufactured
by private respondent Fortune Tobacco Corp. (Fortune) as foreign brands subject to a
higher tax rate. On August 3, 1993, Fortune questioned the validity of said
142
reclassification as being violative of the right to due process and equal protection
of laws. The CTA, on September 8, 1993 resolved that said reclassification was of
doubtful legality and enjoined its enforcement.
In the meantime, on August 3, 1993, Fortune was assessed deficiencyincome, ad

valorem and VAT for 1992 with payment due within 30 days from receipt. On
September 12, 1993, private respondent moved for reconsideration of said
assessment. Meanwhile on September 7, 1993, the Commissioner filed a complaint
with the DOJ against private respondent Fortune, its corporate officers and 9 other
corporations and their respective corporate officers for
alleged fraudulent tax evasion for non-payment of the correct income, ad valorem and
VAT for 1992. The complaint was referred to the DOJ Task Force on revenue cases
which found sufficient basis to further investigate the charges against Fortune.
A subpoena was issued on September 8, 1993 directing private respondent to submit

their counter-affidavits. But it filed a verified motion to dismiss or alternatively, a
motion to suspend but was denied and thus treated as their counter-affidavit. All
motions filed thereafter were denied.
January 4, 1994, private respondents filed a petition for certiorari and prohibition with
prayer for preliminary injunction praying the CIR’s complaint and prosecutor’s orders
be dismissed/set aside or alternatively, that the preliminary investigation be
suspended pending determination by CIR of Fortune’s motion for
reconsideration/reinvestigation of the August 13, 1993 assessment of taxes due.
The trial court granted the petition for a writ of preliminary injunction to enjoin the
preliminary investigation on the complaint for tax evasionpending before the DOJ,
ruling that the tax liability of private respondents first be settled before any complaint
for fraudulent tax evasion can be initiated.
Issue: Whether the basis of private respondent’s tax liability first be settled before any
complaint for fraudulent tax evasion can be initiated.
Held: Fraud cannot be presumed. If there was fraud on willful attempt to evade
payment of ad valorem taxes by private respondent through the manipulation of the
registered wholesale price of the cigarettes, it must have been with the connivance of
cooperation of certain BIR officials and employees who supervised and monitored
Fortune’s production activities to see to it that the correct taxes were paid. But there is
143
no allegation, much less evidence, of BIR personnel’s malfeasance at the very least,
there is the presumption that BIR personnel performed their duties in the regular
course in ensuring that the correct taxes were paid by Fortune.
Before the tax liabilities of Fortune are finally determined, it cannot be correctly
asserted that private respondents have willfully attempted to evade or defeat any tax
under Secs. 254 and 256, 1997 NIRC, the fact that a tax is due must first be proved.
G.R. No. 128315 June 29, 1999

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 1 of the Court of Appeals 2 in CA-GR SP No. 40853, which effectively
affirmed the January 25, 1996 Resolution 3 of the Court of Tax Appeals 4 CTA Case
No. 5271. The CTA disposed as 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 5 of the Court of
Appeals denying reconsideration.
The Facts
144
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
145
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)
146
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, 8 which was attached to the criminal Complaint, constituted
an 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.
147
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 10 (NIRC), which provides that 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 11 provide a specific definition or form of an assessment. However,
the NIRC defines 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 13 of the NIRC provides that internal revenue taxes must be assessed within
three years from the last day within which to file the return. Section 222, 14 on the
other hand, specifies a period of ten years in case a fraudulent return with intent to
evade was submitted or in case of failure to file a return. Also, Section 228 15 of the
same 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
148
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
149
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,20 petitioner therein sought the dismissal of the criminal Complaints
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, 21 which penalizes failure to file a return. They add that a tax
assessment should precede a 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.
DIGEST
150
[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.
FACTS: An examination of the books of accounts and other accounting records of

Pascor Realty and Development Corporation. (PRDC) for the years ending 1986,
1987 and 1988 resulted in a recommendation for the issuance of an assessment by
the CIR.
Subsequently, CIR filed a criminal complaint before the Department of Justice against
the PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S. Dio, for tax
evasion.
Private respondents PRDC, et. al. filed an Urgent Request for

Reconsideration/Reinvestigation disputing the tax assessment and tax liability.
The CIR denied the urgent request for reconsideration/reinvestigation of the private
respondents on the ground that no formal assessment has as yet been issued by the
Commissioner.
The CTA took cognizance of the case holding that the criminal complaint for tax
evasion was already an assessment.
ISSUE: WON 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
HELD: NO. 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 interests 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.
Neither the NIRC nor the revenue regulations governing the protest of
assessments[11] provide a specific definition or form of an assessment. However, the
NIRC defines the specific functions and effects of an assessment. To consider the
151
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.
fails to pay the 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 rate as
may be prescribed by rules and regulations, is to be collected from 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[13]of the NIRC provides that internal revenue taxes must be assessed within
three years from the last day within which to file the return. Section 222,[14] on the
other hand, specifies a period of ten years in case a fraudulent return with intent to
evade was submitted or in case of failure to file a return. Also, Section 228[15] of the
same 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.
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.
G.R. No. 120935 May 21, 2009
LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON, and SARA S. DE LOS

REYES, in their capacities as President, Treasurer and Secretary of Adamson
Management Corporation, Petitioners,
vs.
COURT OF APPEALS and LIWAYWAY VINZONS-CHATO, in her capacity as
Commissioner of the Bureau of Internal Revenue, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
152
G.R. No. 124557 May 21, 2009
INTERNAL REVENUE, Petitioner,

vs.
COMMISSIONER OF COURT OF APPEALS, COURT OF TAX APPEALS,
ADAMSON MANAGEMENT CORPORATION, LUCAS G. ADAMSON, THERESE
JUNE D. ADAMSON, and SARA S. DE LOS REYES,Respondents.
DECISION
PUNO, C.J.:
Before the Court are the consolidated cases of G.R. No. 120935 and G.R. No.
124557.
G.R. No. 120935 involves a petition for review on certiorari filed by petitioners LUCAS
G. ADAMSON, THERESE JUNE D. ADAMSON, and SARA S. DE LOS REYES
(private respondents), in their respective capacities as president, treasurer and
secretary of Adamson Management Corporation (AMC) against then Commissioner of
Internal Revenue Liwayway Vinzons-Chato (COMMISSIONER), under Rule 45 of the
Revised Rules of Court. They seek to review and reverse the Decision promulgated
on March 21, 1995 and Resolution issued on July 6, 1995 of the Court of Appeals in
CA-G.R. SP No. 35488 (Liwayway Vinzons-Chato, et al. v. Hon. Judge Erna Falloran-
Aliposa, et al.).
G.R. No. 124557 is a petition for review on certiorari filed by the Commissioner,
assailing the Decision dated March 29, 1996 of the Court of Appeals in CA-G.R. SP
No. 35520, titled Commissioner of Internal Revenue v. Court of Tax Appeals,
Adamson Management Corporation, Lucas G. Adamson, Therese June D. Adamson
and Sara S. de los Reyes. In the said Decision, the Court of Appeals upheld the
Resolution promulgated on September 19, 1994 by the Court of Tax Appeals (CTA) in
C.T.A. Case No. 5075 (Adamson Management Corporation, Lucas G. Adamson,
Therese Adamson and Sara de los Reyes v. Commissioner of Internal Revenue).
The facts, as culled from the findings of the appellate court, follow:
On June 20, 1990, Lucas Adamson and AMC sold 131,897 common shares of stock
in Adamson and Adamson, Inc. (AAI) to APAC Holding Limited (APAC). The shares
were valued at ₱7,789,995.00.1 On June 22, 1990, ₱159,363.21 was paid as capital
gains tax for the transaction.
On October 12, 1990, AMC sold to APAC Philippines, Inc. another 229,870 common
shares of stock in AAI for ₱17,718,360.00. AMC paid the capital gains tax of
₱352,242.96.
On October 15, 1993, the Commissioner issued a "Notice of Taxpayer" to AMC, Lucas
G. Adamson, Therese June D. Adamson and Sara S. de los Reyes, informing them of
153
deficiencies on their payment of capital gains tax and Value Added Tax (VAT). The
notice contained a schedule for preliminary conference.
The events preceding G.R. No. 120935 are the following:
On October 22, 1993, the Commissioner filed with the Department of Justice (DOJ)
her Affidavit of Complaint2against AMC, Lucas G. Adamson, Therese June D.
Adamson and Sara S. de los Reyes for violation of Sections 45 (a) and (d) 3 , and
1104 , in relation to Section 1005 , as penalized under Section 255,6 and for violation of
Section 2537 , in relation to Section 252 (b) and (d) of the National Internal Revenue
Code (NIRC).8
AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed
with the DOJ a motion to suspend proceedings on the ground of prejudicial question,
pendency of a civil case with the Supreme Court, and pendency of their letter-request
for re-investigation with the Commissioner. After the preliminary investigation, State
Prosecutor Alfredo P. Agcaoili found probable cause. The Motion for Reconsideration
against the findings of probable cause was denied by the prosecutor.
On April 29, 1994, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los
Reyes were charged before the Regional Trial Court (RTC) of Makati, Branch 150 in
Criminal Case Nos. 94-1842 to 94-1846. They filed a Motion to Dismiss or Suspend
the Proceedings. They invoked the grounds that there was yet no final assessment of
their tax liability, and there were still pending relevant Supreme Court and CTA cases.
Initially, the trial court denied the motion. A Motion for Reconsideration was however
filed, this time assailing the trial court’s lack of jurisdiction over the nature of the
subject cases. On August 8, 1994, the trial court granted the Motion. It ruled that the
complaints for tax evasion filed by the Commissioner should be regarded as a
decision of the Commissioner regarding the tax liabilities of Lucas G. Adamson,
Therese June D. Adamson and Sara S. de los Reyes, and appealable to the CTA. It
further held that the said cases cannot proceed independently of the assessment case
pending before the CTA, which has jurisdiction to determine the civil and criminal tax
liability of the respondents therein.
On October 10, 1994, the Commissioner filed a Petition for Review with the Court of
Appeals assailing the trial court’s dismissal of the criminal cases. She averred that it
was not a condition prerequisite that a formal assessment should first be given to the
private respondents before she may file the aforesaid criminal complaints against
them. She argued that the criminal complaints for tax evasion may proceed
independently from the assessment cases pending before the CTA.
On March 21, 1995, the Court of Appeals reversed the trial court’s decision and
reinstated the criminal complaints. The appellate court held that, in a criminal
prosecution for tax evasion, assessment of tax deficiency is not required because the
offense of tax evasion is complete or consummated when the offender has knowingly
and willfully filed a fraudulent return with intent to evade the tax.9 It ruled that private
154
respondents filed false and fraudulent returns with intent to evade taxes, and acting
thereupon, petitioner filed an Affidavit of Complaint with the Department of Justice,
without an accompanying assessment of the tax deficiency of private respondents, in
order to commence criminal action against the latter for tax evasion.10
Private respondents filed a Motion for Reconsideration, but the trial court denied the
motion on July 6, 1995. Thus, they filed the petition in G.R. No. 120935, raising the
following issues:
1. WHETHER OR NOT THE RESPONDENT HONORABLE COURT OF APPEALS

ERRED IN APPLYING THE DOCTRINE IN UNGAB V. CUSI (Nos. L-41919-24, May
30, 1980, 97 SCRA 877) TO THE CASE AT BAR.
2. WHETHER OR NOT AN ASSESSMENT IS REQUIRED UNDER THE SECOND

CATEGORY OF THE OFFENSE IN SECTION 253 OF THE NIRC.
3. WHETHER OR NOT THERE WAS A VALID ASSESSMENT MADE BY THE

COMMISSIONER IN THE CASE AT BAR.
4. WHETHER OR NOT THE FILING OF A CRIMINAL COMPLAINT SERVES AS AN

IMPLIED ASSESSMENT ON THE TAX LIABILITY OF THE TAXPAYER.
5. WHETHER OR NOT THE FILING OF THE CRIMINAL INFORMATION FOR TAX

EVASION IN THE TRIAL COURT IS PREMATURE BECAUSE THERE IS YET NO
BASIS FOR THE CRIMINAL CHARGE OF WILLFULL INTENT TO EVADE THE
PAYMENT OF A TAX.
6. WHETHER OR NOT THE DOCTRINES LAID DOWN IN THE CASES OF YABES

V. FLOJO (No. L-46954, July 20, 1982, 115 SCRA 286) AND CIR V. UNION
SHIPPING CORP. (G.R. No. 66160, May 21, 1990, 185 SCRA 547) ARE
APPLICABLE TO THE CASE AT BAR.
7. WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION OVER

THE DISPUTE ON WHAT CONSTITUTES THE PROPER TAXES DUE FROM THE
TAXPAYER.
In parallel circumstances, the following events preceded G.R. No. 124557:
On December 1, 1993, AMC, Lucas G. Adamson, Therese June D. Adamson and

Sara S. de los Reyes filed a letter request for re-investigation with the Commissioner
of the "Examiner’s Findings" earlier issued by the Bureau of Internal Revenue (BIR),
which pointed out the tax deficiencies.
On March 15, 1994 before the Commissioner could act on their letter-request, AMC,
Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed a
Petition for Review with the CTA. They assailed the Commissioner’s finding of tax
evasion against them. The Commissioner moved to dismiss the petition, on the
155
ground that it was premature, as she had not yet issued a formal assessment of the
tax liability of therein petitioners. On September 19, 1994, the CTA denied the Motion
to Dismiss. It considered the criminal complaint filed by the Commissioner with the
DOJ as an implied formal assessment, and the filing of the criminal informations with
the RTC as a denial of petitioners’ protest regarding the tax deficiency.
The Commissioner repaired to the Court of Appeals on the ground that the CTA acted
with grave abuse of discretion. She contended that, with regard to the protest provided
under Section 229 of the NIRC, there must first be a formal assessment issued by the
Commissioner, and it must be in accord with Section 6 of Revenue Regulation No. 12-
85. She maintained that she had not yet issued a formal assessment of tax liability,
and the tax deficiency amounts mentioned in her criminal complaint with the DOJ
were given only to show the difference between the tax returns filed and the audit
findings of the revenue examiner.
The Court of Appeals sustained the CTA’s denial of the Commissioner’s Motion to
Dismiss. Thus, the Commissioner filed the petition for review under G.R. No. 124557,
raising the following issues:
1. WHETHER OR NOT THE INSTANT PETITION SHOULD BE DISMISSED FOR

FAILURE TO COMPLY WITH THE MANDATORY REQUIREMENT OF A
CERTIFICATION UNDER OATH AGAINST FORUM SHOPPING;
2. WHETHER OR NOT THE CRIMINAL CASE FOR TAX EVASION IN THE CASE AT
BAR CAN PROCEED WITHOUT AN ASSESSMENT;
3. WHETHER OR NOT THE COMPLAINT FILED WITH THE DEPARTMENT OF

JUSTICE CAN BE CONSTRUED AS AN IMPLIED ASSESSMENT; and
4. WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION TO

ACT ON PRIVATE RESPONDENTS’ PETITION FOR REVIEW FILED WITH THE
SAID COURT.
The issues in G.R. No. 124557 and G.R. No. 120935 can be compressed into three:
1. WHETHER THE COMMISSIONER HAS ALREADY RENDERED AN

ASSESSMENT (FORMAL OR OTHERWISE) OF THE TAX LIABILITY OF AMC,
LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON AND SARA S. DE LOS
REYES;
2. WHETHER THERE IS BASIS FOR THE CRIMINAL CASES FOR TAX EVASION
TO PROCEED AGAINST AMC, LUCAS G. ADAMSON, THERESE JUNE D.
ADAMSON AND SARA S. DE LOS REYES; and
3. WHETHER THE COURT OF TAX APPEALS HAS JURISDICTION TO TAKE

COGNIZANCE OF BOTH THE CIVIL AND THE CRIMINAL ASPECTS OF THE TAX
156
LIABILITY OF AMC, LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON AND
SARA S. DE LOS REYES.
The case of CIR v. Pascor Realty, et al.11 is relevant. In this case, then BIR
Commissioner Jose U. Ong authorized revenue officers to examine the books of
accounts and other accounting records of Pascor Realty and Development
Corporation (PRDC) for 1986, 1987 and 1988. This resulted in a recommendation for
the issuance of an assessment in the amounts of ₱7,498,434.65 and ₱3,015,236.35
for the years 1986 and 1987, respectively.
On March 1, 1995, the Commissioner filed a criminal complaint before the DOJ
against PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S. Dio, alleging
evasion of taxes in the total amount of ₱10,513,671.00. Private respondents filed an
Urgent Request for Reconsideration/Reinvestigation disputing the tax assessment and
tax liability.
The Commissioner denied the urgent request for reconsideration/reinvestigation

because she had not yet issued a formal assessment.
Private respondents then elevated the Decision of the Commissioner to the CTA on a
petition for review. The Commissioner 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 yet no formal assessment issued against the petitioners. The CTA denied the
said motion to dismiss and ordered the Commissioner to file an answer within thirty
(30) days. The Commissioner did not file an answer nor did she move to reconsider
the resolution. Instead, the Commissioner filed a petition for review of the CTA
decision with the Court of Appeals. The Court of Appeals upheld the CTA order.
However, this Court reversed the Court of Appeals decision and the CTA order, and
ordered the dismissal of the petition. We held:
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
interests 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.
Neither the NIRC nor the revenue regulations governing the protest of
assessments12 provide a specific definition or form of an assessment. However, the
NIRC defines the specific functions and effects of an assessment. To consider the
157
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.
fails to pay the 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 rate as
may be prescribed by rules and regulations, is to be collected from the date
prescribed for its payment until the full payment.13
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 14 of
the NIRC provides that internal revenue taxes must be assessed within three years
from the last day within which to file the return. Section 222,15 on the other hand,
specifies a period of ten years in case a fraudulent return with intent to evade was
submitted or in case of failure to file a return. Also, Section 22816 of the same 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.
releases, mails or sends such notice to the taxpayer.17
In the present case, the revenue officers’ Affidavit merely contained a computation of
respondents’ tax liability.lawphil.net 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."18
"Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for
the proper presentation of tax rolls."19
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
158
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.
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,20 petitioner therein sought the dismissal of the
criminal Complaints 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 NIRC,21 which penalizes failure to file a return. They add that a tax assessment
should precede a 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.
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In the cases at bar, the Commissioner denied that she issued a formal assessment of
the tax liability of AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S.
de los Reyes. She admits though that she wrote the recommendation
letter22 addressed to the Secretary of the DOJ recommending the filing of criminal
complaints against AMC and the aforecited persons for fraudulent returns and tax
evasion.
The first issue is whether the Commissioner’s recommendation letter can be

considered as a formal assessment of private respondents’ tax liability.
In the context in which it is used in the NIRC, an assessment is a written notice and
demand made by the BIR on the taxpayer for the settlement of a due tax liability that
is there definitely set and fixed. A written communication containing a computation by
a revenue officer of the tax liability of a taxpayer and giving him an opportunity to
contest or disprove the BIR examiner’s findings is not an assessment since it is yet
indefinite.23
We rule that the recommendation letter of the Commissioner cannot be considered a

formal assessment. Even a cursory perusal of the said letter would reveal three key
points:
1. It was not addressed to the taxpayers.
2. There was no demand made on the taxpayers to pay the tax liability, nor a
period for payment set therein.
3. The letter was never mailed or sent to the taxpayers by the Commissioner.
In fine, the said recommendation letter served merely as the prima facie basis for filing
criminal informations that the taxpayers had violated Section 45 (a) and (d), and 110,
in relation to Section 100, as penalized under Section 255, and for violation of Section
253, in relation to Section 252 9(b) and (d) of the Tax Code.24
The next issue is whether the filing of the criminal complaints against the private
respondents by the DOJ is premature for lack of a formal assessment.
Section 269 of the NIRC (now Section 222 of the Tax Reform Act of 1997) provides:
Sec. 269. Exceptions as to period of limitation of assessment and collection of taxes.-

