G.R. No. L-9899. August 13, 1957

Marta  Dizon died in  1928,. leaving  real  and personal. properties to four of her cousins,  one  of  them  being the herein respondent Servando de los Angeles.  The administrator of the  estate of the  deceased having  in March, 1935, filed a return showing that the heirs had an inheritance tax liability of P185.94 each, the Collector of Internal Revenue, some time in August of that year, sent assessment notice to each heir requiring payment of that amount on or before the 25th of that month.  All the heirs  paid except the said respondent, who refused the  demand on the grounds that he had not yet received his  share  of the inheritance and that there were still questions pending in court relative to the  distribution  of the estate.

 Subsequent attempts  to make the respondent pay proved futile; while, on the other hand, instructions repeatedly sent to the deputy provincial treasurer  of Rizal to  have’ the tax  collected through distraint  and levy  were  apparently  ignored.

On January  28, 1955, that is,  some 20 years after the assessment, a  warrant of distraint and levy was  issued and  sent to  the  deputy provincial treasurer  of Rizal for execution. Served with the warrant, the respondent taxpayer, without disputing  the legality  of the assessment, protested the distraint and levy on the  ground of prescription  and then petitioned  the Court  of Tax  Appeals  to declare the warrant illegal and  enjoin its enforcement.

The Court of  Tax Appeals having, after  trial,  upheld the taxpayer’s contention, the Collector  of  Internal  Revenue and the provincial and municipal treasurers  concerned brought the case  here  for review.

The question for  determination is whether an internal revenue  tax that was assessed  in 1935 could,  some  20 years thereafter, still be collected by  distraint and levy.

The National  Internal  Revenue  Code, which was approved  in 1939, has set definite periods for the  assessment and  collection of  internal revenue  taxes.  Those periods  are fixed in its sections  331  and 332.

The section  first mentioned  reads:

“Sec. 381. Period of  limitation- upon assessment and collection.— Except as provided in the succeeding section, internal revenue taxes shall be assessed within live years alter 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.”

As will be noted, this section limits the time for assessing the  tax  to five  years  after the return  is filed.  And  it also  sets the same limitation upon the  time for collecting the  tax by proceeding  in court without assessment.

The limitation is,  however,  in both cases made subject to the exceptions provided for in section 332.   That  section reads:

“Sec. 332. Exception as to Us 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 failure to file  s. return,  the tax may be assessed,  or a proceeding1 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 Collector 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 collection agreed upon in writing  by the Collector” 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.”

We are  not concerned here with the exception embodied in subdivision  (a)  of  the section,  because this  is not a case of a false or  fraudulent return or of  a failure to file a return.  Neither are we concerned with  the  exception contained in subdivision (b), it not appearing that a different period for the assessment of the tax has been consented  to  by both the  Collector of Internal Revenue and the taxpayer.   But the  exception prescribed in subdivision (c)  applies to the present case, because the tax now sought to be collected appears to have been assessed within  five  years  after  the  return in accordance with section  331.

Having  been assessed within the time fixed by law, the tax  in  question could,  pursuant to  subdivision  (c)  of section  332,  be collected by distraint or levy or by court proceeding, but, as specifically provided in that same subdivision, “only if begun  (1)  within five years after the assessment of the  tax.”   After the  expiration  of that period of limitation, collection of the tax by any of those methods would  be without the  authority  of  law.

It is contended, however, that the  prescriptive period of five  years fixed in subdivision (c) of section 332 cannot be applied to the present case because of the  proviso to section  331,  which  says  that the limitation  provided in that section  shall not apply to cases already investigated prior to the approval of the Code. We find the contention untenable. As the Court of Tax Appeals says, the “limitation” mentioned  in  the proviso to section  331 can refer only to  the limitation established in that section, and not to the limitation of period prescribed in  section 332 (c).

This must be so because the natural  and appropriate office of a  proviso to  a  statute or to  a  section thereof is to restrict or qualify  the provisions immediately preceding it.   Hence,  it has been made a rule of construction that a proviso shall be confined to that which directly precedes it, or to the section  to which  it has been appended, unless it clearly appears that the legislature  intended  it to have a wider scope.   (Black on  Interpretation of Laws, p. 432). Had Congress, therefore, intended the proviso  in section 331  to restrict  or  qualify  section 332, the  same would have been  also  embodied in the latter  section  or wordy would have been inserted therein  to  make that intention clear.   Taxing acts, including provisions as to limitations on assessment and  collection of  taxes, should be  construed liberally in favor of the taxpayer.   (Bowers vs. N. Y. & Albany Co.,  273 U.S.  346,  1  USTC, Par.  218, cited in Vol; 4  CCH  (1954), Par. 1443, 119).

In view of the foregoing,  the decision below is affirmed. Without special  pronouncement as to costs.

Paras,  C.  J.,  Bengzon, Padilla, Montemayor,  Bautista Angela, Labrador,  Concepcion,  Reyes, J.  B. L.,  Endencia and Felix,  JJ.,  concur.