(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file
a return, the tax may be assessed, or a proceeding in court after the collection of such
tax may be begun without assessment, at any time within ten years after the discovery
of the falsity, fraud or omission: Provided, That in a fraud assessment which has
become final and executory, the fact of fraud shall be judicially taken cognizance of in
the civil or criminal action for collection thereof…
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The law is clear. When fraudulent tax returns are involved as in the cases at bar, a
proceeding in court after the collection of such tax may be begun without assessment.
Here, the private respondents had already filed the capital gains tax return and the
VAT returns, and paid the taxes they have declared due therefrom. Upon investigation
of the examiners of the BIR, there was a preliminary finding of gross discrepancy in
the computation of the capital gains taxes due from the sale of two lots of AAI shares,
first to APAC and then to APAC Philippines, Limited. The examiners also found that
the VAT had not been paid for VAT-liable sale of services for the third and fourth
quarters of 1990. Arguably, the gross disparity in the taxes due and the amounts
actually declared by the private respondents constitutes badges of fraud.
Thus, the applicability of Ungab v. Cusi25 is evident to the cases at bar. In this seminal
case, this Court ruled that there was no need for precise computation and formal
assessment in order for criminal complaints to be filed against him. It quoted Merten’s
Law of Federal Income Taxation, Vol. 10, Sec. 55A.05, p. 21, thus:
An assessment of a deficiency is not necessary to a criminal prosecution for willful

attempt to defeat and evade the income tax. A crime is complete when the violator
has knowingly and willfully filed a fraudulent return, with intent to evade and defeat the
tax. The perpetration of the crime is grounded upon knowledge on the part of the
taxpayer that he has made an inaccurate return, and the government’s failure to
discover the error and promptly to assess has no connections with the commission of
the crime.
This hoary principle still underlies Section 269 and related provisions of the present
Tax Code.
We now go to the issue of whether the CTA has no jurisdiction to take cognizance of
both the criminal and civil cases here at bar.1avvphi1
Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals) as
amended, the rulings of the Commissioner are appealable to the CTA, thus:
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;
Republic Act No. 8424, titled "An Act Amending the National Internal Revenue Code,
As Amended, And For Other Purposes," later expanded the jurisdiction of the
Commissioner and, correspondingly, that of the CTA, thus:
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SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases.
– The power to interpret the provisions of this Code and other tax laws shall be under
the exclusive and original jurisdiction of the Commissioner, subject to review by the
Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties imposed in relation thereto, or other matters arising under
this Code or other laws or portions thereof administered by the Bureau of Internal
Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction
of the Court of Tax Appeals.
The latest statute dealing with the jurisdiction of the CTA is Republic Act No. 9282. 26 It
provides:
SEC. 7. Section 7 of the same Act is hereby amended to read as follows:
Sec. 7. Jurisdiction. — The CTA shall exercise:
(a) 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 in relation thereto, or other matters arising under the National Internal
Revenue or other laws administered by the Bureau of Internal Revenue;
(2) Inaction by the Commissioner of Internal Revenue in cases involving

disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties in relation thereto, or other matters arising under the National Internal
Revenue Code or other laws administered by the Bureau of Internal Revenue,
where the National Internal Revenue Code provides a specific period of action,
in which case the inaction shall be deemed a denial;
(3) Decisions, orders or resolutions of the Regional Trial Courts in local tax
cases originally decided or resolved by them in the exercise of their original or
appellate jurisdiction;
xxx
(b) Jurisdiction over cases involving criminal offenses as herein provided:
(1) Exclusive original jurisdiction over all criminal offenses arising from
violations of the National Internal Revenue Code or Tariff and Customs Code
and other laws administered by the Bureau of Internal Revenue or the Bureau
of Customs: Provided, however, That offenses or felonies mentioned in this
paragraph where the principal amount of taxes and fees, exclusive of charges
and penalties, claimed is less than One million pesos (P1,000,000.00) or where
there is no specified amount claimed shall be tried by the regular courts and the
162
jurisdiction of the CTA shall be appellate. Any provision of law or the Rules of
Court to the contrary notwithstanding, the criminal action and the corresponding
civil action for the recovery of civil liability for taxes and penalties shall at all
times be simultaneously instituted with, and jointly determined in the same
proceeding by the CTA, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to reserve the
filling of such civil action separately from the criminal action will be recognized.
(2) Exclusive appellate jurisdiction in criminal offenses:
(a) Over appeals from the judgments, resolutions or orders of the Regional Trial
Courts in tax cases originally decided by them, in their respected territorial
jurisdiction.
(b) Over petitions for review of the judgments, resolutions or orders of the
Regional Trial Courts in the exercise of their appellate jurisdiction over tax
cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts
and Municipal Circuit Trial Courts in their respective jurisdiction.
(c) Jurisdiction over tax collection cases as herein provided:
(1) Exclusive original jurisdiction in tax collection cases involving final and
executory assessments for taxes, fees, charges and penalties: Provided,
however, That collection cases where the principal amount of taxes and
fees, exclusive of charges and penalties, claimed is less than One million
pesos (₱1,000,000.00) shall be tried by the proper Municipal Trial Court,
Metropolitan Trial Court and Regional Trial Court.
(2) Exclusive appellate jurisdiction in tax collection cases:
(a) Over appeals from the judgments, resolutions or orders of the

Regional Trial Courts in tax collection cases originally decided by
them, in their respective territorial jurisdiction.
(b) Over petitions for review of the judgments, resolutions or orders

of the Regional Trial Courts in the exercise of their appellate
jurisdiction over tax collection cases originally decided by the
Metropolitan Trial Courts, Municipal Trial Courts and Municipal
Circuit Trial Courts, in their respective jurisdiction.
These laws have expanded the jurisdiction of the CTA. However, they did not change
the jurisdiction of the CTA to entertain an appeal only from a final decision or
assessment of the Commissioner, or in cases where the Commissioner has not acted
within the period prescribed by the NIRC. In the cases at bar, the Commissioner has
not issued an assessment of the tax liability of private respondents.
163
Finally, we hold that contrary to private respondents’ stance, the doctrines laid down in
CIR v. Union Shipping Co. and Yabes v. Flojo are not applicable to the cases at bar.
In these earlier cases, the Commissioner already rendered an assessment of the tax
liabilities of the delinquent taxpayers, for which reason the Court ruled that the filing of
the civil suit for collection of the taxes due was a final denial of the taxpayers’ request
for reconsideration of the tax assessment.
IN VIEW WHEREOF, premises considered, judgment is rendered:
1. In G.R. No. 120935, AFFIRMING the CA decision dated March 21, 1995,
which set aside the Regional Trial Court’s Order dated August 8, 1994, and
REINSTATING Criminal Case Nos. 94-1842 to 94-1846 for further proceedings
before the trial court; and
2. In G.R. No. 124557, REVERSING and SETTING ASIDE the Decision of the
Court of Appeals dated March 29, 1996, and ORDERING the dismissal of
C.T.A. Case No. 5075.
No costs.
SO ORDERED
DIGEST
LUCAS ADAMSON vs. COURT OF APPEALS

FACTS:
A deficiency tax assessment was issued against Petitioners relating to their payment
of capital gains tax and VAT on their sale of shares of stock and parcels of land.
Subsequent to the preliminary conference, the CIR filed with the Department of
Justice her Affidavit of Complaint against Petitioners. The Court of Appeals ultimately
ruled that, in a criminal prosecution for tax evasion, assessment of tax deficiency is
not required because the offense of tax evasion is complete or consummated when
the offender has knowingly and willfully filed a fraudulent return with intent to evade
the tax.
 Lucas Adamson and AMC sold 131,897 common shares of stock in Adamson
and Adamson, Inc. (AAI) to APAC Holding Limited (APAC). The shares were
valued at P7,789,995.00.[1] On June 22, 1990, P159,363.21 was paid as
capital gains tax for the transaction.
 AMC sold to APAC Philippines, Inc. another 229,870 common shares of stock
in AAI for P17,718,360.00. AMC paid the capital gains tax of P352,242.96.
 The Commissioner issued a “Notice of Taxpayer” to AMC, Lucas G. Adamson,
Therese June D. Adamson and Sara S. de los Reyes, informing them of
deficiencies on their payment of capital gains tax and Value Added Tax (VAT).
The notice contained a schedule for preliminary conference.
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G.R. No. 120935
 Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes were
charged before the Regional Trial Court (RTC) of Makati, Branch 150 in
Criminal Case Nos. 94-1842 to 94-1846. They filed a Motion to Dismiss or
Suspend the Proceedings. They invoked the grounds that there was yet no
final assessment of their tax liability, and there were still pending relevant
Supreme Court and CTA cases.
 Initially, the trial court denied the motion. A Motion for Reconsideration was
however filed, this time assailing the trial court’s lack of jurisdiction over the
nature of the subject cases.
 On August 8, 1994, the trial court granted the Motion. It ruled that the
complaints for tax evasion filed by the Commissioner should be regarded as a
decision of the Commissioner regarding the tax liabilities of Lucas G. Adamson,
Therese June D. Adamson and Sara S. de los Reyes, and appealable to the
CTA. It further held that the said cases cannot proceed independently of the
assessment case pending before the CTA, which has jurisdiction to determine
the civil and criminal tax liability of the respondents therein.
 Court of Appeals reversed the trial court’s decision and reinstated the criminal
complaints.
o The appellate court held that, in a criminal prosecution for tax evasion,
assessment of tax deficiency is not required because the offense of tax
evasion is complete or consummated when the offender has knowingly
and willfully filed a fraudulent return with intent to evade the tax.
o It ruled that private respondents filed false and fraudulent returns with
intent to evade taxes, and acting thereupon, petitioner filed an Affidavit of
Complaint with the Department of Justice, without an accompanying
assessment of the tax deficiency of private respondents, in order to
commence criminal action against the latter for tax evasion.
G.R. No. 124557

 AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes
filed a letter request for re-investigation with the Commissioner of the
“Examiner’s Findings” earlier issued by the Bureau of Internal Revenue (BIR),
which pointed out the tax deficiencies.
 On March 15, 1994 before the Commissioner could act on their letter-request,
AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes
filed a Petition for Review with the CTA. They assailed the Commissioner’s
finding of tax evasion against them.
 The Commissioner moved to dismiss the petition, on the ground that it was
premature, as she had not yet issued a formal assessment of the tax liability of
therein petitioners.
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 On September 19, 1994, the CTA denied the Motion to Dismiss. It considered
the criminal complaint filed by the Commissioner with the DOJ as an implied
formal assessment, and the filing of the criminal informations with the RTC as a
denial of petitioners’ protest regarding the tax deficiency.
 The Commissioner repaired to the Court of Appeals on the ground that the CTA
acted with grave abuse of discretion. She contended that, with regard to the
protest provided under Section 229 of the NIRC, there must first be a formal
assessment issued by the Commissioner, and it must be in accord with Section
6 of Revenue Regulation No. 12-85. She maintained that she had not yet
issued a formal assessment of tax liability, and the tax deficiency amounts
mentioned in her criminal complaint with the DOJ were given only to show the
difference between the tax returns filed and the audit findings of the revenue
examiner.
 The Court of Appeals sustained the CTA’s denial of the Commissioner’s Motion
to Dismiss. Hence, this petition.
ISSUES:
(1) Dis the CIR issue an assessment?
(2) Must a criminal prosecution for tax evasion be preceded by a deficiency tax
assessment?
(3) Does the CTA have jurisdiction on the case?
HELD:
(1) NO. The recommendation letter of the Commissioner cannot be considered a
formal assessment as (a) it was not addressed to the taxpayers; (b) there was no
demand made on the taxpayers to pay the tax liability, nor a period for payment set
therein; (c) the letter was never mailed or sent to the taxpayers by the Commissioner.
It was only an affidavit of the computation of the alleged liabilities and thus merely
served as prima facie basis for filing criminal informations.
(2) YES. When fraudulent tax returns are involved as in the cases at bar, a
proceeding in court after the collection of such tax may be begun without
assessment considering that upon investigation of the examiners of the BIR, there
was a preliminary finding of gross discrepancy in the computation of the capital gains
taxes due from the transactions. The Tax Code is clear that the remedies may
proceed simultaneously.
(3) NO. While the laws governing the CTA have expanded the jurisdiction of the Court,
they did not change the jurisdiction of the CTA to entertain an appeal only from a final
decision of the Commissioner, or in cases of inaction within the prescribed period.
Since in the cases at bar, the Commissioner has not issued an assessment of the tax
liability of the Petitioners, the CTA has no jurisdiction.
166
DIGEST 2
LUCAS ADAMSON vs. COURT OF APPEALS- Deficiency Tax Assessment
FACTS:
A deficiency tax assessment was issued against Petitioners relating to their payment
of capital gains tax and VAT on their sale of shares of stock and parcels of land.
Subsequent to the preliminary conference, the CIR filed with the Department of
Justice her Affidavit of Complaint against Petitioners. The Court of Appeals ultimately
ruled that, in a criminal prosecution for tax evasion, assessment of tax deficiency is
not required because the offense of tax evasion is complete or consummated when
the offender has knowingly and willfully filed a fraudulent return with intent to evade
the tax.
ISSUES:
(1) Dis the CIR issue an assessment?
(2) Must a criminal prosecution for tax evasion be preceded by a deficiency tax
assessment?
(3) Does the CTA have jurisdiction on the case?
HELD:
(1) NO. The recommendation letter of the Commissioner cannot be considered a
formal assessment as (a) it was not addressed to the taxpayers; (b) there was no
demand made on the taxpayers to pay the tax liability, nor a period for payment set
therein; (c) the letter was never mailed or sent to the taxpayers by the Commissioner.
It was only an affidavit of the computation of the alleged liabilities and thus merely
served as prima facie basis for filing criminal informations.
(2) YES. When fraudulent tax returns are involved as in the cases at bar, a proceeding
in court after the collection of such tax may be begun without assessment considering
that upon investigation of the examiners of the BIR, there was a preliminary finding of
gross discrepancy in the computation of the capital gains taxes due from the
transactions. The Tax Code is clear that the remedies may proceed simultaneously.
(3) NO. While the laws governing the CTA have expanded the jurisdiction of the Court,
they did not change the jurisdiction of the CTA to entertain an appeal only from a final
decision of the Commissioner, or in cases of inaction within the prescribed period.
Since in the cases at bar, the Commissioner has not issued an assessment of the tax
liability of the Petitioners, the CTA has no jurisdiction.
167
People v. Gloria Kintanar SEE PDF
SHORT SUMMARY
Willful Blindness Doctrine - People v. Gloria Kintanar (CTA EB Crim. No. 006, Dec. 3,
2010)
The Supreme Court recently introduced the "Doctrine of Willful Blindness" in a
landmark tax evasion case decided in year 2012. Under this doctrine, the taxpayer’s
deliberate refusal or avoidance to verify the contents of his or her ITR and other
documents constitutes "willful blindness" on his or her part. It is by reason of this
doctrine that taxpayers cannot simply invoke reliance on mere representations of their
accountants or authorized representatives in order to avoid liability for failure to pay
the correct taxes.
As they say, "ignorance of the law excuses no one from compliance therewith." In
order to be liable, it is enough that the taxpayer knows his or her obligation to file the
required return and he has failed to comply thereto in the manner required by law.
Evidently, it is imperative for individual taxpayers like professionals to be

knowledgeable with their tax obligations, to be compliant with tax rules and
regulations, and to be responsible for all information reported in his or her ITR.
And as previously mentioned, the "Doctrine of Willful Blindness" is already part of our
jurisprudence, and it can be used as a precedent for future tax evasion cases.
----------------
Willful blindness doctrine by: Maridelle M. Ramos (Punongbayan & Araullo)

MERE RELIANCE on another person in preparing, filing and paying income taxes is
not a justification for failure to file the right information on income taxes.
In People v. Gloria Kintanar (CTA EB Crim. No. 006, Dec. 3, 2010), Ms. Kintanar was
charged with failure to make or file her income tax returns (ITR), violating Section 255
of the 1997 National Internal Revenue Code (NIRC), as amended. She claimed that
she did not actively participate in the filing of her joint ITR with her husband since she
entrusted such duty to the latter who, in turn, hired an accountant to perform their tax
responsibilities. She testified that she did not know how much her tax obligation was;
nor did she bother to inquire or determine the facts surrounding the filing of her ITRs.
Despite several notices and subpoena received by the accused, only an unsupported
protest letter made by her husband was filed with the Bureau of Internal Revenue
(BIR). The Court of Tax Appeals (CTA) En Banc found her neglect or omission
168
tantamount to “deliberate ignorance” or “conscious avoidance”. As an experienced
businesswoman, her reliance on her husband to file the required ITR without ensuring
its full compliance showed clear indication of deliberate lack of concern on her part to
perform her tax obligations. This ruling was sustained by the Supreme Court (SC) in
2012.
Based on the foregoing, the willful blindness doctrine was applied by the CTA, as
sustained by SC on cases where there is a natural presumption that the taxpayer
knows his/her tax obligations under the law considering the factual circumstances of
the case, such as being a businesswoman or official of a company. This case set a
precedent that mere reliance on a representative or agent (i.e., accountant or
husband) is not a valid ground to justify any noncompliance in tax obligations. The
taxpayer must inquire, check and validate whether or not his/her representative or
agent has complied with the taxpayer’s tax responsibilities.
However, in the recent case of People v. Judy Ann Santos (CTA Crim. Case no. 012,
Jan. 16, 2013), the CTA Division seemed to have a change of heart and acquitted Ms.
Santos despite having almost the same circumstances as that of the case of Ms.
Kintanar. In this case, Ms. Santos was accused of failure to supply correct and
accurate information in her ITR. She claimed that by virtue of trust, respect and
confidence, she has entrusted her professional, financial and tax responsibilities to her
manager since she was 12 years old. She participated and maintained her intention to
settle the case, and thus provided all the documents needed as well as payment of
her taxes. The element of willfulness was not established and the CTA found her to be
merely negligent. The CTA also noted the intention of Ms. Santos to settle the case,
which negates any motive to commit fraud. This was affirmed by the SC in its
resolution issued April 2013.
THE DIFFERENCES
“Willful blindness” is defined in Black’s Law Dictionary as “deliberate avoidance of

knowledge of a crime, especially by failing to make a reasonable inquiry about
suspected wrongdoing, despite being aware that it is highly probable.” A “willful act” is
described as one done intentionally, knowingly and purposely, without justifiable
excuse.
“Willful” in tax crimes means voluntary, intentional violation of a known legal duty, and
bad faith or bad purpose need not be shown. It is a state of mind that may be inferred
from the circumstances of the case; thus, proof of willfulness may be, and usually is,
shown by circumstantial evidence alone. Therefore, to convict the accused for willful
169
failure to file ITR or submit accurate information, it must be shown that the accused
was (1) aware of his/her obligation to file annual ITR or submit accurate information,
but that (2) he/she, or his/her supposed agent, nevertheless voluntarily, knowingly and
intentionally failed to file the required ret urns or submit accurate information. Bad faith
or intent to defraud need not be shown.
As can be observed in the first case, the accused knew that she had to timely file and
supply correct and accurate information of the joint ITR with the BIR in relation to the
profession or the position she holds. The knowledge was presumed based on the fact
that Ms. Kintanar is an “experienced” businesswoman, having been an independent
distributor of a product for several years. However, despite this knowledge, the CTA
found that she voluntarily, knowingly and intentionally failed to fulfill her tax
responsibilities by not participating in the filing of the ITR and ensuring that everything
was filed correctly and accurately. As compared with the Santos case, which the SC
affirmed, the element of “voluntarily, knowingly and intentionally” was taken differently
by the CTA in consideration of the facts of the case. Ms. Santos fully entrusted her tax
obligations and finances to her manager since she was a child. It can be said that she
is not an “experienced” manager of her finances and taxes since she never handled
such task, as compared with the situation of Ms. Kintanar, who is considered an
experienced businesswoman who manages her business as well as her financial and
tax responsibilities -- which is expected of somebody in her position (i.e., president
and/or businessperson).
The concept of willful blindness doctrine is new in Philippine jurisprudence. The

application of this doctrine by the CTA in the said cases was guided by the
appreciation of the facts and the pieces of evidence produced by the prosecution and
accused to prove the non-existence of willfulness. However, defined and clear
standards in its application must be done as guidance for future application. This is
necessary to avoid arbitrary application and to encourage proper use of the doctrine
by both parties in the case.
PEOPLE OF THE PHILIPPINES VS. SANTOS--SEE PDF
DIGEST
People of the Philippines vs. Judy Anne Santos, CTA CRIM. CASE NO. O-012,
January 16, 2013
Bautista, J.
170
Facts:
The accused, Judy Anne Santos is charged for filing a false and fraudulent
Income Tax Return (“ITR”) for the taxable year 2002 by indicating therein a
gross income of P 8, 003,332.70, when in truth and in fact her correct income
for taxable year 2002 is P 16, 396, 234.70. She is prosecuted for violation
Section 255 of the 1997 NIRC as amended for her failure to supply correct
and accurate information, which resulted to an income tax deficiency in the
amount of P 1, 395,116.24, excluded interest and penalties thereon in the
amount of P 1, 319, 500. 94, or in the aggregate income tax deficiency of P 2,
714,617.18.
Issue:
Whether or not the accused may be held liable for violation of Section 255 of
the National Internal Revenue Code, as amended.
Held:
Section 255 enumerates the following offenses:
a. Willful failure to pay tax;

b. Willful failure to make a return;
c. Willful failure to keep any record;
d. Willful failure to supply correct and accurate information;
e. Willful failure to withhold or remit taxes withheld; or
f. Willful failure to refund excess taxes withheld on compensation.
One of the offenses above-enumerated is willful failure to supply correct and
accurate information, which is being attributed to the accused. The elements
of the said offense are as follows:
1. That a person is required to supply correct and accurate information;

2. That there is failure to supply correct and accurate information at the
time or times required by law or rules and regulations; and
3. That such failure to supply correct and accurate information is done
wilfully.
Require to supply Correct and Accurate Information
Based on the records of the case, the accused unequivocally admitted that
as early as eight (8) years old, she entered the entertainment industry, and
that at present is an established movie actress, celebrity endorser and
showbiz personality. Further, for the subject taxable year 2002, she admitted
that she entered into contracts for her engagement as a professional
171
entertainer, movie actress, and product endorser. With this, accused is
required to file an income tax return for all her income from all sources.
The prosecution was able to prove that the accused, earning her
professional income as an entertainer is required to file an income tax
return, as she did, and that accused apparently supplied correct and
accurate information thereof.
Failure to Supply Correct and Accurate Information at the Time Required by

Law
The prosecution was able to prove the element of failure to supply correct
and accurate information at the time required by law.
The prosecution presented that there were:
a. Undeclared income form ABS-CBN Broadcasting Corporation

b. Undeclared income from Viva Productions, Inc.
c. Undeclared income from Star Cinema Productions, Inc.
d. Undeclared income from Regal Entertainment, Inc.
e. Undeclared income from Century Canning Corporation
From the foregoing, the prosecution was able to show that from the declared
Gross Taxable Professional Income of the accused in the amount of P 8, 003,
332.70, in her ITR for the taxable year 2002, accused has an aggregate
amount of P16, 396, 234.70, or a gross underdeclaration of P 8, 362, 902.00.
Willful Failure to Supply Correct and Accurate Information
As early discussed, the prosecution was able to prove that the accused
failed to supply correct and accurate information in her ITR for the year2002
for her failure declare her other income payments received from other
sources.
However, it is well settled that mere understatement of a tax is not itself

proof of fraud for the purpose of tax evasion.
Based on the records of the case, the accused denied the signature
appearing on top of the name “Judy Anne Santos” in the ITR for taxable year
2002, presented by the prosecution, and that the Certified Public Accountant,
who’s participation is limited to the preparation of the Financial Statements
attached to the return, likewise, denied signing the return on behalf of the
accused. Further, the working papers were all provided by the manager of
the accused.
172
The Court, therefore, finds the records bereft of any evidence to establish
the element of wilfulness on the part of the accused to supply the correct
and accurate information on her subject return.
The Court, however, only finds the accused negligent; and such is not
enough to convict her in the case at bench.
Negligence, whether slight or gross, is not equivalent to the fraud with intent
to evade the tax contemplated by law. Fraud must amount to intentional
wrong-doing with the sole object of avoiding the tax.
The Court also notes the intention of the accused to settle the case were it
not for the opposition of her Manager and then counsel, which negated any
motive of the accused to commit fraud.
In sum, the Court finds the failure of the prosecution to establish the guilt of
the accused beyond the required reasonable doubt.
173
7. PRESCRIPTION OF CRIMINAL ACTION
SEC 281 TAX CODE
G.R. Nos. L-48134-37 October 18, 1990
EMILIO E. LIM, SR. and ANTONIA SUN LIM, petitioners,

vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
Santiago, Fornier,Tinga & Associates for petitioners.
FERNAN, C.J.:
The instant petition for review on certiorari seeks the reversal of the Court of Appeals
decision dated September 1, 1977 which affirmed in toto the judgments of the then
Court of First Instance of Manila, Branch VI in four (4) Criminal cases constituted by
the Bureau of Internal Revenue against petitioners. 1
The facts as found by the trial court and affirmed by the Appellate Court are
substantially as follows:
Petitioner spouses Emilio E. Lim, Sr. and Antonia Sun Lim, with business address at
No. 336 Nueva Street, Manila, were engaged in the dealership of various household
appliances They filed income tax returns for the years 1958 and 1959.
On October 5, 1959, a raid was conducted at their business address by the National
Bureau of Investigation by virtue of a search warrant issued by Judge Wenceslao L.
Cornejo of the City Court of Manila. A similar raid was made on petitioners' premises
at 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
Bureau of Internal Revenue (BIR).
On October 14, 1960, the Chief of the Investigation Division of the BIR informed
petitioners that revenue examiners had been authorized to examine their books of
account.
On September 30, 1964 Senior Revenue Examiner Raphael S. Daet submitted a

memorandum with the findings that the income tax returns filed by petitioners for the
years 1958 and 1959 were false or fraudulent. Daet recommended that an
assessment of P835,127.00 be made against the petitioners.
Accordingly, on April 7, 1965, then Acting Commissioner of the BIR, Benjamin M.

Tabios informed petitioners that there was due from them the amount of P922,913.04
as deficiency income taxes for 1958 and 1959, giving them until May 7, 1965 to pay
the amount.
174
On April 10, 1965, petitioner Emilio E. Lim, Sr., requested for a reinvestigation. The
BIR expressed willingness to grant such request but on condition that within ten days
from notice, Lim would accomplish a waiver of defense of prescription under the
Statute of Limitations and that one half of the deficiency income tax would be
deposited with the BIR and the other half secured by a surety bond. If within the ten-
day period the BIR did not hear from petitioners, then it would be presumed that the
request for reinvestigation had been abandoned.
Petitioner Emilio E. Lim, Sr. refused to comply with the above conditions and
reiterated his request for another investigation.
On January 31, 1967, the BIR Commissioner informed petitioners that their deficiency
income tax liabilities for 1958 and 1959 had been assessed at P934,000.54 including
interest and compromise penalty for late payment. Petitioners were given until March
7, 1967 to submit their objections with the admonition that if they failed to do so, it
would be assumed that they were agreeable to the assessment and a formal demand
would issue.
On March 15, 1967, petitioners wrote the BIR to protest the latest assessment and
repeated their request for a reinvestigation.
On October 10, 1967, the BIR rendered a final decision holding that there was no
cause for reversal of the assessment against the Lim couple. Petitioners were
required to pay deficiency income taxes for 1958 and 1959 amounting to
P1,237,190.55 inclusive of interest, surcharges and compromise penalty for late
payment. The final notice and demand for payment was served on petitioners through
their daughter-in-law on July 3, 1968.
Still, no payment was forthcoming from the delinquent taxpayers. Accordingly on

September 1, 1969, the matter was referred by the BIR to the Manila Fiscal's Office
for investigation and prosecution. On June 23, 1970, four (4) separate criminal
informations were filed against petitioners in the then Court of First Instance of Manila,
Branch VI for violation of Sections 45 and 51 in relation to Section 73 of the National
Internal Revenue Code. 2 Trial ensued. On August 19, 1975, the trial court rendered
two (2) joint decisions finding petitioners guilty as charged. The dispositive portions
read:
In Criminal Cases Nos. 1789 and 1788:
WHEREFORE, in view of the foregoing considerations, the Court finds

the accused Emilio E. Lim, Sr. and Antonia Sun Lim guilty of a violation of
Section 51 penalized under Section 73 of the National Internal Revenue
Code and each is hereby sentenced in each case to pay a fine of
P2,000.00 and to pay the government pursuant to Presidential No. 69 the
amounts of P580,588.75 and P656,601.80 as deficiency income taxes for
175
the years 1958 and 1959, respectively, and the costs of the
proceedings. 3
In Criminal Cases Nos. 1790 and 1791:
WHEREFORE, in view of the foregoing considerations, the Court finds

the accused Emilio E. Lim, Sr. and Antonia Sun Lim guilty of a violation of
Section 45 in relation to Section 332 of the National Internal Revenue
Code as amended, penalized under Section 73 of the same Code and
hereby sentences each to pay a fine of P4,000.00 in each case and the
costs of the proceedings. 4
Petitioners appealed the foregoing decisions to the Court of Appeals. 5 In its judgment
dated September 1, 1977, the Court of Appeals affirmed in toto the twin decisions of
the lower court. Twenty-three days (23) later or on September 24, 1977, petitioner
Emilio E. Lim, Sr. died.
On September 26, 1977, petitioners moved for a reconsideration of the decision dated
September 1, 1977. On April 4, 1978, the Court of Appeals promulgated a resolution
as follows:
WHEREFORE, pursuant to Article 89 of the Revised Penal Code, by the

death of appellant Emilio E. Lim, Sr. his criminal liability is totally
extinguished but his counsel is hereby required to inform the Court as to
who are the heirs of the deceased following which the caption should be
modified so as to reflect the civil aspect and substitution of the heirs, as
defendants. In all other respects, the decision of this Court promulgated
September 1, 1977, stands. 6
Hence the present petition for review by certiorari.
In their Brief, petitioners contend that the Appellate Court erred in holding that the
offenses charged in Criminal Case Nos. 1790 and 1791 prescribed in ten (10) years,
instead of five (5) years; that the prescriptive period in Criminal Cases Nos. 1788 and
1789 commenced to run only from July 3, 1968, the date of the final assessment; that
Section 316 of the Tax Code as amended by Presidential Decree No. 69 was
applicable to the case at bar; and that the civil obligation of petitioner Emilio E. Lim,
Sr. arising from the crimes charged was not extinguished by his death. 7
Preliminarily, it must be made clear that what we are dealing here are criminal
prosecutions for filing fraudulent income tax returns and for refusing to pay deficiency
taxes. The governing penal provision of the National Internal Revenue Codes 8 is
Section 73 in conjunction with Section 354. The dispute centers on the interpretation
of Section 354 because in an effort to exculpate themselves, petitioners have raised
the defense of prescription. On the five-year prescriptive period, both parties are in
176
agreement. They differ however in the manner of computation, specifically as to when
the period should commence. Thus:
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 two thousand pesos or
by imprisonment for not more than six 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 of not exceeding four thousand pesos
or by imprisonment for not exceeding one 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 five years.
Prescription shall been to run from the day of the commission of the
violation of the law, and if the same be not 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 sham 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. (Emphasis supplied)
Indubitably, petitioners had filed false and fraudulent income tax returns for the years
1958 and 1959 by nondisclosure of sales in the aggregate amount of P2,197,742.92,
thereby depriving the Government in the amount of P1,237,190.55, representing
deficiency income taxes inclusive of interest, surcharges and compromise penalty for
late payment. Considering that this occurred in the late 1950's, the defraudation was
on a massive scale.
Relative to Criminal Cases Nos. 1788 and 1789 which involved petitioners' refusal to
pay the deficiency income taxes due, again both parties are in accord that by their
nature, the violations as charged could only be committed after service of notice and
demand for payment of the deficiency taxes upon the taxpayers. Petitioners maintain
that the five-year period of limitation under Section 354 should be reckoned from April
7, 1965, the date of the original assessment while the Government insists that it
177
should be counted from July 3, 1968 when the final notice and demand was served on
petitioners' daughter-in-law.
We hold for the Government. Section 51 (b) of the Tax Code provides:
(b) Assessment and payment of deficiency tax. — After the return is filed,
the Commissioner of internal Revenue shall examine it and assess the
correct amount of the tax. The tax or deficiency in tax so discovered shall
be paid upon notice and demand from the Commissioner of Internal
Revenue. (Emphasis supplied)
Inasmuch as the final notice and demand for payment of the deficiency taxes was
served on petitioners on July 3, 1968, it was only then that the cause of action on the
part of the BIR accrued. This is so because prior to the receipt of the letter-
assessment, no violation has yet been committed by the taxpayers. The offense was
committed only after receipt was coupled with the wilful refusal to pay the taxes due
within the alloted period. The two criminal informations, having been filed on June 23,
1970, are well-within the five-year prescriptive period and are not time-barred.
With regard to Criminal Cases Nos. 1790 and 1791 which dealt with petitioners' filing
of fraudulent consolidated income tax returns with intent to evade the assessment
decreed by law, petitioners contend that the said crimes have likewise prescribed.
They advance the view that the five-year period should be counted from the date
of discovery of the alleged fraud which, at the latest, should have been October 15,
1964, the date stated by the Appellate Court in its resolution of April 4, 1978 as the
date the fraudulent nature of the returns was unearthed. 9
On behalf of the Government, the Solicitor General counters that the crime of filing
false returns can be considered "discovered" only after the manner of commission,
and the nature and extent of the fraud have been definitely ascertained. It was only on
October 10, 1967 when the BIR rendered its final decision holding that there was no
ground for the reversal of the assessment and therefore required the petitioners to pay
P1,237,190.55 in deficiency taxes that the tax infractions were discovered.
Not only that. The Solicitor General stresses that Section 354 speaks not only of
discovery of the fraud but also institution of judicial proceedings. Note the conjunctive
word "and" between the phrases "the discovery thereof" and "the institution of judicial
proceedings for its investigation and proceedings." In other words, in addition to the
fact of discovery, there must be a judicial proceeding for the investigation and
punishment of the tax offense before the five-year limiting period begins to run. It was
on September 1, 1969 that the offenses subject of Criminal Cases Nos. 1790 and
1791 were indorsed to the Fiscal's Office for preliminary investigation. Inasmuch as a
preliminary investigation is a proceeding for investigation and punishment of a crime, it
was only on September 1, 1969 that the prescriptive period commenced.
178
But according to the Lim spouses, that argument had precisely been raised,
considered and found without merit in the case of People vs. Ching Lak 10 which had
perfunctorily dismissed the Government's position in this wise:
Anent the theory that in the present case the period of prescription should
commence from the time the case was referred to the Fiscal's
Office, suffice it to state that the theory is not supported by any provision
of law and we need not elucidate thereon. (Emphasis supplied).
The Court is inclined to adopt the view of the Solicitor General. For while that
particular point might have been raised in the Ching Lak case, the Court, at that time,
did not give a definitive ruling which would have settled the question once and for all.
As Section 354 stands in the statute book (and to this day it has remained unchanged)
it would indeed seem that tax cases, such as the present ones, are practically
imprescriptible for as long as the period from the discovery and institution of judicial
proceedings for its investigation and punishment, up to the filing of the information in
court does not exceed five (5) years.
In the case of People vs. Tierra, 11 the same argument came up before the Court but
its conclusions on the issue of prescription did not bring us any closer to a categorical
ruling. It opined:
Evidence was adduced to show, and the trial court so found, that the
falsity of the returns filed by the appellant and his failure to preserve his
books of accounts for at least five years from the date of the last entry in
each book were all discovered only on December 16, 1950. Since the
informations were filed on December 12, 1955, the trial court correctly
ruled that the actions were all within the five-year period of limitation.
Appellant argues, however, that since the informations make no

allegation that the offenses were not known at the time of the commission
as to bring them within the exception to the statute of limitations, then the
informations were necessarily defective for that reason, and this fatal
defect cannot be cured by the introduction of evidence. Prescription is a
matter of defense and the information does not need to anticipate and
meet it. The defendant could, at most, object to the introduction of
evidence to defeat his claim of prescription; but he did not. Anyway, the
law says that prescription begins to run from ... "the institution of judicial
proceedings for its ... punishment." 12 (Emphasis supplied).
Unless amended by the legislature, Section 354 stays in the Tax Code as it was
written during the days of the Commonwealth. And as it is, must be applied regardless
of its apparent one-sidedness in favor of the Government. In criminal cases, statutes
of limitations are acts of grace, a surrendering by the sovereign of its right to
prosecute. They receive a strict construction in favor of the Government and
limitations in such cases will not be presumed in the absence of clear legislation. 13
179
The petition, however, is impressed with merit insofar as it assails the inclusion in the
judgment of the payment of deficiency taxes in Criminal Cases Nos. 1788-1789. The
trial court had absolutely no jurisdiction in sentencing the Lim couple to indemnify the
Government for the taxes unpaid. The lower court erred in applying Presidential
Decree No. 69, particularly Section 316 thereof, which provides that "judgment in the
criminal case shall not only impose the penalty but shall order payment of the taxes
subject of the criminal case", because that decree took effect only on January 1, 1973
whereas the criminal cases subject of this appeal were instituted on June 23, 1970.
Save in the two specific instances, Presidential Decree No. 69 has no retroactive
application.
In the case of People vs. Tierra, 14 we reiterated the ruling in People vs.
Arnault, 15 that there is no legal sanction for the imposition of payment of the civil
indemnity to the Government in a criminal proceeding for violation of income tax laws.
Thus:
... While Section 73 of the National Internal Revenue Code provides for
the imposition of the penalty for refusal or neglect to pay income tax or to
make a return thereof, by imprisonment or fine, or both, it fails to provide
for the collection of said tax in criminal proceedings. As well contended by
counsel for appellant, Chapters I and II of Title IX of the National Internal
Revenue Code provides only for civil remedies for the collection of the
income tax, and under Section 316, the civil remedy is either by distraint
of goods, chattels, etc., or by judicial action. It is a commonly accepted
principle of law that the method prescribed by statute for the collection of
taxes is generally exclusive, and unless a contrary intent be gathered
from the statute, it should be followed strictly. (3 Cooley, Law on
Taxation, Section 1326, pp. 621-623).
Under the cited Tierra and Arnault cases, it is clear that criminal conviction for a
violation of any penal provision in the Tax Code does not amount at the same time to
a decision for the payment of the unpaid taxes inasmuch as there is no specific
provision in the Tax Code to that effect. 16
Considering that under Section 316 of the Tax Code prior to its amendment the trial
could not order the payment of the unpaid taxes as part of the sentence, the question
of whether or not the supervening death of petitioner Emilio E. Lim, Sr. has
extinguished his tax liability need not concern us. However, with regard to the
pecuniary penalty of fine imposed on the deceased Lim, this is necessarily
extinguished by his death in accordance with Section 89 of the Revised Penal Code.
In resume we therefore rule:
1. Criminal Cases Nos. 1788-1789 and 1790-1791, having been instituted by the
Government on June 23, 1970, are not time-barred pursuant to Section 354 of the
National Internal Revenue Code;
180
2. The then Court of First Instance of Manila, Branch 6 is devoid of jurisdiction to
direct the collection and payment of the unpaid deficiency taxes in Criminal Case Nos.
1788-1789 because prior to the amendment introduced by Presidential Decree No.
69, such imposition was not sanctioned under Section 316;
3. The fine imposed in the four (4) aforementioned criminal cases is hereby affirmed in
the case of petitioner Antonia Sun Lim in accordance with the provision of Section 73
of the Tax Code. The fine is deemed extinguished in the ease of the deceased
petitioner Emilio E. Lim, Sr. pursuant to Section 89 of the Revised Penal Code.
WHEREFORE, conformably with the abovestated ruling, the decision of the Court of
Appeals under review is deemed MODIFIED. No costs.
SO ORDERED.
DIGEST
16: EMILIO S. LIM, SR. V. CA

October 18, 1990; C.J. Fernan; G.R. L-48134-37
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.
181
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 1st assessment
or discovery (accdg 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
182
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.
DISPOSITION: CA AFFIRMED with Modifications.

183
8. INFORMER’S REWARD
NO CASE GIVEN
9.POWER/REMEDY OF COLLECTION
G.R. No. 169225 November 17, 2010

vs.
HAMBRECHT & QUIST PHILIPPINES, INC., Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking
to set aside the Decision1dated August 12, 2005 of the Court of Tax Appeals
(CTA) En Banc in C.T.A. E.B. No. 73 (C.T.A. Case No. 6362), entitled "Commissioner
of Internal Revenue vs. Hambrecht & Quist Philippines, Inc.," which affirmed the
Decision2dated September 24, 2004 of the CTA Original Division in C.T.A. Case No.
6362 canceling the assessment issued against respondent for deficiency income and
expanded withholding tax for the year 1989 for failure of petitioner Commissioner of
Internal Revenue (CIR) to enforce collection within the period allowed by law.
The CTA summarized the pertinent facts of this case, as follows:
In a letter dated February 15, 1993, respondent informed the Bureau of Internal
Revenue (BIR), through its West-Makati District Office of its change of business
address from the 2nd Floor Corinthian Plaza, Paseo de Roxas, Makati City to the
22nd Floor PCIB Tower II, Makati Avenue corner H.V. De la Costa Streets, Makati
City. Said letter was duly received by the BIR-West Makati on February 18, 1993.
On November 4, 1993, respondent received a tracer letter or follow-up letter dated

October 11, 1993 issued by the Accounts Receivable/Billing Division of the BIR’s
National Office and signed by then Assistant Chief Mr. Manuel B. Mina, demanding for
payment of alleged deficiency income and expanded withholding taxes for the taxable
year 1989 amounting to ₱2,936,560.87.
On December 3, 1993, respondent, through its external auditors, filed with the same
Accounts Receivable/Billing Division of the BIR’s National Office, its protest letter
against the alleged deficiency tax assessments for 1989 as indicated in the said tracer
letter dated October 11, 1993.
184
The alleged deficiency income tax assessment apparently resulted from an
adjustment made to respondent’s taxable income for the year 1989, on account of the
disallowance of certain items of expense, namely, professional fees paid, donations,
repairs and maintenance, salaries and wages, and management fees. The latter item
of expense, the management fees, made up the bulk of the disallowance, the
examiner alleging, among others, that petitioner failed to withhold the appropriate tax
thereon. This is also the same basis for the imposition of the deficiency withholding
tax assessment on the management fees. Revenue Regulations No. 6-85 (EWT
Regulations) does not impose or prescribe EWT on management fees paid to a non-
resident.
On November 7, 2001, nearly eight (8) years later, respondent’s external auditors
received a letter from herein petitioner Commissioner of Internal Revenue dated
October 27, 2001. The letter advised the respondent that petitioner had rendered a
final decision denying its protest on the ground that the protest against the disputed
tax assessment was allegedly filed beyond the 30-day reglementary period prescribed
in then Section 229 of the National Internal Revenue Code.
On December 6, 2001, respondent filed a Petition for Review docketed as CTA Case
No. 6362 before the then Court of Tax Appeals, pursuant to Section 7 of Republic Act
No. 1125, otherwise known as an ‘Act Creating the Court of Tax Appeals’ and Section
228 of the NIRC, to appeal the final decision of the Commissioner of Internal Revenue
denying its protest against the deficiency income and withholding tax assessments
issued for taxable year 1989.3
In a Decision dated September 24, 2004, the CTA Original Division held that the
subject assessment notice sent by registered mail on January 8, 1993 to respondent’s
former place of business was valid and binding since respondent only gave formal
notice of its change of address on February 18, 1993. Thus, the assessment had
become final and unappealable for failure of respondent to file a protest within the 30-
day period provided by law. However, the CTA (a) held that the CIR failed to collect
the assessed taxes within the prescriptive period; and (b) directed the cancellation
and withdrawal of Assessment Notice No. 001543-89-5668. Petitioner’s Motion for
Reconsideration and Supplemental Motion for Reconsideration of said Decision filed
on October 14, 2004 and November 22, 2004, respectively, were denied for lack of
merit.
Undaunted, the CIR filed a Petition for Review with the CTA En Banc but this was
denied in a Decision dated August 12, 2005, the dispositive portion reads:
WHEREFORE, the Petition for Review is DENIED DUE COURSE and the case is
accordingly DISMISSED for lack of merit.4
Hence, the instant Petition wherein the following issues are raised:
I
185
WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION TO
RULE THAT THE GOVERNMENT’S RIGHT TO COLLECT THE TAX HAS
PRESCRIBED.
II
WHETHER OR NOT THE PERIOD TO COLLECT THE ASSESSMENT HAS

PRESCRIBED.5
The petition is without merit.
Anent the first issue, petitioner argues that the CTA had no jurisdiction over the case
since the CTA itself had ruled that the assessment had become final and
unappealable. Citing Protector’s Services, Inc. v. Court of Appeals, 6 the CIR argued
that, after the lapse of the 30-day period to protest, respondent may no longer dispute
the correctness of the assessment and its appeal to the CTA should be dismissed.
The CIR took issue with the CTA’s pronouncement that it had jurisdiction to decide
"other matters" related to the tax assessment such as the issue on the right to collect
the same since the CIR maintains that when the law says that the CTA has jurisdiction
over "other matters," it presupposes that the tax assessment has not become final and
unappealable.
We cannot countenance the CIR’s assertion with regard to this point. The jurisdiction
of the CTA is governed by Section 7 of Republic Act No. 1125, as amended, and the
term "other matters" referred to by the CIR in its argument can be found in number (1)
of the aforementioned provision, to wit:
Section 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

Revenue Code or other law as part of law administered by the Bureau of Internal
Revenue. (Emphasis supplied.)
Plainly, the assailed CTA En Banc Decision was correct in declaring that there was
nothing in the foregoing provision upon which petitioner’s theory with regard to the
parameters of the term "other matters" can be supported or even deduced. What is
rather clearly apparent, however, is that the term "other matters" is limited only by the
qualifying phrase that follows it.
Thus, on the strength of such observation, we have previously ruled that the appellate
jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on
matters relating to assessments or refunds. The second part of the provision covers
186
other cases that arise out of the National Internal Revenue Code (NIRC) or related
laws administered by the Bureau of Internal Revenue (BIR).7
In the case at bar, the issue at hand is whether or not the BIR’s right to collect taxes
had already prescribed and that is a subject matter falling under Section 223(c) of the
1986 NIRC, the law applicable at the time the disputed assessment was made. To
quote Section 223(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.(Emphases supplied.)
In connection therewith, Section 3 of the 1986 NIRC states that the collection of taxes
is one of the duties of the BIR, to wit:
Sec. 3. Powers and duties of Bureau. - The powers and duties of the Bureau of
Internal Revenue shall comprehend the assessment and collection of all national
internal revenue taxes, fees, and charges and the enforcement of all forfeitures,
penalties, and fines connected therewith including the execution of judgments in all
cases decided in its favor by the Court of Tax Appeals and the ordinary courts. Said
Bureau shall also give effect to and administer the supervisory and police power
conferred to it by this Code or other laws. (Emphasis supplied.)
Thus, from the foregoing, the issue of prescription of the BIR’s right to collect taxes
may be considered as covered by the term "other matters" over which the CTA has
appellate jurisdiction.
Furthermore, the phraseology of Section 7, number (1), denotes an intent to view the
CTA’s jurisdiction over disputed assessments and over "other matters" arising under
the NIRC or other laws administered by the BIR as separate and independent of each
other. This runs counter to petitioner’s theory that the latter is qualified by the status of
the former, i.e., an "other matter" must not be a final and unappealable tax
assessment or, alternatively, must be a disputed assessment.
Likewise, the first paragraph of Section 11 of Republic Act No. 1125,
as amended by Republic Act No. 9282,8 belies petitioner’s assertion as the provision
is explicit that, for as long as a party is adversely affected by any decision, ruling or
inaction of petitioner, said party may file an appeal with the CTA within 30 days from
receipt of such decision or ruling. The wording of the provision does not take into
account the CIR’s restrictive interpretation as it clearly provides that the mere
existence of an adverse decision, ruling or inaction along with the timely filing of an
appeal operates to validate the exercise of jurisdiction by the CTA.
To be sure, the fact that an assessment has become final for failure of the taxpayer to
file a protest within the time allowed only means that the validity or correctness of the
187
assessment may no longer be questioned on appeal. However, the validity of the
assessment itself is a separate and distinct issue from the issue of whether the right of
the CIR to collect the validly assessed tax has prescribed. This issue of prescription,
being a matter provided for by the NIRC, is well within the jurisdiction of the CTA to
decide.
With respect to the second issue, the CIR insists that its right to collect the tax
deficiency it assessed on respondent is not barred by prescription since the
prescriptive period thereof was allegedly suspended by respondent’s request for
reinvestigation.
Based on the facts of this case, we find that the CIR’s contention is without
basis.1avvphi1 The pertinent provision of the 1986 NIRC is Section 224, to wit:
Section 224. Suspension of running of statute. – The running of the statute of

limitations provided in Sections 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 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 statute 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 plain and unambiguous wording of the said provision dictates that two requisites
must concur before the period to enforce collection may be suspended: (a) that the
taxpayer requests for reinvestigation, and (b) that petitioner grants such request.
On this point, we have previously held that:
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.9 (Emphasis supplied.)
Consequently, the mere filing of a protest letter which is not granted does not operate
to suspend the running of the period to collect taxes. In the case at bar, the records
show that respondent filed a request for reinvestigation on December 3, 1993,
however, there is no indication that petitioner acted upon respondent’s protest. As the
CTA Original Division in C.T.A. Case No. 6362 succinctly pointed out in its Decision,
to wit:
188
It is evident that the respondent did not conduct a reinvestigation, the protest having
been dismissed on the ground that the assessment has become final and executory.
There is nothing in the record that would show what action was taken in connection
with the protest of the petitioner. In fact, petitioner did not hear anything from the
respondent nor received any communication from the respondent relative to its
protest, not until eight years later when the final decision of the Commissioner was
issued (TSN, March 7, 2002, p. 24). In other words, the request for reinvestigation
was not granted. x x x.10 (Emphasis supplied.)
Since the CIR failed to disprove the aforementioned findings of fact of the CTA which
are borne by substantial evidence on record, this Court is constrained to uphold them
as binding and true. This is in consonance with our oft-cited ruling that instructs this
Court to not lightly set aside the conclusions reached by the CTA, which, by the very
nature of its functions, is dedicated exclusively to the resolution of tax problems and
has accordingly developed an expertise on the subject unless there has been an
abuse or improvident exercise of authority.11
Indeed, it is contradictory for the CIR to argue that respondent’s December 3, 1993
protest which contained a request for reinvestigation was filed beyond the
reglementary period but still claim that the same request for reinvestigation was
implicitly granted by virtue of its October 27, 2001 letter. We find no cogent reason to
reverse the CTA when it ruled that the prescriptive period for the CIR’s right to collect
was not suspended under the circumstances of this case.
WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Tax
Appeals (CTA) En Banc dated August 12, 2005 is AFFIRMED. No costs.
SO ORDERED.
DIGEST
G.R. No. 169225 November 17, 2010
vs. HAMBRECHT & QUIST PHILIPPINES, INC., Respondent.
Respondent informed the Bureau of Internal Revenue (BIR), through its West-Makati
District Office of its change of business address from the 2nd Floor Corinthian Plaza,
Paseo de Roxas, Makati City to the 22nd Floor PCIB Tower II, Makati Avenue corner
H.V. De la Costa Streets, Makati City. Said letter was duly received by the BIR-West
Makati on February 18, 1993.
Respondent received a tracer letter or follow-up letter issued by the Accounts

Receivable/Billing Division of the BIR’s National demanding for payment of alleged
189
deficiency income and expanded withholding taxes for the taxable year 1989
amounting to P2,936,560.87.
Respondent, through its external auditors, filed with the same Accounts
Receivable/Billing Division of the BIR’s National Office, its protest letter against
the alleged deficiency tax assessments for 1989 as indicated in the said tracer letter
dated October 11, 1993.
The alleged deficiency income tax assessment apparently resulted from an

adjustment made to respondent’s taxable income for the year 1989, on account of the
disallowance of certain items of expense, namely, professional fees paid, donations,
repairs and maintenance, salaries and wages, and management fees. The latter item
of expense, the management fees, made up the bulk of the disallowance, the
examiner alleging, among others, that petitioner failed to withhold the appropriate tax
thereon. This is also the same basis for the imposition of the deficiency withholding
tax assessment on the management fees. Revenue Regulations No. 6-85 (EWT
Regulations) does not impose or prescribe EWT on management fees paid to a non-
resident.
On November 7, 2001, nearly eight (8) years later, respondent’s external auditors
received a letter from herein petitioner Commissioner of Internal Revenue. The
letter advised the respondent that petitioner had rendered a final decision
denying its protest on the ground that the protest against the disputed tax
assessment was allegedly filed beyond the 30-day reglementary period
prescribed in then Section 229 of the National Internal Revenue Code.
CTA: held that the subject assessment notice sent by registered mail on January
8, 1993 to respondent’s former place of business was valid and binding since
respondent only gave formal notice of its change of address on February 18,
1993. Thus, the assessment had become final and unappealable for failure of
respondent to file a protest within the 30-day period provided by law. However,
the CTA (a) held that the CIR failed to collect the assessed taxes within the
prescriptive period; and (b) directed the cancellation and withdrawal of Assessment
Notice No. 001543-89-5668.
Undaunted, the CIR filed a Petition for Review with the CTA En Banc
CTA En Banc: Petition DISMISSED
HELD: petition DENIED
1. Anent the first issue, petitioner argues that the CTA had no jurisdiction over
the case since the CTA itself had ruled that the assessment had become final
and unappealable. The CIR argued that, after the lapse of the 30-day period to
protest, respondent may no longer dispute the correctness of the assessment
and its appeal to the CTA should be dismissed. The CIR took issue with the CTA’s
190
pronouncement that it had jurisdiction to decide "other matters" related to the tax
assessment such as the issue on the right to collect the same since the CIR maintains
that when the law says that the CTA has jurisdiction over "other matters," it
presupposes that the tax assessment has not become final and unappealable.
Section 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

Revenue Code or other law as part of law administered by the Bureau of Internal
Revenue. (Emphasis supplied.)
Plainly, the assailed CTA En Banc Decision was correct in declaring that there
was nothing in the foregoing provision upon which petitioner’s theory with
regard to the parameters of the term "other matters" can be supported or even
deduced. What is rather clearly apparent, however, is that the term "other
matters" is limited only by the qualifying phrase that follows it.
Thus, on the strength of such observation, we have previously ruled that the
appellate jurisdiction of the CTA is not limited to cases which involve decisions
of the CIR on matters relating to assessments or refunds. The second part of
the provision covers other cases that arise out of the National Internal Revenue
Code (NIRC) or related laws administered by the Bureau of Internal Revenue
(BIR).7
In the case at bar, the issue at hand is whether or not the BIR’s right to collect taxes
had already prescribed and that is a subject matter falling under Section 223(c) of the
1986 NIRC, the law applicable at the time the disputed assessment was made. To
quote Section 223(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. (Emphases
supplied.)
In connection therewith, Section 3 of the 1986 NIRC states that the collection of taxes
is one of the duties of the BIR, to wit:
Sec. 3. Powers and duties of Bureau. - The powers and duties of the Bureau of
Internal Revenue shall comprehend the assessment and collection of all national
internal revenue taxes, fees, and charges and the enforcement of all forfeitures,
penalties, and fines connected therewith including the execution of judgments in all
cases decided in its favor by the Court of Tax Appeals and the ordinary courts. Said
191
Bureau shall also give effect to and administer the supervisory and police power
conferred to it by this Code or other laws. (Emphasis supplied.)
Thus, from the foregoing, the issue of prescription of the BIR’s right to collect
taxes may be considered as covered by the term "other matters" over which the
CTA has appellate jurisdiction.
Furthermore, the phraseology of Section 7, number (1), denotes an intent to view the
CTA’s jurisdiction over disputed assessments and over "other matters" arising under
the NIRC or other laws administered by the BIR as separate and independent of each
other. This runs counter to petitioner’s theory that the latter is qualified by the status of
the former, i.e., an "other matter" must not be a final and unappealable tax
assessment or, alternatively, must be a disputed assessment.
Likewise, the first paragraph of Section 11 of Republic Act No. 1125,
as amended by Republic Act No. 9282,8 belies petitioner’s assertion as the provision
is explicit that, for as long as a party is adversely affected by any decision, ruling or
inaction of petitioner, said party may file an appeal with the CTA within 30 days from
receipt of such decision or ruling. The wording of the provision does not take into
account the CIR’s restrictive interpretation as it clearly provides that the mere
existence of an adverse decision, ruling or inaction along with the timely filing of an
appeal operates to validate the exercise of jurisdiction by the CTA.
To be sure, the fact that an assessment has become final for failure of the taxpayer to
file a protest within the time allowed only means that the validity or correctness of the
assessment may no longer be questioned on appeal. However, the validity of the
assessment itself is a separate and distinct issue from the issue of whether the right of
the CIR to collect the validly assessed tax has prescribed. This issue of prescription,
being a matter provided for by the NIRC, is well within the jurisdiction of the CTA to
decide.
2. With respect to the second issue, the CIR insists that its right to collect the
tax deficiency it assessed on respondent is not barred by prescription since the
prescriptive period thereof was allegedly suspended by respondent’s request
for reinvestigation.
Based on the facts of this case, we find that the CIR’s contention is without
basis.1avvphi1 The pertinent provision of the 1986 NIRC is Section 224, to wit:
Section 224. Suspension of running of statute. – The running of the statute of

limitations provided in Sections 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 days thereafter; when the taxpayer requests for a re-
192
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 statute 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.
The plain and unambiguous wording of the said provision dictates that two
requisites must concur before the period to enforce collection may be
suspended: (a) that the taxpayer requests for reinvestigation, and (b) that
petitioner grants such request.
On this point, we have previously held that:
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.9 (Emphasis supplied.)
Consequently, the mere filing of a protest letter which is not granted does not operate
to suspend the running of the period to collect taxes. In the case at bar, the records
show that respondent filed a request for reinvestigation on December 3, 1993,
however, there is no indication that petitioner acted upon respondent’s protest. As the
CTA Original Division in C.T.A. Case No. 6362 succinctly pointed out in its Decision,
to wit:
It is evident that the respondent did not conduct a reinvestigation, the protest
having been dismissed on the ground that the assessment has become final
and executory. There is nothing in the record that would show what action was taken
in connection with the protest of the petitioner. In fact, petitioner did not hear anything
from the respondent nor received any communication from the respondent relative to
its protest, not until eight years later when the final decision of the Commissioner was
issued (TSN, March 7, 2002, p. 24). In other words, the request for reinvestigation
was not granted.
CECILIA TEODORO DAYRIT, TORIBIA TEODORO CASTANEDA, PRUDENCIO J.

TEODORO, FRANCISCO J. TEODORO, AND JOSEFINA TEODORO
TIONGSON, petitioners,
vs.
THE HONORABLE FERNANDO A. CRUZ, Presiding Judge, Branch XII, Court of
193
First Instance of Rizal, and MISAEL P. VERA, in his capacity as the
Commissioner of Internal Revenue, respondents.
Atienza, Tabora, Del Rosario & Castillo Law Offices and Tanada, Sanchez, Tanada &
Tanada Law Offices for petitioners.
GANCAYCO, J.:
The application of tax amnesty to the estate of the Teodoros is the issue in this case.
Petitioners are the legitimate children and heirs of the deceased spouses Marta J.
Teodoro who died intestate on July 1, 1965 and Don Toribio Teodoro who died testate
on August 30, 1965. Thereafter, the heirs of the deceased filed separate estate and
inheritance tax returns for the estates of the late spouses with the Bureau of Internal
Revenue. *
In the meantime, testate and intestate proceedings for the settlement of the
decedents' estates were filed 1 by Cecilia Teodoro-Dayrit, one of the petitioners
herein, in the then Court of First Instance of Caloocan City, ** Branch XII docketed as
Special Proceedings No. C-113. 2 On August 14, 1968, said petitioner was appointed
administratrix of the estate of Dona Marta and letters testamentary was issued in her
favor as executrix of the estate of Don Toribio.
On August 9,1972, the respondent Commissioner of Internal Revenue issued the

following deficiency estate and inheritance tax assessments: 3
Estate of Doña Estate of Don

Marta Toribio ***
Estate Tax & penalties P1,662,072.34 P1,542,293.01
Inheritance Tax & interests 1,747,790.94 1,518,458.72
The aforementioned notice of deficiency assessments was received by petitioner

Dayrit on August 14, 1972. In a letter dated October 7, 1972, **** petitioners through
counsel, asked for a reconsideration of the said assessments alleging that the same
are contrary to law and not supported by sufficient evidence. 4 In the same letter,
petitioners requested a period of thirty (30) days within which to submit their position
paper in support of their claim.
Meanwhile, on October 16, 1972, Presidential Decree (P.D) No. 23, entitled
"Proclaiming Tax Amnesty Subject to Certain Conditions," was issued by then
President Ferdinand E. Marcos, quoted hereunder as follows:
xxx xxx xxx
194
1. In all cases of voluntary disclosure of previously untaxed income
realized here or abroad by any taxpayer, natural or juridical, the collection
of the income tax and penalties incident to nonpayment, as well as all
criminal and civil liabilities under the National Internal Revenue Code, the
Revised Penal Code, the Anti-Graft and Corrupt Practices Act or any
other law applicable thereto, is hereby condoned and, in lieu thereof, a
tax of TEN PERCENTUM (10%) on such previously untaxed income is
hereby imposed, subject to the following conditions:
(a) Such previously untaxed income must have been earned

or realized prior to 1972;
(b) The taxpayer must file a notice and return with the
Commissioner of Internal Revenue on or before March 31,
1972 showing such previously untaxed income; ...
2. The tax imposed under Paragraph 1 hereof, shall be paid within the
following period:
(a) If the amount does not exceed P10,000.00 the tax must
be paid at the time of the filing of notice and return but not
later than March 31, 1973;
(b) If the amount exceeds P10,000.00 the tax maybe paid in

two (2) installments, the first installment to be paid upon the
filing of the notice and return but not later than March 31,
1973; and the second installment within three (3) months
from the date of the filing of the return but not later than June
30, 1973. ....
On November 24, 1972, P.D. No. 67, was issued amending paragraphs 1 and 3 of
P.D. No. 23, to read as follows:
xxx xxx xxx
1. In all cases of voluntary disclosure of previously untaxed income

and/or wealth such as earnings, receipts, gifts bequests or any other
acquisitions from any source whatsoever which are taxable under the
National Internal Revenue Code, as amended realized here or abroad by
any taxpayer, natural or juridical; the collection of all internal revenue
taxes including the increments or penalties on account of non-payment as
well as all civil, criminal or administrative liabilities arising from or incident
to such disclosures under the National Internal Revenue Code, the
Revised Penal Code, the Anti-Graft and Corrupt Practices Act, the
Revised Administrative Code, the Civil Service laws and regulations, laws
and regulations on Immigration and Deportation, or any other applicable
195
law or proclamation, are hereby condoned and, in lieu thereof, a tax of
ten per centum (10%) on such previously untaxed income or wealth is
hereby imposed, subject to the following conditions:
a. Such previously untaxed income and/or wealth must have

been earned or realized prior to 1972;
b. The taxpayer must file a return with the Commissioner of

Internal Revenue on or before March 31, 1973, showing such
previously untaxed income and/or wealth; ....
In a tax return dated March 31, 1973, petitioner Cecilia Teodoro-Dayrit declared an
additional amount of P3,655,595.78 as part of the estates of the Teodoro spouses, for
additional valuation over and above the amount declared in the previous return for
estates and inheritance taxes of the said late spouses. 5 The Bureau of Internal
Revenue issued tax payment acceptance order Nos.1127185-86 and
1533011.6 Pursuant to the aforesaid tax acceptance orders, the estates and heirs of
the deceased spouses Teodoro paid the amounts of P5,000.00, P30,046.68 and
P250,000.00 per official receipts Nos. 73201, 774037 and 964467 dated April 2, 1973,
July 17, 1973 and October 31, 1973, respectively, 7 amounting to a total of
P285,046.68.
On March 14, 1974, respondent Commissioner of Internal Revenue filed a motion for
Allowance of Claim against the estates of spouses Teodoro and for an order of
payment of taxes in S.P. No. C-113 with the then Court of First Instance of Rizal,
Branch XII, praying that petitioner Dayrit be ordered to pay the Bureau of Internal
Revenue the sum of P6,470,396.81 plus surcharges and interest 8 Petitioners filed two
(2) separate oppositions alleging that the estate and inheritance taxes sought to be
collected have already been settled in accordance with the provisions of P.D. No. 23,
as amended by P.D. No. 67 and that at any rate, the assessments have not become
final and executory.9 In reply thereto, respondent Commissioner alleged that
petitioners could not avail of the tax amnesty in view of the existence of a prior
assessment.10 Petitioners insisted that the tax amnesty could still be availed of
invoking Section 4, BIR Revenue Regulation No. 8-72.11
On July 10, 1974, respondent Judge issued an order approving the claim of
respondent Commissioner and directing the payment of the estate and inheritance
taxes.12 Dissastisfied with the decision, petitioners filed a motion for
reconsideration13 but it was denied 14 in an order dated September 30, 1974.*****
Hence, the present petition.
Petitioners contend that respondent Judge acted without jurisdiction or in excess of

jurisdiction or with grave abuse of discretion amounting to lack of jurisdiction in
granting the respondent Commissioner's claim for estate and inheritance taxes
against the estates of the Teodoro spouses on the ground that due to the pendency of
196
their motion for reconsideration of the deficiency assessments issued by the
Commissioner, said tax assessments are not yet final and executory. Petitioners
stressed that the absence of a decision on the disputed assessments was a bar
against collection of taxes. Finally, petitioners insist that their act of filing an estate and
inheritance tax return of a previously untaxed wealth of the estates entitles said
estates to tax amnesty under P.D. No. 23, as amended by P.D. 67 and hence, it is an
error to grant respondent Commissioner's claim for collection of estate and inheritance
taxes.
On the other hand, respondent Commissioner contends that petitioners cannot avail of
the tax amnesty in view of the prior existing assessments issued against the estates of
the deceased spouses before the promulgation of P.D. No. 23. In support thereof,
respondent cited Section 4 of Revenue Regulation No. 15-72, amending Section 4 of
Regulation No. 8-12. Respondent Commissioner contends further that neither may
petitioners' act of filing a return of a previously untaxed income or wealth in the
amount of P3,655,595.98 entitled the estates to tax amnesty where petitioners failed
to pay the 10% tax in full within the time frame required under P.D. No. 23, and that to
allow petitioners to avail of the tax amnesty will render nugatory the provisions of P.D.
No. 68. Moreover, said respondent argues that certiorari is not the proper remedy in
that respondent Judge committed no grave abuse of discretion in allowing the claim
for collection of taxes and that if at all, it was merely an error of judgment which can
be corrected only on appeal, and in which case the reglementary period for the same
has already prescribed.
The main issue in this petition is whether an estate may avail of tax amnesty under
Presidential Decree No. 23 where there is already an existing assessment made prior
to the issuance of the said decree on the basis of the submitted estate and inheritance
tax returns by merely filing separate estate tax returns of an undeclared and untaxed
income over and above the original amount of the estate declared.
Anent petitioners' claim that the tax assessments against the estates of the Teodoro
spouses are not yet final, the court finds the claim untenable. In petitioners' motion for
reconsideration of the aforementioned assessments, petitioners requested then
Commissioner Misael P. Vera for a period of thirty (30) days from October 7, 1972
within which to submit a position paper that would embody their grounds for
reconsideration. However, no position paper was ever filed.15 Such failure to file a
position paper may be construed as abandonment of the petitioners' request for
reconsideration. The court notes that it took the respondent Commissioner a period of
more than one (1) year and five (5) months, from October 7, 1972 to March 14, 1974,
before finally instituting the action for collection. Under the circumstances of the case,
the act of the Commissioner in filing an action for allowance of the claim for estate and
inheritance taxes, may be considered as an outright denial of petitioners' request for
reconsideration.
From the date of receipt of the copy of the Commissioner's letter for collection of
estate and inheritance taxes against the estates of the late Teodoro spouses,
197
petitioners must contest or dispute the same and, upon a denial thereof, the
petitioners have a period of thirty (30) days within which to appeal the case to the
Court of Tax Appeals.16 This they failed to avail of .
Tax assessments made by tax examiners are presumed correct and made in good
faith. A taxpayer has to prove otherwise.17 Failure of the petitioners to appeal to the
Court of Tax Appeals in due time made the assessments in question, final, executory
and demandable.18
The petitioners' allegation that the Court of First Instance (CFI) lacks jurisdiction over
the subject of the case is likewise untenable. The assessments having become final
and executory, the CFI properly acquired jurisdiction.19Neither is there merit in
petitioners' claim that the exclusive jurisdiction of the Court of Tax Appeals (CTA)
applies in the case. The aforesaid exclusive jurisdiction of the CTA arises only in
cases of disputed tax assessments. 20 As noted earlier, petitioners' letter dated
October 7, 1972 asking for reconsideration of the questioned assessments cannot be
considered as one disputing the assessments because petitioners failed to
substantiate their claim that the deficiency assessments are contrary to law.
Petitioners asked for a period of thirty (30) days within which to submit their position
paper but they failed to submit the same nonetheless. Hence, petitioners' letter for a
reconsideration of the assessments is nothing but a mere scrap of paper.
Petitioners' contention that the absence of a decision on their request for

reconsideration of the assessments is a bar to granting the claim for collection is
likewise without merit. In Republic vs. Lim Tian Teng Son & Co., Inc.,21 this Court had
occasion to rule that a decision on a request for reinvestigation is not a condition
precedent to the filing of an action for collection of taxes already assessed. This Court
ruled that "nowhere in the Tax Code is the Collector of Internal Revenue required to
rule first on a taxpayer's request for reconsideration before he can go to court for the
purpose of collecting the tax assessed. On the contrary, Section 305 of the same
Code withheld from all courts, except the Court of Tax Appeals under Republic Act
No. 1125, 22 the authority to restrain the collection of any national internal revenue tax,
fee or charge, thereby indicating the legislative policy to allow the Collector of Internal
Revenue much latitude on the speedy and prompt collection of taxes."
Petitioners argue, however, that the Commissioner of Internal Revenue must first rule
on the taxpayer's protest against tax assessment so as not to deprive the taxpayer of
the remedy of appeal and that it is only from the receipt of the decision that the right to
appeal to the Court of Tax Appeals should run, citing for the purpose San Juan vs.
Velasquez 23 as well as Commissioner of Internal Revenue vs. Gonzales. 24
The aforementioned cases are both not in point. In San Juan, the taxpayer concerned,
through his accountant, disputed the assessments of income tax and deficiency
income tax by adducing the reasons and explanations why said assessments of
income tax were not due and owing from the taxpayer. Thus, it was therein ruled that
having disputed the assessments at the opportune time, the Commissioner of Internal
198
Revenue cannot ignore the disputed assessments by immediate immediately bringing
an action to collect. By the same token in Commissioner of Internal Revenue vs.
Gonzales, the assessments of estate and inheritance taxes were disputed by the
taxpayer by invoking prescription as a defense claiming that the assessments were
made after the lapse of more than five (5) years.
Payment of taxes being admittedly a burden, taxpayers should not be left without any
recourse when they feel aggrieved due to the erroneous and burdensome
assessments made by a Bureau of Internal Revenue agent or by the Commissioner.
Said right is vested upon adversely affected taxpayers under Republic Act No. 1125. It
cannot be rendered nugatory through the Commissioner's act of immediately filing an
action for collection without ruling beforehand on the disputed
25
assessments. However, the remedy of an aggrieved taxpayer is not without any
limitation. A taxpayer's right to contest assessments, particularly the right to appeal to
the Court of Tax Appeals, may be waived or lost as in this case.26
The requirement for the Commissioner to rule on disputed assessments before

bringing an action for collection is applicable only in cases where the assessment was
actually disputed, adducing reasons in support thereto. In the present case where the
petitioners did not actually contest the assessments by stating the basis thereof, the
respondent Commissioner need not rule on their request.
Taxes are the lifeblood of the nation through which the government agencies continue
to operate and with which the State effects its functions for the welfare of its
constituents. We cannot tolerate taxpayers hampering expedient collection of taxes by
their failure to act within a reasonable period. No government could exist if all litigants
were permitted to delay the collection of its taxes. 27 Thus, this Court ruled earlier that
a suit for the collection of internal revenue taxes, as in this case, where the
assessment has already become final and executory, the action to collect is akin to an
action to enforce the judgment. No inquiry can be made therein as to the merits of the
original case or the justness of the judgment relied upon. 28
In view of the foregoing discussions, petitioners' allegation of grave abuse of

discretion on the part of the respondent judge must perforce fall. Considering further
that the court a quo properly acquired jurisdiction over the subject matter of the case,
petitioners should have appealed the case. The order of the court a quo dated
September 30,1974, was received by the petitioners on October 16, 1974. Petitioners
should have appealed within a period of fifteen (15) days from receipt thereof but they
failed to do so. ****** As petitioners failed to file a timely appeal from the order of the
trial court, they can no longer avail of the remedy of a special civil action for certiorari
in lieu of appeal. There is no error of jurisdiction committed by the trial court.29
On the other hand with respect the petitioners' plea that the estate is at any rate
entitled to tax amnesty, a reading of P.D. No. 23 30 reveals that in order to avail of tax
amnesty, it is required, among others, that there should be a voluntary disclosure of a
previously untaxed income. This was the pronouncement of this Court in Nepomuceno
199
vs. Montecillo 31 with respect to P.D. 370 32 which was decreed as a complement of
P.D. Nos. 23 and 157. In addition thereto, said income must have been earned or
realized prior to 1972 and the tax return must be filed on or before March 31, 1973.
Considering that P.D. No. 23 was issued on October 16, 1972, the court rules that the
said decree embraces only those income declared in pursuance thereof within the
taxable year 1972. The time frame cannot be stretched to include declarations made
prior to the issuance of the said decree or those made outside of the time frame as
envisioned in the said decree. Thus, the estates of the Teodoro spouses which have
been declared separately sometime in the 1960's are clearly outside the coverage of
the tax amnesty provision.
Petitioners argue, however, that even if a notice of deficiency assessment had already
been issued, the estates may still avail of tax amnesty if the basis of such deficiency
assessment is either the failure to file a return or the omission of items of taxable
income for a return already filed or the under declaration of said return, citing P.D. No.
67 and Section 4 of BIR Revenue Regulation No. 8-72.
There is no merit in this contention. Even if P.D. No. 67, as an amendment to P.D. 23,
enlarges the coverage of tax amnesty to include wealth such as earnings, receipts,
gifts, bequests or any other acquisitions from any source whatsoever, said decree
reiterates the need of voluntary disclosure on the part of the taxpayer filing the return
in order to avail of the tax amnesty. The only noticeable departure from P.D. No. 23 is
the extension of the date for the filing of the return from March 31, 1972 to March 31,
1973. Thus, this Court finds that the same policy observed in the issuance of P.D. No.
23, governs P.D. No. 67. In addition thereto, it gives the tax evaders who failed to
avail of the provisions of P.D. No. 23 a chance to reform themselves. An examination
of both decrees does not show that taxpayers availing of the tax amnesty in
accordance with P.D. No. 67, are entitled to blanket coverage of declarations made
prior to the issuance of said decrees.
Petitioners argue that the estates of their parents declared for estate tax valuation
sometime in the 1960's can avail of the tax amnesty when petitioners declared an
additional amount of the estates over and above that which was previously declared.
A reading of P.D. No. 67 reveals that tax amnesty is extendible only to those
declarations made pursuant to said decree. Thus, if at all, it is only the estates in the
amount of P3,655,595.78 declared pursuant to P.D. No. 67 that is covered, upon
payment of 10% of the said amount within the period prescribed under P.D. No. 23,
which was up to June 30, 1973. Considering that there has been partial compliance
with the said requirement by the payment of P285,046.68, petitioner may claim the
benefit of amnesty for said declared amount upon payment of the balance of 10%
thereof required to be paid.
WHEREFORE, with the above modification of the questioned order of July 10, 1974,
said order is hereby affirmed in all other respect. No pronouncement as to costs.
SO ORDERED.
200
DIGEST
Dayrit vs. Cruz

165 SCRA 571, GR L-39910, 26 September 1988
Facts:
Cecilia Teodoro Dayrit (as administrator) along with her siblings heirs of the Sps.
Marta and Toribio Teodoro who died testate and intestate on 1 July 1965 and 30
August 1965, respectively filed this case to question the Collection Suit filed by the
Commissioner at the CFI.
The heirs separately filed estate and inheritance tax returns for the estates of the
spouses with the BIR. In 1972, the BIR issued deficiency estate and inheritance tax
assessments for P1,662,072,34 and P1,747,790.94 respectively for the Estate of
Dona Marta and P1,542,293.01 and P518,458.72, respectively for the Estate of Don
Toribio, these assessments were received by Cecilia on August 14, 1972. On October
7, 1972 the heirs asked for reconsideration as the assessment was allegedly contrary
to law and not supported by sufficient evidence. In the letter asking for
reconsideration, the heirs asked for a period of 30 daysto submit their position paper.
Meanwhile, then President Marcos issued a PD for tax amnesty and the heirs tried to
avail of the benefits thereof. However, the conditions for granting of a tax amnesty
were not fulfilled and the Court ruled that they are not entitled to claim the benefits of
such.
One year and 5 months after the filed a reconsideration of the BIR's assessment, the
Commissioner filed in the CFI a claim against the estate of the Teodoro spouse.
The heirs, of course, opposed on the ground that since the Commissioner hasn't yet
ruled on their reconsideration the Judge (of the CFI) has no jurisdiction to entertain the
Commissioner's claim against the estate of their parents.
Issue: Whether the assessment is final, executory, and demandable and hence a
claim against the estate is proper.
Held: Yes, the assessment is already final, executory and demandable.
The circumstances of the case would show that it took the Commissioner more 1 year
and 5 months from the date the petitioner filed a reconsideration of the assessment.
The defense of the petitioner that it is not yet demandable due to the failure of the
Commissioner to rule on the reconsideration is untenable. The act of the
Commissioner, in filing an action for allowance of the claim for estate and inheritance
taxes, may be construed as a denial of the taxpayers’ request for reconsideration.
201
Moreover, although it was shown that petitioner asked for a reconsideration and asked
for 30 days to file a position paper, citing the basis for the opposition, such position
paper was never submitted.
The remedy of the taxpayer should have been to dispute the assessment From the
date of receipt of the copy of the Commissioner’s letter for collection of taxes,and
upon denial thereof, they have a period of 30 days to appeal the case to the Court of
Tax Appeals, instead of filing this case for Certiorari.
Tax assessment made by tax examiners are presumed correct and made in good
faith. A taxpayer has to prove otherwise. Failure of the taxpayers to appeal to the
Court of Tax Appeals in due time made the assessments final, executory and
demandable.
G.R. No. 120880 June 5, 1997
FERDINAND R. MARCOS II, petitioner,

vs.
COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF INTERNAL
REVENUE and HERMINIA D. DE GUZMAN, respondents.
TORRES, JR., J.:
In this Petition for Review on Certiorari, Government action is once again assailed as
precipitate and unfair, suffering the basic and oftly implored requisites of due process
of law. Specifically, the petition assails the Decision 1of the Court of Appeals dated
November 29, 1994 in CA-G.R. SP No. 31363, where the said court held:
In view of all the foregoing, we rule that the deficiency income tax
assessments and estate tax assessment, are already final and
(u)nappealable-and-the subsequent levy of real properties is a tax
remedy resorted to by the government, sanctioned by Section 213 and
218 of the National Internal Revenue Code. This summary tax remedy is
distinct and separate from the other tax remedies (such as Judicial Civil
actions and Criminal actions), and is not affected or precluded by the
pendency of any other tax remedies instituted by the government.
WHEREFORE, premises considered, judgment is hereby rendered

DISMISSING the petition for certiorari with prayer for Restraining Order
and Injunction.
No pronouncements as to costs.
202
SO ORDERED.
More than seven years since the demise of the late Ferdinand E. Marcos, the former
President of the Republic of the Philippines, the matter of the settlement of his estate,
and its dues to the government in estate taxes, are still unresolved, the latter issue
being now before this Court for resolution. Specifically, petitioner Ferdinand R. Marcos
II, the eldest son of the decedent, questions the actuations of the respondent
Commissioner of Internal Revenue in assessing, and collecting through the summary
remedy of Levy on Real Properties, estate and income tax delinquencies upon the
estate and properties of his father, despite the pendency of the proceedings on
probate of the will of the late president, which is docketed as Sp. Proc. No. 10279 in
the Regional Trial Court of Pasig, Branch 156.
Petitioner had filed with the respondent Court of Appeals a Petition for Certiorari and
Prohibition with an application for writ of preliminary injunction and/or temporary
restraining order on June 28, 1993, seeking to —
I. Annul and set aside the Notices of Levy on real property dated
February 22, 1993 and May 20, 1993, issued by respondent
Commissioner of Internal Revenue;
II. Annul and set aside the Notices of Sale dated May 26, 1993;
III. Enjoin the Head Revenue Executive Assistant Director II (Collection

Service), from proceeding with the Auction of the real properties covered
by Notices of Sale.
After the parties had pleaded their case, the Court of Appeals rendered its
Decision 2 on November 29, 1994, ruling that the deficiency assessments for estate
and income tax made upon the petitioner and the estate of the deceased President
Marcos have already become final and unappealable, and may thus be enforced by
the summary remedy of levying upon the properties of the late President, as was done
by the respondent Commissioner of Internal Revenue.
WHEREFORE, premises considered judgment is hereby rendered

DISMISSING the petition for Certiorari with prayer for Restraining Order
and Injunction.
No pronouncements as to cost.
SO ORDERED.
Unperturbed, petitioner is now before us assailing the validity of the appellate court's
decision, assigning the following as errors:
A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT

THE SUMMARY TAX REMEDIES RESORTED TO BY THE
203
GOVERNMENT ARE NOT AFFECTED AND PRECLUDED BY THE
PENDENCY OF THE SPECIAL PROCEEDING FOR THE ALLOWANCE
OF THE LATE PRESIDENT'S ALLEGED WILL. TO THE CONTRARY,
THIS PROBATE PROCEEDING PRECISELY PLACED ALL
PROPERTIES WHICH FORM PART OF THE LATE PRESIDENT'S
ESTATE IN CUSTODIA LEGIS OF THE PROBATE COURT TO THE
EXCLUSION OF ALL OTHER COURTS AND ADMINISTRATIVE
AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY

DECIDING THAT SINCE THE TAX ASSESSMENTS OF PETITIONER
AND HIS PARENTS HAD ALREADY BECOME FINAL AND
UNAPPEALABLE, THERE WAS NO NEED TO GO INTO THE MERITS
OF THE GROUNDS CITED IN THE PETITION. INDEPENDENT OF
WHETHER THE TAX ASSESSMENTS HAD ALREADY BECOME FINAL,
HOWEVER, PETITIONER HAS THE RIGHT TO QUESTION THE
UNLAWFUL MANNER AND METHOD IN WHICH TAX COLLECTION IS
SOUGHT TO BE ENFORCED BY RESPONDENTS COMMISSIONER
AND DE GUZMAN. THUS, RESPONDENT COURT SHOULD HAVE
FAVORABLY CONSIDERED THE MERITS OF THE FOLLOWING
GROUNDS IN THE PETITION:
(1) The Notices of Levy on Real Property were issued

beyond the period provided in the Revenue Memorandum
Circular No. 38-68.
(2) [a] The numerous pending court cases questioning the

late President's ownership or interests in several properties
(both personal and real) make the total value of his estate,
and the consequent estate tax due, incapable of exact
pecuniary determination at this time. Thus, respondents'
assessment of the estate tax and their issuance of the
Notices of Levy and Sale are premature, confiscatory and
oppressive.
[b] Petitioner, as one of the late President's compulsory

heirs, was never notified, much less served with copies of the
Notices of Levy, contrary to the mandate of Section 213 of
the NIRC. As such, petitioner was never given an opportunity
to contest the Notices in violation of his right to due process
of law.
C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION,

RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT IT
HAD NO POWER TO GRANT INJUNCTIVE RELIEF TO PETITIONER.
SECTION 219 OF THE NIRC NOTWITHSTANDING, COURTS
204
POSSESS THE POWER TO ISSUE A WRIT OF PRELIMINARY
INJUNCTION TO RESTRAIN RESPONDENTS COMMISSIONER'S AND
DE GUZMAN'S ARBITRARY METHOD OF COLLECTING THE
ALLEGED DEFICIENCY ESTATE AND INCOME TAXES BY MEANS OF
LEVY.
The facts as found by the appellate court are undisputed, and are hereby adopted:
On September 29, 1989, former President Ferdinand Marcos died in

Honolulu, Hawaii, USA.
On June 27, 1990, a Special Tax Audit Team was created to conduct
investigations and examinations of the tax liabilities and obligations of the
late president, as well as that of his family, associates and "cronies". Said
audit team concluded its investigation with a Memorandum dated July 26,
1991. The investigation disclosed that the Marcoses failed to file a written
notice of the death of the decedent, an estate tax returns [sic], as well as
several income tax returns covering the years 1982 to 1986, — all in
violation of the National Internal Revenue Code (NIRC).
Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos

before the Regional Trial of Quezon City for violations of Sections 82, 83
and 84 (has penalized under Sections 253 and 254 in relation to Section
252 — a & b) of the National Internal Revenue Code (NIRC).
The Commissioner of Internal Revenue thereby caused the preparation

and filing of the Estate Tax Return for the estate of the late president, the
Income Tax Returns of the Spouses Marcos for the years 1985 to 1986,
and the Income Tax Returns of petitioner Ferdinand "Bongbong" Marcos
II for the years 1982 to 1985.
On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax
assessment no. FAC-2-89-91-002464 (against the estate of the late
president Ferdinand Marcos in the amount of P23,293,607,638.00
Pesos); (2) Deficiency income tax assessment no. FAC-1-85-91-002452
and Deficiency income tax assessment no. FAC-1-86-91-002451 (against
the Spouses Ferdinand and Imelda Marcos in the amounts of
P149,551.70 and P184,009,737.40 representing deficiency income tax for
the years 1985 and 1986); (3) Deficiency income tax assessment nos.
FAC-1-82-91-002460 to FAC-1-85-91-002463 (against petitioner
Ferdinand "Bongbong" Marcos II in the amounts of P258.70 pesos;
P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60 Pesos representing
his deficiency income taxes for the years 1982 to 1985).
The Commissioner of Internal Revenue avers that copies of the

deficiency estate and income tax assessments were all personally and
205
constructively served on August 26, 1991 and September 12, 1991 upon
Mrs. Imelda Marcos (through her caretaker Mr. Martinez) at her last
known address at No. 204 Ortega St., San Juan, M.M. (Annexes "D" and
"E" of the Petition). Likewise, copies of the deficiency tax assessments
issued against petitioner Ferdinand "Bongbong" Marcos II were also
personally and constructively served upon him (through his caretaker) on
September 12, 1991, at his last known address at Don Mariano Marcos
St. corner P. Guevarra St., San Juan, M.M. (Annexes "J" and "J-1" of the
Petition). Thereafter, Formal Assessment notices were served on October
20, 1992, upon Mrs. Marcos c/o petitioner, at his office, House of
Representatives, Batasan Pambansa, Quezon City. Moreover, a notice to
Taxpayer inviting Mrs. Marcos (or her duly authorized representative or
counsel), to a conference, was furnished the counsel of Mrs. Marcos,
Dean Antonio Coronel — but to no avail.
The deficiency tax assessments were not protested administratively, by

Mrs. Marcos and the other heirs of the late president, within 30 days from
service of said assessments.
On February 22, 1993, the BIR Commissioner issued twenty-two notices

of levy on real property against certain parcels of land owned by the
Marcoses — to satisfy the alleged estate tax and deficiency income taxes
of Spouses Marcos.
On May 20, 1993, four more Notices of Levy on real property were issued
for the purpose of satisfying the deficiency income taxes.
On May 26, 1993, additional four (4) notices of Levy on real property
were again issued. The foregoing tax remedies were resorted to pursuant
to Sections 205 and 213 of the National Internal Revenue Code (NIRC).
In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata
(counsel of herein petitioner) calling the attention of the BIR and
requesting that they be duly notified of any action taken by the BIR
affecting the interest of their client Ferdinand "Bongbong" Marcos II, as
well as the interest of the late president — copies of the aforesaid notices
were, served on April 7, 1993 and on June 10, 1993, upon Mrs. Imelda
Marcos, the petitioner, and their counsel of record, "De Borja, Medialdea,
Ata, Bello, Guevarra and Serapio Law Office".
Notices of sale at public auction were posted on May 26, 1993, at the
lobby of the City Hall of Tacloban City. The public auction for the sale of
the eleven (11) parcels of land took place on July 5, 1993. There being no
bidder, the lots were declared forfeited in favor of the government.
206
On June 25, 1993, petitioner Ferdinand "Bongbong" Marcos II filed the
instant petition for certiorari and prohibition under Rule 65 of the Rules of
Court, with prayer for temporary restraining order and/or writ of
preliminary injunction.
It has been repeatedly observed, and not without merit, that the enforcement of tax
laws and the collection of taxes, is of paramount importance for the sustenance of
government. Taxes are the lifeblood of the government and should be collected
without unnecessary hindrance. However, 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. 3
Whether or not the proper avenues of assessment and collection of the said tax
obligations were taken by the respondent Bureau is now the subject of the Court's
inquiry.
Petitioner posits that notices of levy, notices of sale, and subsequent sale of
properties of the late President Marcos effected by the BIR are null and void for
disregarding the established procedure for the enforcement of taxes due upon the
estate of the deceased. The case of Domingo vs. Garlitos 4 is specifically cited to
bolster the argument that "the ordinary procedure by which to settle claims of
indebtedness against the estate of a deceased, person, as in an inheritance (estate)
tax, is for the claimant to present a claim before the probate court so that said court
may order the administrator to pay the amount therefor." This remedy is allegedly,
exclusive, and cannot be effected through any other means.
Petitioner goes further, submitting that the probate court is not precluded from denying
a request by the government for the immediate payment of taxes, and should order
the payment of the same only within the period fixed by the probate court for the
payment of all the debts of the decedent. In this regard, petitioner cites the case
of Collector of Internal Revenue vs. The Administratrix of the Estate of Echarri (67 Phil
502), where it was held that:
The case of Pineda vs. Court of First Instance of Tayabas and Collector
of Internal Revenue (52 Phil 803), relied upon by the petitioner-appellant
is good authority on the proposition that the court having control over the
administration proceedings has jurisdiction to entertain the claim
presented by the government for taxes due and to order the administrator
to pay the tax should it find that the assessment was proper, and that the
tax was legal, due and collectible. And the rule laid down in that case
must be understood in relation to the case of Collector of Customs
vs. Haygood, supra., as to the procedure to be followed in a given case
by the government to effectuate the collection of the tax. Categorically
stated, where during the pendency of judicial administration over the
207
estate of a deceased person a claim for taxes is presented by the
government, the court has the authority to order payment by the
administrator; but, in the same way that it has authority to order payment
or satisfaction, it also has the negative authority to deny the same. While
there are cases where courts are required to perform certain duties
mandatory and ministerial in character, the function of the court in a case
of the present character is not one of them; and here, the court cannot be
an organism endowed with latitude of judgment in one direction, and
converted into a mere mechanical contrivance in another direction.
On the other hand, it is argued by the BIR, that the state's authority to collect internal
revenue taxes is paramount. Thus, the pendency of probate proceedings over the
estate of the deceased does not preclude the assessment and collection, through
summary remedies, of estate taxes over the same. According to the respondent,
claims for payment of estate and income taxes due and assessed after the death of
the decedent need not be presented in the form of a claim against the estate. These
can and should be paid immediately. The probate court is not the government agency
to decide whether an estate is liable for payment of estate of income taxes. Well-
settled is the rule that the probate court is a court with special and limited jurisdiction.
Concededly, the authority of the Regional Trial Court, sitting, albeit with limited
jurisdiction, as a probate court over estate of deceased individual, is not a trifling thing.
The court's jurisdiction, once invoked, and made effective, cannot be treated with
indifference nor should it be ignored with impunity by the very parties invoking its
authority.
In testament to this, it has been held that it is within the jurisdiction of the probate
court to approve the sale of properties of a deceased person by his prospective heirs
before final adjudication; 5 to determine who are the heirs of the decedent; 6 the
recognition of a natural child; 7 the status of a woman claiming to be the legal wife of
the decedent; 8 the legality of disinheritance of an heir by the testator; 9 and to pass
upon the validity of a waiver of hereditary rights. 10
The pivotal question the court is tasked to resolve refers to the authority of the Bureau
of Internal Revenue to collect by the summary remedy of levying upon, and sale of
real properties of the decedent, estate tax deficiencies, without the cognition and
authority of the court sitting in probate over the supposed will of the deceased.
The nature of the process of estate tax collection has been described as follows:
Strictly speaking, the assessment of an inheritance tax does not directly

involve the administration of a decedent's estate, although it may be
viewed as an incident to the complete settlement of an estate, and, under
some statutes, it is made the duty of the probate court to make the
amount of the inheritance tax a part of the final decree of distribution of
the estate. It is not against the property of decedent, nor is it a claim
208
against the estate as such, but it is against the interest or property right
which the heir, legatee, devisee, etc., has in the property formerly held by
decedent. Further, under some statutes, it has been held that it is not a
suit or controversy between the parties, nor is it an adversary proceeding
between the state and the person who owes the tax on the inheritance.
However, under other statutes it has been held that the hearing and
determination of the cash value of the assets and the determination of the
tax are adversary proceedings. The proceeding has been held to be
necessarily a proceeding in rem. 11
In the Philippine experience, the enforcement and collection of estate tax, is executive
in character, as the legislature has seen it fit to ascribe this task to the Bureau of
Internal Revenue. Section 3 of the National Internal Revenue Code attests to this:
Sec. 3. Powers and duties of the Bureau. — The powers and duties of the
Bureau of Internal Revenue shall comprehend the assessment and
collection of all national internal revenue taxes, fees, and charges, and
the enforcement of all forfeitures, penalties, and fines connected
therewith, including the execution of judgments in all cases decided in its
favor by the Court of Tax Appeals and the ordinary courts. Said Bureau
shall also give effect to and administer the supervisory and police power
conferred to it by this Code or other laws.
Thus, it was in Vera vs. Fernandez 12 that the court recognized the liberal treatment of
claims for taxes charged against the estate of the decedent. Such taxes, we said,
were exempted from the application of the statute of non-claims, and this is justified by
the necessity of government funding, immortalized in the maxim that taxes are the
lifeblood of the government. Vectigalia nervi sunt rei publicae — taxes are the sinews
of the state.
Taxes assessed against the estate of a deceased person, after

administration is opened, need not be submitted to the committee on
claims in the ordinary course of administration. In the exercise of its
control over the administrator, the court may direct the payment of such
taxes upon motion showing that the taxes have been assessed against
the estate.
Such liberal treatment of internal revenue taxes in the probate proceedings extends so
far, even to allowing the enforcement of tax obligations against the heirs of the
decedent, even after distribution of the estate's properties.
Claims for taxes, whether assessed before or after the death of the
deceased, can be collected from the heirs even after the distribution of
the properties of the decedent. They are exempted from the application of
the statute of non-claims. The heirs shall be liable therefor, in proportion
to their share in the inheritance. 13
209
Thus, the Government has two ways of collecting the taxes in question.
One, by going after all the heirs and collecting from each one of them the
amount of the tax proportionate to the inheritance received. Another
remedy, pursuant to the lien created by Section 315 of the Tax Code
upon all property and rights to property belong to the taxpayer for unpaid
income tax, is by subjecting said property of the estate which is in the
hands of an heir or transferee to the payment of the tax due the estate.
(Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105,
September 15, 1967.)
From the foregoing, it is discernible that the approval of the court, sitting in probate, or
as a settlement tribunal over the deceased is not a mandatory requirement in the
collection of estate taxes. It cannot therefore be argued that the Tax Bureau erred in
proceeding with the levying and sale of the properties allegedly owned by the late
President, on the ground that it was required to seek first the probate court's sanction.
There is nothing in the Tax Code, and in the pertinent remedial laws that implies the
necessity of the probate or estate settlement court's approval of the state's claim for
estate taxes, before the same can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or settlement court
which is bidden not to authorize the executor or judicial administrator of the decedent's
estate to deliver any distributive share to any party interested in the estate, unless it is
shown a Certification by the Commissioner of Internal Revenue that the estate taxes
have been paid. This provision disproves the petitioner's contention that it is the
probate court which approves the assessment and collection of the estate tax.
If there is any issue as to the validity of the BIR's decision to assess the estate taxes,
this should have been pursued through the proper administrative and judicial avenues
provided for by law.
Section 229 of the NIRC tells us how:
Sec. 229. Protesting of assessment. — When the Commissioner of

Internal Revenue or his duly authorized representative finds that proper
taxes should be assessed, he shall first notify the taxpayer of his findings.
Within a period to be prescribed by implementing regulations, the
taxpayer shall be required to respond to said notice. If the taxpayer fails
to respond, the Commissioner shall issue an assessment based on his
findings.
Such assessment may be protested administratively by filing a request for

reconsideration or reinvestigation in such form and manner as may be
prescribed by implementing regulations within (30) days from receipt of
the assessment; otherwise, the assessment shall become final and
unappealable.
210
If the protest is denied in whole or in part, the individual, association or
corporation adversely affected by the decision on the protest may appeal
to the Court of Tax Appeals within thirty (30) days from receipt of said
decision; otherwise, the decision shall become final, executory and
demandable. (As inserted by P.D. 1773)
Apart from failing to file the required estate tax return within the time required for the
filing of the same, petitioner, and the other heirs never questioned the assessments
served upon them, allowing the same to lapse into finality, and prompting the BIR to
collect the said taxes by levying upon the properties left by President Marcos.
Petitioner submits, however, that "while the assessment of taxes may have been
validly undertaken by the Government, collection thereof may have been done in
violation of the law. Thus, the manner and method in which the latter is enforced may
be questioned separately, and irrespective of the finality of the former, because the
Government does not have the unbridled discretion to enforce collection without
regard to the clear provision of law." 14
Petitioner specifically points out that applying Memorandum Circular No. 38-68,
implementing Sections 318 and 324 of the old tax code (Republic Act 5203), the BIR's
Notices of Levy on the Marcos properties, were issued beyond the allowed period,
and are therefore null and void:
. . . the Notices of Levy on Real Property (Annexes O to NN of Annex C

of this Petition) in satisfaction of said assessments were still issued by
respondents well beyond the period mandated in Revenue Memorandum
Circular No. 38-68. These Notices of Levy were issued only on 22
February 1993 and 20 May 1993 when at least seventeen (17) months
had already lapsed from the last service of tax assessment on 12
September 1991. As no notices of distraint of personal property were first
issued by respondents, the latter should have complied with Revenue
Memorandum Circular No. 38-68 and issued these Notices of Levy not
earlier than three (3) months nor later than six (6) months from 12
September 1991. In accordance with the Circular, respondents only had
until 12 March 1992 (the last day of the sixth month) within which to issue
these Notices of Levy. The Notices of Levy, having been issued beyond
the period allowed by law, are thus void and of no effect. 15
We hold otherwise. The Notices of Levy upon real property were issued within the
prescriptive period and in accordance with the provisions of the present Tax Code.
The deficiency tax assessment, having already become final, executory, and
demandable, the same can now be collected through the summary remedy of distraint
or levy pursuant to Section 205 of the NIRC.
211
The applicable provision in regard to the prescriptive period for the assessment and
collection of tax deficiency in this instance is Article 223 of the NIRC, which pertinently
provides:
Sec. 223. Exceptions as to a period of limitation of assessment and

collection of taxes. — (a) In the case of a false or fraudulent return with
intent to evade tax or of a failure to file a return, the tax may be assessed,
or a proceeding in court for the collection of such tax may be begun
without assessment, at any time within ten (10) years after the discovery
of the falsity, fraud, or omission: Provided, That, in a fraud assessment
which has become final and executory, the fact of fraud shall be judicially
taken cognizance of in the civil or criminal action for the collection thereof.
xxx xxx xxx
(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.
xxx xxx xxx
The omission to file an estate tax return, and the subsequent failure to contest or
appeal the assessment made by the BIR is fatal to the petitioner's cause, as under the
above-cited provision, in case of failure to file a return, the tax may be assessed at
any time within ten years after the omission, and any tax so assessed may be
collected by levy upon real property within three years following the assessment of the
tax. Since the estate tax assessment had become final and unappealable by the
petitioner's default as regards protesting the validity of the said assessment, there is
now no reason why the BIR cannot continue with the collection of the said tax. Any
objection against the assessment should have been pursued following the avenue
paved in Section 229 of the NIRC on protests on assessments of internal revenue
taxes.
Petitioner further argues that "the numerous pending court cases questioning the late
president's ownership or interests in several properties (both real and personal) make
the total value of his estate, and the consequent estate tax due, incapable of exact
pecuniary determination at this time. Thus, respondents' assessment of the estate tax
and their issuance of the Notices of Levy and sale are premature and oppressive." He
points out the pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141,
which were filed by the government to question the ownership and interests of the late
President in real and personal properties located within and outside the Philippines.
Petitioner, however, omits to allege whether the properties levied upon by the BIR in
the collection of estate taxes upon the decedent's estate were among those involved
in the said cases pending in the Sandiganbayan. Indeed, the court is at a loss as to
how these cases are relevant to the matter at issue. The mere fact that the decedent
212
has pending cases involving ill-gotten wealth does not affect the enforcement of tax
assessments over the properties indubitably included in his estate.
Petitioner also expresses his reservation as to the propriety of the BIR's total
assessment of P23,292,607,638.00, stating that this amount deviates from the
findings of the Department of Justice's Panel of Prosecutors as per its resolution of 20
September 1991. Allegedly, this is clear evidence of the uncertainty on the part of the
Government as to the total value of the estate of the late President.
This is, to our mind, the petitioner's last ditch effort to assail the assessment of estate
tax which had already become final and unappealable.
It is not the Department of Justice which is the government agency tasked to

determine the amount of taxes due upon the subject estate, but the Bureau of Internal
Revenue, 16 whose determinations and assessments are presumed correct and made
in good faith. 17 The taxpayer has the duty of proving otherwise. In the absence of
proof of any irregularities in the performance of official duties, an assessment will not
be disturbed. Even an assessment based on estimates is prima facie valid and lawful
where it does not appear to have been arrived at arbitrarily or capriciously. The
burden of proof is upon the complaining party to show clearly that the assessment is
erroneous. Failure to present proof of error in the assessment will justify the judicial
affirmance of said assessment. 18 In this instance, petitioner has not pointed out one
single provision in the Memorandum of the Special Audit Team which gave rise to the
questioned assessment, which bears a trace of falsity. Indeed, the petitioner's attack
on the assessment bears mainly on the alleged improbable and unconscionable
amount of the taxes charged. But mere rhetoric cannot supply the basis for the charge
of impropriety of the assessments made.
Moreover, these objections to the assessments should have been raised, considering
the ample remedies afforded the taxpayer by the Tax Code, with the Bureau of
Internal Revenue and the Court of Tax Appeals, as described earlier, and cannot be
raised now via Petition for Certiorari, under the pretext of grave abuse of discretion.
The course of action taken by the petitioner reflects his disregard or even repugnance
of the established institutions for governance in the scheme of a well-ordered society.
The subject tax assessments having become final, executory and enforceable, the
same can no longer be contested by means of a disguised protest. In the
main, Certiorari may not be used as a substitute for a lost appeal or remedy. 19 This
judicial policy becomes more pronounced in view of the absence of sufficient attack
against the actuations of government.
On the matter of sufficiency of service of Notices of Assessment to the petitioner, we

find the respondent appellate court's pronouncements sound and resilient to
petitioner's attacks.
Anent grounds 3(b) and (B) — both alleging/claiming lack of notice — We

find, after considering the facts and circumstances, as well as evidences,
213
that there was sufficient, constructive and/or actual notice of
assessments, levy and sale, sent to herein petitioner Ferdinand
"Bongbong" Marcos as well as to his mother Mrs. Imelda Marcos.
Even if we are to rule out the notices of assessments personally given to

the caretaker of Mrs. Marcos at the latter's last known address, on August
26, 1991 and September 12, 1991, as well as the notices of assessment
personally given to the caretaker of petitioner also at his last known
address on September 12, 1991 — the subsequent notices given
thereafter could no longer be ignored as they were sent at a time when
petitioner was already here in the Philippines, and at a place where said
notices would surely be called to petitioner's attention, and received by
responsible persons of sufficient age and discretion.
Thus, on October 20, 1992, formal assessment notices were served upon
Mrs. Marcos c/o the petitioner, at his office, House of Representatives,
Batasan Pambansa, Q.C. (Annexes "A", "A-1", "A-2", "A-3"; pp. 207-210,
Comment/Memorandum of OSG). Moreover, a notice to taxpayer dated
October 8, 1992 inviting Mrs. Marcos to a conference relative to her tax
liabilities, was furnished the counsel of Mrs. Marcos — Dean Antonio
Coronel (Annex "B", p. 211, ibid). Thereafter, copies of Notices were also
served upon Mrs. Imelda Marcos, the petitioner and their counsel "De
Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law Office", on April
7, 1993 and June 10, 1993. Despite all of these Notices, petitioner never
lifted a finger to protest the assessments, (upon which the Levy and sale
of properties were based), nor appealed the same to the Court of Tax
Appeals.
There being sufficient service of Notices to herein petitioner (and his

mother) and it appearing that petitioner continuously ignored said Notices
despite several opportunities given him to file a protest and to thereafter
appeal to the Court of Tax Appeals, — the tax assessments subject of
this case, upon which the levy and sale of properties were based, could
no longer be contested (directly or indirectly) via this instant petition
for certiorari. 20
Petitioner argues that all the questioned Notices of Levy, however, must be nullified
for having been issued without validly serving copies thereof to the petitioner. As a
mandatory heir of the decedent, petitioner avers that he has an interest in the subject
estate, and notices of levy upon its properties should have been served upon him.
We do not agree. In the case of notices of levy issued to satisfy the delinquent estate
tax, the delinquent taxpayer is the Estate of the decedent, and not necessarily, and
exclusively, the petitioner as heir of the deceased. In the same vein, in the matter of
income tax delinquency of the late president and his spouse, petitioner is not the
taxpayer liable. Thus, it follows that service of notices of levy in satisfaction of these
214
tax delinquencies upon the petitioner is not required by law, as under Section 213 of
the NIRC, which pertinently states:
xxx xxx xxx
. . . Levy shall be effected by writing upon said certificate a description of

the property upon which levy is made. At the same time, written notice of
the levy shall be mailed to or served upon the Register of Deeds of the
province or city where the property is located and upon the delinquent
taxpayer, or if he be absent from the Philippines, to his agent or the
manager of the business in respect to which the liability arose, or if there
be none, to the occupant of the property in question.
xxx xxx xxx
The foregoing notwithstanding, the record shows that notices of warrants of distraint
and levy of sale were furnished the counsel of petitioner on April 7, 1993, and June
10, 1993, and the petitioner himself on April 12, 1993 at his office at the Batasang
Pambansa. 21 We cannot therefore, countenance petitioner's insistence that he was
denied due process. Where there was an opportunity to raise objections to
government action, and such opportunity was disregarded, for no justifiable reason,
the party claiming oppression then becomes the oppressor of the orderly functions of
government. He who comes to court must come with clean hands. Otherwise, he not
only taints his name, but ridicules the very structure of established authority.
IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The
Decision of the Court of Appeals dated November 29, 1994 is hereby AFFIRMED in
all respects.
SO ORDERED.
DIGEST
MARCOS II vs. CA
273 SCRA 47, GR No. 120880, June 5, 1997
Facts:
Bongbong Marcos sought for the reversal of the ruling of the Court of Appeals to grant
CIR's petition to levy the properties of the late Pres. Marcos to cover the payment of
his tax delinquencies during the period of his exile in the US. The Marcos family was
assessed by the BIR after it failed to file estate tax returns. However the assessment
were not protested administratively by Mrs. Marcos and the heirs of the late president
so that they became final and unappealable after the period for filing of opposition has
prescribed. Marcos contends that the properties could not be levied to cover the tax
dues because they are still pending probate with the court, and settlement of tax
deficiencies could not be had, unless there is an order by the probate court or until the
215
probate proceedings are terminated.
Petitioner also pointed out that applying Memorandum Circular No. 38-68, the BIR's
Notices of Levy on the Marcos properties were issued beyond the allowed period, and
are therefore null and void.
Issue:
Whether or not the contentions of Bongbong Marcos are correct
Ruling:
No. The deficiency income tax assessments and estate tax assessment are already
final and unappealable -and-the subsequent levy of real properties is a tax remedy
resorted to by the government, sanctioned by Section 213 and 218 of the National
Internal Revenue Code. This summary tax remedy is distinct and separate from the
other tax remedies (such as Judicial Civil actions and Criminal actions), and is not
affected or precluded by the pendency of any other tax remedies instituted by the
government.
The approval of the court, sitting in probate, or as a settlement tribunal over the
deceased's estate is not a mandatory requirement in the collection of estate taxes. On
the contrary, under Section 87 of the NIRC, it is the probate or settlement court which
is bidden not to authorize the executor or judicial administrator of the decedent's
estate to deliver any distributive share to any party interested in the estate, unless it is
shown a Certification by the Commissioner of Internal Revenue that the estate taxes
have been paid. This provision disproves the petitioner's contention that it is the
probate court which approves the assessment and collection of the estate tax.
On the issue of prescription, the omission to file an estate tax return, and the
subsequent failure to contest or appeal the assessment made by the BIR is fatal to the
petitioner's cause, as under Sec.223 of the NIRC, in case of failure to file a return, the
tax may be assessed at anytime within 10 years after the omission, and any tax so
assessed may be collected by levy upon real property within 3 years (now 5 years)
following the assessment of the tax. Since the estate tax assessment had become
final and unappealable by the petitioner's default as regards protesting the validity of
the said assessment, there is no reason why the BIR cannot continue with the
collection of the said tax.
216
G.R. No. L-21731 March 31, 1966
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,

vs.
LIM TIAN TENG SONS and CO., INC., defendant-appellant.
Office of the Solicitor General for the plaintiff-appellant.

P. B. Uy Calderon for the defendant-appellee.
BENGZON, J.P., J.:
Lim Tian Teng Sons & Co., Inc., a domestic corporation with principal office in Cebu
City, engaged in 1951 and 1952, among others, in the exportation of copra. The copra
was weighed before shipment in the port of departure and upon arrival in the port of
destination. The weight before shipment was called copra outturn. To allow for lose in
weight due to shrinkage, said exporter collected only 95% of the amount appearing in
the letter of credit covering every copra outturn. The 5% balance remained
outstanding until final liquidation and adjustment.
On March 30, 1953 Lim Tian Teng Sons & Co., Inc. filed its income tax return for 1952
based on accrued income and expenses. Its return showed a loss of P56,109.98. It
took up as part of the beginning inventory for 1952 the copra outturn shipped in 1951
in the sum of P95,500.00 already partially collected, as part of its outstanding stock as
of December 31, 1951.
In the audit and examination of taxpayer's 1952 income tax return, the Collector of
Internal Revenue eliminated the P95,500.00 outturn from the beginning inventory for
1952 and considered it as accrued income for 1951. This increased taxpayer's 1952
net income by P95,500.00 which, considering disallowances in the sum of P9,980.85,
raised the taxpayer's net taxable income for 1952 to P50,370.87. Accordingly, in a
letter dated January 16, 1957 (Exhibit C), received by Lim Tian Teng Sons & Co., Inc.
on January 30, 1957, the Collector of Internal Revenue assessed a deficiency income
tax of P10,074.00 and 50% surcharge thereon amounting to P5,037.00 and
demanded payment thereof not later than February 15, 1957.
On January 31, 1957 Lim Tian Teng Sons & Co., Inc. requested reinvestigation of its
1952 income tax liability. The Collector of Internal Revenue did not reply; instead, he
referred the case to the Solicitor General for collection by judicial action.
On September 20, 1957 the Solicitor General demanded from Lim Tian Teng Sons &
Co., Inc. the payment of P15,111.50 within five days, stating that otherwise judicial
action would be instituted without further notice. In a letter dated October 5, 1957,
received by the Collector of Internal Revenue on October 7, 1957, Lim Tian Teng
Sons & Co., Inc. reiterated its request for reinvestigation. It also wrote the Solicitor
General on October 8, 1957 requesting that it be allowed to present its explanation
together with supporting papers relative to its income tax liability. The Solicitor
217
General transmitted the letter to the Collection of Internal Revenue. Thereupon, the
Deputy Collector of Internal Revenue, by his letter dated October 16, 1957, informed
the taxpayer that its request for reinvestigation would be granted provided it executed
within ten days a waiver of the statute of limitations as required in General Circular V-
258 dated August 20, 1957. In his letter dated December 10, 1957, the Deputy
Collector of Internal Revenue extended the period within which to execute and file with
him the waiver of the statute of limitations to December 31, 1957, but advised that if
no waiver is forthcoming on or before said date, judicial action for collection would be
instituted without further notice. Receipt of this letter is denied by appellant company.
As Lim Tian Teng Sons & Co., Inc. failed to file a waiver of the statute of limitations,
the Collector of Internal Revenue instituted eight months after, specifically on
September 2, 1958, an action in the Court of First Instance of Cebu for the collection
of deficiency income tax.
After hearing the parties, the court below rendered the following judgment.
IN VIEW OF THE FOREGOING, judgment is hereby rendered, declaring the

assessment (Exh. D, D-1) of income tax in the sum of P15,111.00 due from the
defendant to the plaintiff for the year 1952 valid, final and executory;
condemning the defendant to pay the same to the plaintiff with interest at one
(1) per centum monthly from October 28, 1957 until fully paid.
With costs against the defendant.
IT IS SO ORDERED.
Not satisfied with the decision, the Collector of Internal Revenue moved for its
reconsideration on the ground that it did not include the 5% surcharge for late
payment of tax. The motion was denied for the reason that the taxpayer has already
been ordered to pay a surcharge of 50%.
Both parties appealed, raising only questions of law.
Plaintiff cites as errors the non-imposition of the 5% surcharge for the late payment of
tax and the computation of delinquency interest from October 8, 1957.
Defendant, on the other hand, assails the jurisdiction of the lower court, its finding that
the assessment in question has become final and executory, the correctness of the
assessment and the imposition of the 50% surcharge.1äwphï1.ñët
We will discuss first the taxpayer's appeal. It maintains that the lower court has no
jurisdiction to entertain this case on the ground that the Collector of Internal Revenue
has not yet issued his final decision on its requests for reinvestigation. The taxpayer's
stand is that final decision of the Collector of Internal Revenue on the disputed
assessment is a condition precedent to the filing of an action in the Court of First
Instance for the collection of a tax. This argument has no merit. The Collector of
218
Internal Revenue is authorized to collect delinquent internal revenue taxes either by
distraint and levy or by judicial action or both simultaneously.1 The only requisite
before he can collect the tax is that he must first assess the same within the time fixed
by law.2 And in the case of a false or fraudulent return with intent to evade the tax or
of a failure to file a return, a proceeding in court for the collection of such tax may be
begun without assessment.3
Nowhere in the Tax Code is the Collector of Internal Revenue required to rule first on
a taxpayer's request for reinvestigation before he can go to court for the purpose of
collecting the tax assessed. On the contrary, Section 305 of the same Code withholds
from all courts, except the Court of Tax Appeals under Section 11 of Republic Act
1125, the authority to restrain the collection of any national internal-revenue tax, fee or
charge, thereby indicating the legislative policy to allow the Collector of Internal
Revenue much latitude in the speedy and prompt collection of taxes. The reason is
obvious. It is upon taxation that the government chiefly relies to obtain the means the
carry on its operations, and it is of the utmost importance that the modes adopted to
enforce collection of taxes levied should be summary and interfered with as little as
possible. No government could exist if all litigants were permitted to delay the
collection of its taxes.4
Moreover, before the creation of the Court of Tax Appeals the remedy of a taxpayer
who desired to contest an assessment issued, by the Collector of Internal Revenue
was to pay the tax and bring an action in the ordinary courts for its recovery pursuant
to Section 306 of the Code.5 Collection or payment of the tax was not made, to, wait
until after the Collector of Internal Revenue has resolved all issues raised by the
taxpayer against an assessment. Republic Act 1125 creating the Court of Appeals
allows the taxpayer to dispute the correctness legality of an assessment both in the
purely administrative level and in said court, but it does not stop the Collector of
Internal Revenue from collecting the tax through any of the means provided for in
Section 316 of the Tax Code, except when enjoined by said Court of Tax Appeals.
Section 11 of Republic Act 1125 states in part:
No appeal taken to the Court of Tax Appeals from the decision of the Collector
of Internal Revenue ... shall suspend the payment, levy, distraint, and/or sale of
any property of the taxpayer for the satisfaction of his tax liability as provided by
existing law: Provided, however, That when in the opinion of the Court the
collection by the Bureau of Internal Revenue or the Commissioner of Customs
may jeopardize the interest of the Government and/or the taxpayer the Court at
any stage of the proceeding may suspend the said collection and require the
taxpayer either to deposit the amount claimed or to file a surety bond for not
more than double the amount with the Court.
We will now resolve the issue of whether or not the court a quo erred in considering as
final and executory the assessment contained in the letter of the Collector of Internal
Revenue dated January 16, 1957. As stated, defendant received said assessment on
January 30, 1957 and on the following day requested reinvestigation of its tax liability.
219
The Collector of Internal Revenue however did not reply to the request for
reinvestigation. Instead, he referred the case to the Solicitor General for collection of
the tax. The lower court interpreted this action of the Collector of Internal Revenue as
a denial of defendant's request for reinvestigation.
Said court, to our mind, committed no error. For what is more indicative of the
Collector's decision against reinvestigation than his insistence to collect the tax? This
decision was communicated to defendant in a letter dated September 20, 1957 of the
office of the Solicitor General which must have been received by defendant not later
than October 8, 1957 for on said date it acknowledged receipt thereof. It had thirty
days from October 8, 1957 within which to appeal to the Court of Tax Appeals
pursuant to Section 11 of Republic Act 1125.6 Instead of appealing to the Tax Court,
however, the defendant herein in a letter dated October 8, 1957 reiterated its request
for reinvestigation.
On October 15, 1957 the Collector of Internal Revenue wrote defendant that its
"request for a reinvestigation will be granted only upon compliance with General
Circular No. V-258 dated August 20, 1957, which requires as a prerequisite to the
grant of a reinvestigation the execution of a waiver of the statute of limitations". In a
subsequent letter, he extended the period within which to submit the aforesaid waiver
to December 31, 1957.
In effect, the Collector of Internal Revenue placed in the hands of the defendant the
holding of a reinvestigation. However, no such reinvestigation was made inasmuch as
taxpayer failed to submit a written waiver of the statute of limitations on or before
December 31, 1957. Such omission automatically brought about the denial of the
request for reinvestigation.
Taxpayer however questions the legality of requiring waiver of the statute of limitations
before the grant of reinvestigation as provided for in General Circular No.
V-258. This question was not raised in the Bureau of Internal Revenue. Suffice it to
say in this connection that General Circular No. V-258 was promulgated pursuant to
Section 338 of the Tax Code. The authority thereunder of the Secretary of Finance to
issue rules and regulations for the effective enforcement of the provisions of the Tax
Code has been sustained by this Court in previous cases.7
Even if we do not count the period from October 8, 1957 (the date when taxpayer
received notice of the denial of its request for reinvestigation) to December 31, 1957
(the deadline for the submission of the written waiver of the statute of limitations) in
reckoning the 30-day period within which the taxpayer may appeal to the Court of Tax
Appeals, said period had long lapsed when the Collector of Internal Revenue filed the
complaint in this case on September 2, 1958.
Taxpayer failure to appeal to the Court of Tax Appeals in due time made the
assessment in question final, executory and demandable.8 And when the action was
instituted on September 2, 1958 to enforce the deficiency assessment in question, it
220
was already barred from disputing the correctness of the assessment or invoking any
defense that would reopen the question of his tax liability on merits.9 Otherwise, the
period of thirty days for appeal to the Court of Tax Appeals would make little sense. 10
In a proceeding like this the taxpayer's defenses are similar to those of the defendant
in a case for the enforcement of a judgment by judicial action under Section 6 of Rule
39 of the Rules of Court. No inquiry can be made therein as to the merits of the
original case or the justness of the judgment relied upon, other than by evidence of
want of jurisdiction, of collusion between the parties, or of fraud in the party offering
the record with respect to the proceedings. 11 As held by this Court in Insular
Government vs.
Nico 12 the taxpayer may raise only the questions whether or not the Collector of
Internal Revenue had jurisdiction to do the particular act, and whether any fraud was
committed in the doing of the act. In that case, Doroteo Nico was fined by the
Collector of Internal Revenue for violation of subparagraphs (d), (e) and (g) of Section
28 as well as Sections 36, 101 and 107 of Act 1189. Under Section 54 of the same
Act the taxpayer was given the right to appeal from the decision of the Collector of
Internal Revenue to the Court of First Instance within a period of ten days from notice
of imposition of the fine. Nico did not appeal, neither did he pay the fine. Pursuant to
Section 33 of the Act, the Collector of Internal Revenue filed an action in the Court of
First Instance to enforce his decision and collect the fine. The decision of the Collector
of Internal Revenue having become final, this Court, on appeal, allowed no further
inquiry into the merits of the same.
For the satisfaction of defendant, however, it may be worth stating that on its merits,
the assessment in question is correct. It is not controverted that, as appearing from its
1952 income tax return Lim Tian Teng Sons & Co., Inc. employs the "accrual" method
of accounting. Following such accounting method the copra outturn in the amount of
P95,500.00 outstanding as of December 31, 1951, should have been treated as
accrued income for 1951, instead of as stock on hand on January 1, 1952.
Defendant took up the copra outturn in question as copra on hand in the beginning
inventory for 1952. Said beginning inventory, together with expenses, copra
purchased during the year and copra on hand as of December 31, 1952 were
deducted as "cost of goods sold" from the total gross sales for the purpose of
determining the net sales. Since the P95,500.00 copra outturn formed part of the "cost
of goods sold", it diminished the net sales by P95,500.00, thereby also decreasing
defendant's net taxable income by the same amount. This procedure of treating the
copra outturn in question is inconsistent with defendants accounting method.
From the record, then, there is every indication that taxpayer's 1952 income tax return
is fraudulent, as alleged in paragraph (7) of the complaint in this case. Firstly,
taxpayer's beginning inventory for 1952 did not state the truth in considering the copra
outturn as copra on hand, for on December 31, 1951 such copra was not any more in
taxpayer's bodega. It was in transit to a foreign port. And the taxpayer no longer
owned the copra. As a matter of fact, it already received payment for the same.
221
Secondly, by observing regularly its own system of accounting, taxpayer had no
choice but to account the copra outturn as accrued income. This it did not do. For
such deviation, we see no other purpose than to lessen, if not obliterate as in fact it
did, its income tax liability per its return. The lower court therefore did not err in
imposing the 50% surcharge.
We now come to the appeal of the Government. It maintains that the lower court erred
in not imposing on defendant's tax liability a surcharge of 5% for late payment.
Subsection (c), Section 51 of the Tax Code states:
SEC. 51. Assessment and payment of income tax. —
xxx xxx xxx
(c) Surcharge and interest in case of delinquency. - To any sum or sums due
and unpaid after the dates prescribed in subsections (b), (c) and (d) for the
payment of the same, there shall be added the sum of five per centum on the
amount of tax unpaid and interest at the rate of one per centum a month upon
said tax from the time the same became due . . . . (Emphasis supplied)
As may be gleaned from the above-quoted provision, the 5% surcharge is mandatory

and automatically due, once the tax is not paid on time. "Shall" is the word that law
uses a word normally imperative and a "language of demand". 13 Applicable herein is
what has been said of a similar provision — the present Section 183 of the Tax Code
— stating that:
If the percentage tax on any business is not paid within the time prescribed
above the amount of the tax shall be increased by twenty-five per centum, the
increment to be part of the tax. (Emphasis supplied)
Said this Court in Lim Co Chui vs. Posadas 14:
This provision is mandatory. It provides a plan which works out automatically. It

confers no discretion on the Collector of Internal Revenue. That, official may not
disregard the law and substitute therefor his own personal judgment.
Finally, the Government questions the computation of the delinquency interest, due on
the deficiency tax, from October 8, 1957. It insists that payment of such interest
should commence from February 15, 1957. Such contention is well-founded. Pursuant
to Section 51(d), "the assessment made by the Collector of Internal Revenue shall be
paid ... immediately upon notification of the amount of such assessment." Now, the
income tax assessment notice gave defendant up to February 15, 1957 to pay the
deficiency tax in question. No payment was made. Hence, pursuant to Section 51 (e),
quoted earlier, interest on the unpaid tax fell due starting February 16, 1957 and
continues to accrue until full payment of the tax.
222
Wherefore, the decision appealed from is modified. Lim Tian Teng Sons & Co., Inc. is
hereby ordered to pay the sum of P10,074.00 as deficiency income tax for 1952 plus
50% and 5% surcharges thereon for fraud and late payment, respectively, and 1%
monthly interest upon said tax of P10,074.00, computed from February 16, 1957 until
the tax is fully paid. With costs against defendant-appellant. So ordered.
DIGEST
Republic of the Philippines vs Lim Tian Teng Sons and Co., Inc.
Taxation – Tax Collection – Period to Collect – No need for a final and executory
assessment
In January 1957, the Collector of Internal Revenue (CIR) made an assessment

against Lim Tian Teng Sons and Co., Inc. (LTTSCI) demanding from the latter
payment of P15k in taxes inclusive of surcharge. In the same month, LTTSCI
requested for a reinvestigation with a request to produce supporting evidence. The
CIR did not reply however he remanded the case to the Solicitor General (SG) who
did not grant a reinvestigation but rather reiterated the content of the assessment. In
September 1958, the CIR filed a tax collection suit against LTTSCI with the Court of
First Instance of Cebu. LTTSCI assailed the collection suit on the ground that the CIR
cannot commence collection without a final and executory assessment notice. It
alleged that the assessment notice issued in January 1957 has not yet become final
and executory because of the failure of the CIR to act on the protest.
ISSUE: Whether or not LLTSCI I correct.
HELD: No. Nowhere in the Tax Code is the CIR required to rule first on a taxpayer’s
request for reinvestigation before he can go to court for the purpose of collecting the
tax assessed. Ruling on the protest is not a condition precedent for the
commencement of tax collection. The CIR is authorized to collect delinquent internal
revenue taxes either by distraint and levy or by judicial action or both simultaneously.
The only requisite before he can collect the tax is that he must first assess the same
within the time fixed by law – and this was complied with in the case at bar. The
Supreme Court notes that in the case of a false or fraudulent return with intent to
evade the tax or of a failure to file a return, a proceeding in court for the collection of
such tax may be begun without assessment.
223
G.R. No. L-46954 July 20, 1982
ELPIDIO YABES and SEVERINO YABES, petitioners,

vs.
THE HON. NAPOLEON FLOJO, in his capacity as Presiding Judge of Branch II,
Court of First Instance of Cagayan and THE REPUBLIC OF THE
PHILIPPINES, respondents.
Bito, Misa & Lozada & Associates for petitioners.
Solicitor General Estelito P. Mendoza, Asst. Solicitor General Ruben E. Agpolo and
Solicitor Deusdedit B. Quinano for respondents.
CONCEPCION JR., J.:
The lone issue raised in this petition for certiorari and prohibition, which seeks to annul
the Order dated June 22, 1971 issued by the Court of First Instance of Cagayan in
Civil Case No. II-7, which denied the motion to dismiss said case dated March 25,
1971, filed by petitioner; 1 the Order dated June 7, 1977 of the respondent District
Judge of said Court in the same civil case denying petitioners' motion for
reconsideration of the said Order of denial dated June 22, 1971; 2 and the Order dated
July 21, 1977, issued by the said respondent Judge of said Court in the same civil
case denying petitioners' motion for leave to file a second motion for reconsideration
of the aforesaid order of denials; 3 is whether or not respondent Court of First Instance
can lawfully acquire jurisdiction over a contested assessment made by the
Commissioner of Internal Revenue against the deceased taxpayer Doroteo Yabes,
which has not yet become final, executory and incontestable, and which assessment
is being contested by petitioners in the Court of Tax Appeals, Case No. 2216, and still
pending consideration.
After this Court required respondents to comment on the petition and issued a
temporary restraining order in the Resolution dated September 28, 1977, 4 the
Solicitor General, in his Comment dated November 21, 1977, submitted that the
petition be given due course, and thereafter judgment be rendered setting aside the
questioned orders issued by the respondent Court of First Instance of Cagayan in Civil
Case No. II-7, directing said lower Court to hold in abeyance any action or proceeding
in Civil Case No. II-7, until after the Court of Tax Appeals shall have finally decided
CTA Case No. 2216. 5 The Solicitor General also filed a Manifestation dated
November 22, 1977, stating that "in their Comment dated November 21, 1977, they
have limited their appearance as counsel only for the Republic of the Philippines and
not for the respondent Judge on the ground that they do not agree with the latter's
orders which are being questioned in the instant petition." 6
Undisputed facts of record are as follows:
224
(1) Doroteo Yabes of Calamaniugan Cagayan, who was for sometime an
exclusive dealer of products of the International Harvester Macleod, Inc.,
received on or about May 1, 1962, a letter from the Commissioner of
Internal Revenue dated March 27, 1962, demanding payment of the
amount of P15,976.81, as commercial broker's fixed and percentage
taxes plus surcharges and the sum of P2,530 as compromise penalty
alledgely due from Yabes for the years 1956-1960; 7
(2) On May 11, 1962, Doroteo Yabes, through his counsel, filed with the
Commissioner's Office his letter dated May 10, 1962, protesting the
assessment of commercial broker's fixed and percentage taxes plus
penalties against him on the ground that his agreements with the
International Harvester Macleod, Inc. were of purchase and sale, and not
of agency, hence he claimed he was not able to pay such kind of taxes; 8
(3) Thereafter, there ensued an exchange of correspondence between

the lawyers of Doroteo Yabes and the Commissioner; the Commissioner
in a letter dated August 3, 1962, informed Doroteo Yabes that he acted
as a commercial broker "in accordance with the ruling of this Office in the
case of Cirilo D. Constantino;" 9 in turn, Doroteo Yabes, in a letter dated
August 22, 1962, requested for the reinvestigation, or review of the case
by the appellate division of the Bureau of Internal Revenue in accordance
with standing rules, regulations or practice on the matter; 10 Yabes also
wrote the Commissioner on August 24, 1962, requesting that the appeal
be held in abeyance pending final decision of the Case of Cirilo D.
Constantino; 11 in reply, the Commissioner informed Doroteo Yabes in a
letter dated September 18, 1962, that the latter's request for
reinvestigation was denied on the ground that he has "not submitted any
evidence to offset the findings of this Office as to warrant a
reinvestigation thereof"; 12 but eight days later or on September 26, 1962,
the Commissioner wrote a letter advising Doroteo Yabes that "the
administrative appeal ... will be held in abeyance pending the resolution
of the issues in a similar case (obviously referring to the aforesaid
Constantino case)";
(4) To give time for the Commissioner to study the case and several other
cases similar thereto, the lawyers of Doroteo Yabes agreed to file, and
their client, Doroteo Yabes did file a tax waiver on October 20, 1962,
extending the period of prescription to December 31, 1967; 13
(5) Doroteo Yabes died on March 13, 1963 and no estate proceedings
were instituted for the settlement of his estate; his widow also died during
the pendency of the case; the petitioners are the children of the deceased
taxpayer; 14
225
(6) On March 14, 1966, the Court of Tax Appeals decided the
Constantino "test" case. The Court of Tax Appeals ruled that agreements
entered into by Constantino with the International Harvester Macleod, Inc.
were of purchase and sale, and not of agency, hence no commercial
broker's fixed and percentage fees could be collected from the said
taxpayer; however this Court on February 27, 1970, in G.R. No. L-25926
reversed the Court of Tax Appeals and ruled in favor of the
Commissioner of Internal Revenue; 15
(7) After a lapse of about five years, the heirs of the deceased Doroteo
Yabes, through their lawyers, received on August 4, 1967, a letter from
the Commissioner dated July 27, 1967, requesting that they "waive anew
the Statute of Limitations" and further confirming the previous
understanding that the final resolution of the protest of the deceased
Doroteo Yabes was "being held in abeyance until the Supreme Court
renders its decision on a similar case involving the same factual and legal
issues brought to it on appeal" (referring to the Constantino "test"
case); 16 conformably with the request of the Commissioner, the heirs of
Doroteo Yabes filed a revised waiver further extending the period of
prescription to December 31, 1970; 17
(8) Thereafter, no word was received by the petitioners or their lawyers

during the interim of more than three (3) years, but on January 20, 1971,
petitioners as heirs of the deceased Doroteo Yabes received the
summons and a copy of the complaint filed by the Commissioner on
December 4, 1970 with the Court of First Instance of Cagayan which
seeks to collect from the petitioners the sum of P 15,976.82, as deficiency
commercial broker's fixed and percentage taxes, including surcharges
and interest thereon, due from their predecessor-in-interest, Doroteo
Yabes, by reason of the latter's income derived from transactions as
dealer of the products of the International Harvester Macleod, Inc.;
(9) Taking the complaint as the final decision of the Commissioner on the
disputed assessment against the deceased taxpayer Doroteo Yabes,
petitioners filed on February 12, 1971, a petition for review of said
disputed assessment with the Court of Tax Appeals; 18 later on the same
day, February 12, 1971, petitioners filed their answer to the complaint of
the Commissioner before the Court of First Instance of Cagayan; 19 and
alleged therein, by way of special defense, that the Court of Tax Appeals
has exclusive jurisdiction of the action and that there is another action of
the same nature between the parties relating to the same assessment
pending before the Court of Tax Appeals;
(10) On the other hand, the Commissioner filed a motion to dismiss dated
March 24, 1971, with the Court of Tax Appeals in CTA Case No. 2216,
and subsequently filed a memorandum in support of said motion to
226
dismiss, on the ground that the assessment against Doroteo Yabes had
already become final, executory and incontestable, and the Court of Tax
Appeals had no jurisdiction over the case;
(11) On March 25, 1971, petitioners filed a formal motion to dismiss Civil
Case No. II-7 with the Court of First Instance of Cagayan on the grounds
that said Court has no jurisdiction over the case and that there is another
action pending between the same parties for the same cause before a
competent court; 20
(12) On June 22, 1971, the respondent Court of First Instance of

Cagayan, through its former presiding judge issued the questioned order
in Civil Case No. II-7, which is the main subject of the instant petition,
denying the petitioners' motion to dismiss on the ground that the
petitioners "have already made a previous answer wherein they
categorically admitted the jurisdiction of the court over the subject matter
and the Court believes that, granting for the sake of argument, there is a
pending action between the same parties for the same cause yet the
judgment which may be rendered in the first cited case does not
necessarily bar the present action"; 21
(13) On September 1, 1972, the respondent Court of First Instance of

Cagayan issued an order holding the trial of Civil Case No. I I-7, in
abeyance upon the joint motion of the parties; 22
(14) On September 29, 1974, the Court of Tax Appeals denied the
Commissioner's motion to dismiss CTA Case No. 2216. 23 Accordingly,
on October 30, 1975, the Commissioner filed his Answer to the petition
for review. 24
(15) On December 17, 1976, however, the Court of First Instance of

Cagayan, this time presided by the respondent Judge Napoleon Flojo,
upon motion of counsel for the plaintiff therein, set Civil Case No. II-7 for
trial on January 27 and 28, 1977. 25
(16) On February 9, 1977, the respondent Judge Flojo denied the

petitioners' motion to suspend further proceedings and set the trial of the
case for March 5, 1977. 26
(17) On May 3, 1977, the herein petitioners filed a motion for the
reconsideration of the order issued on June 22, 1971 and for a ruling on
their affirmative defense that the Court of First Instance of Cagayan has
no jurisdiction over the case. 27
227
(18) On June 7, 1977, the respondent Judge denied the aforementioned
motion for reconsideration for lack of merit, and set the trial of the case
for June 23, 1977. 28
(19) On July 8, 1977, the petitioners filed a motion seeking leave to file a
second motion for reconsideration of the order issued on June 7,
1977, 29 attaching thereto a copy of their motion for
reconsideration. 30 The motions were denied on July 21, 1977, and trial
was set for August 18, and 19, 1977 31 which was postponed to
September 23, 1977. 32
Hence, the present recourse. As prayed for, a temporary restraining order was issued
on September 28, 1977. 33
As to the issue of whether or not the assessment made by the Commissioner of

Internal Revenue against the deceased taxpayer Doroteo Yabes, as contained in the
letter dated March 27, 1962, has become final, executory and incontestable, after
Doroteo Yabes had received the Commissioner's letter dated August 3, 1962, denying
the latter's protest against the said assessment on September 18, 1962 and his failure
to appeal therefrom within the 30-day period contemplated under Section 11, of
Republic Act 1125, We are constrained to agree with the Court of Tax Appeals, when
it denied the Commissioner's motion to dismiss CTA Case No. 2216, that:
the period for appeal to this Court should not be counted from September
18, 1962. In a letter of July 27, 1967, respondent informed petitioners that
a resolution of their protest was being held in abeyance until the Supreme
Court renders a decision on a similar case "involving the same factual
and legal issues". As a matter of fact, in an earlier letter dated September
26, 1962, respondent also informed petitioners' counsel that
"administrative appeal for and in behalf of their clients win be held in
abeyance pending resolution of the issues on a similar case which was
appealed by you to the Court of Tax Appeals". It is thus clear in these
letters that respondent reconsidered the finality of his decision of August
3, 1962, assuming arguendo that the letter had a tenor of finality. 34
The Court of Tax Appeals in CTA Case No. 2216, stated further:
The records show that a warrant of distraint and levy was issued on
October 2, 1970. Had this been served on Doroteo Yabes, it would have
been equivalent to a final decision, ... There is, however, nothing to show
that it was ever served on Yabes. Neither is there anything in the record
to show that a formal decision of denial was made after respondent's
letter of July 27, 1967. 35
There is no reason for Us to disagree from or reverse the Court of Tax Appeals'
conclusion that under the circumstances of this case, what may be considered as final
228
decision or assessment of the Commissioner is the filing of the complaint for collection
in the respondent Court of First Instance of Cagayan, the summons of which was
served on petitioners on January 20, 1971, and that therefore the appeal with the
Court of Tax Appeals in CTA Case No. 2216 was filed on time. 36 The respondent
Court of First Instance of Cagayan can only acquire jurisdiction over this case filed
against the heirs of the taxpayer if the assessment made by the Commissioner of
Internal Revenue had become final and incontestable. If the contrary is established,
as this Court holds it to be, considering the aforementioned conclusion of the Court of
Tax Appeals on the finality and incontestability of the assessment made by the
Commissioner is correct, then the Court of Tax Appeals has exclusive jurisdiction over
this case. Petitioners received the summons in Civil Case No. II-7 of the respondent
Court of First Instance of Cagayan on January 20, 1971, and petitioners filed their
appeal with the Court of Tax Appeals in CTA Case No. 2216, on February 12, 1971,
well within the thirty-day prescriptive period under Section 11 of Republic Act No.
1125. The Court of Tax Appeals has exclusive appellate jurisdiction to review on
appeal any decision of the Collector of Internal Revenue in cases involving disputed
assessments and other matters arising under the National Internal Revenue Code. 37
For want of jurisdiction over the case, the Court of First Instance of Cagayan should
have dismissed the complaint filed in Civil Case No. II-7.
The recommendation of the Solicitor General that the lower court hold in abeyance
any action or proceeding in Civil Case No. II-7 until after the Court of Tax Appeals
shall have finally decided CTA Case No. 2216, is untenable since the lower court has
no jurisdiction over the case. Jurisdiction over an action includes jurisdiction over all
interlocutory matters incidental to the case and deemed necessary to preserve the
subject matter of the suit or protect interests of the parties. Absent jurisdiction over the
case, it would be improper for the Court of First Instance of Cagayan to take
cognizance over the case and act upon interlocutory matters of the case, as well.
The dismissal of the complaint, however, is not sufficient. The ends of justice would
best be served by considering the complaint filed in Civil Case No. II-7 not only as a
final notice of assessment but also as a counterclaim in CTA Case No. 2216, in order
to avoid mutiplicity of suits, as well as to expedite the settlement of the controversy
between the parties. After all, the two cases involve the same parties, the same
subject matter, and the same issue, which is the liability of the heirs of the deceased
Doroteo Yabes for commercial broker's fixed and percentage taxes due from the said
deceased.
WHEREFORE, the petition is granted and the writs prayed for are hereby issued. The
questioned orders dated June 22, 1971, June 7, 1977 and July 21, 1977 are hereby
annulled and set aside and the complaint filed in Civil Case No. II-7 of the Court of
First Instance of Cagayan, entitled: "Republic of the Philippines, plaintiff,
versus Nicolasa Jurado Yabes, et al., defendants," should be, as it is hereby,
dismissed, the same to be transferred to the Court of Tax Appeals to be considered
229
therein as a counterclaim in CTA Case No. 2216. The temporary restraining order
heretofore issued is hereby made permanent. Without costs.
SO ORDERED.
DIGEST
Elpidio Yabes vs Napoleon Flojo
Taxation – Tax Collection Suit – Jurisdiction – When Acquired
In May 1962, Doroteo Yabes received an assessment notice from the Commissioner
of Internal Revenue (CIR) demanding him to pay P15k in taxes. Doroteo filed a protest
within the prescribed period. The protest was initially denied in September 1962
however, a few days after the denial, the CIR advised Doroteo to execute a waiver of
the statute of limitations (SOL) and to allow the CIR to hold in abeyance the ruling of
his case until a similar case (Cirilo Constantino Case) which involves exactly the same
issue would be decided by the Court of Tax Appeals (CTA). Doroteo complied but
while waiting for the CTA to decide that case, Doroteo died. The CTA finally decided
the Constantino Case but the same was appealed to the Supreme Court (SC). And so
the CIR asked the successors-in-interest of Doroteo, Elpidio and Severino Yabes, to
execute another waiver while waiting for the SC decision. The waiver was duly
executed and it extended the period of prescription within which the CIR may collect
the assessed tax to December 31, 1970.
The Constantino Case was decided by the SC in February 1970. On December 4,

1970, before the lapse of the extended period (12/31/70), the CIR filed a tax collection
suit against the estate of Doroteo Yabes with the Court of First Instance (CFI) of
Cagayan. Elpidio et al received the summons on January 20, 1971. Elpidio et al then
filed an appeal with the CTA on February 12, 1971. At the same time, Elpidio et al
filed a motion to dismiss (MTD) the collection suit with CFI Cagayan on the ground
that the filing of the collection suit is a denial by the CIR of the protest; that such denial
is appealable to the CTA; that CFI Cagayan therefore has no jurisdiction over the
case. However, Judge Napoleon Flojo of CFI Cagayan denied the MTD.
ISSUE: Whether or not CFI Cagayan has jurisdiction over the case.
HELD: No. The CTA acquired exclusive jurisdiction over the case when Elpidio et al
appealed.
But is the appeal filed on time?
Yes. The formal assessment notice (FAN) is considered to have been formally made
when the tax collection suit was filed on December 4, 1970. The FAN is considered
received by Elpidio et al when they received the summons on January 20, 1971. From
230
there, they have 30 days to file an appeal with the CTA. They filed their appeal on
February 12, 1971 – well within the 30 day period to appeal.
Instead of dismissing, is it okay for CFI Cagayan to hold in abeyance the tax collection
suit while the CTA decide on the appeal?
No, because it has no jurisdiction. It cannot wait for the CTA to decide, it must dismiss
the case.
So what will happen to the collection suit?
In this case, the Supreme Court ordered that the complaint of the CIR in the collection
suit be transferred to the CTA as a counterclaim to the appeal filed by Elpidio et al.
231

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Continuation...

4. PRESCRIPTION OF GOVERNMENTS RIGHT TO ASSESS

Sections 203, and 222-223 Tax Code

G.R. No. 178087 May 5, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

DEL CASTILLO, J.:

Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal

A review and audit of respondent’s records then ensued.

On December 10, 2001, Nelia Pasco (Pasco), respondent’s accountant, executed a

This was followed by a second Waiver of Defense of Prescription5 executed by Pasco

Respondent challenged the assessments by filing its "Protest on Various Tax

Kind of Tax Amount

Ruling of the Court of Tax Appeals, Second Division

Ruling of the Court of Tax Appeals, En Banc

A. For National Office cases

Designated Revenue Official

Based on the foregoing, the Assistant Commissioner, Enforcement Service is

Petitioner sought reconsideration but the same was unavailing.

Hence, the present recourse where petitioner interposes that:

THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT THE

The petition is bereft of merit.

3. The waiver should be duly notarized.

A perusal of the waivers executed by respondent’s accountant reveals the following

2. The waivers failed to indicate the date of acceptance.

Estoppel does not apply in this case

In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,20 the

CIR v. Kudos Metal Corporation,

G.R. No. 178087 dated May 5, 2010

6. Respondent then challenged the assessments by filing its Protest (Dec 3

Income Tax P 9,693,897.85

Withholding Tax-Compensation 247,353.24

8. CTA: Right to assess has PRESCRIBED.

1. Assistant Commissioner is NOT THE REVENUE OFFICIAL

9. CTA En Banc: Agreed to 2 &3

The petition is bereft of merit.

Hence, an assessment notice issued after the three-year prescriptive period is

1. The waiver must be in the proper form prescribed by RMO 20-

2. The waiver must be signed by the taxpayer himself or his duly

3. The waiver should be duly notarized.

5. Both the date of execution by the taxpayer and date of acceptance

6. The waiver must be executed in three copies, the original copy to be

INFIRMITIES OF THE FIRST WAIVER:

ESTOPPEL DOES NOT APPLY.

We find no merit in petitioners claim that

A waiver of the Statute of Limitations, being a derogation of taxpayer’s right to security

CIR vs Next Mobile full text see PDF

CIR v. NEXT MOBILE, INC. GR No. 212825. December 7, 2015

Ma. Lida Sarmiento (Sarmiento), respondent’s Director of Finance, subsequently

ISSUE: Whether or not the period to pay has prescribed.

 There is no hard-and-fast rule on the issuance of waivers, which is

 With the issuance of RMO 14-2016 and the pronouncement of the

RIZAL COMMERCIAL BANKING CORPORATION, Petitioner,

Petitioner Rizal Commercial Banking Corporation (RCBC) is a corporation engaged in

Subsequently, on January 27, 2000, RCBC received a Formal Letter of Demand

Deficiency Income Tax

On December 6, 2000, RCBC received another Formal Letter of Demand with

Deficiency Income Tax

Particulars 1994 1995 Total

Particulars 1994 1995 Total

Particulars 1994 1995 Total

Whether or not the right of the respondent to assess deficiency onshore

Whether or not petitioner’s special savings account is subject to

Hence, this petition.