SIAO TIAO HONG, SUBSTITUTED BY PAULA TAN SIAO, SIAO TEK SENG, LORENZA S. SEE, AGRIPINA I. ORDOÑA AND THE HEIRS OF THE DECEASED TOMAS I. SIAO, PETITIONERS, VS. COMMISSIONER OF IN…

This is a petition for review^[1] filed
by petitioner Siao Tiao Hong from the decision dated March 13, 1970 of the
Court of Tax Appeals in CTA Case No. 1755 which affirmed the decision of
respondent Commissioner of Internal Revenue holding him liable for the payment
of fixed taxes amounting to P2,400.00 as a lending investor for the years 1953
to 1960 inclusive. As petitioner Siao Tiao
Hong died during the pendency of the case with this Court, he was substituted
by his heirs.

The facts of the case are as
follows: Petitioner claims
to be a real estate developer whose principal income is derived from
rents. In his income tax return for the
year 1958, he declared the following income:

Income from rents and
royalties …….P9,582.00

Interest of bonds, bank deposits, ……. 5,540.42

mortgages, and other interest

On May 25, 1960, the Bureau of Internal Revenue (BIR) directed
Revenue Examiner Bernardino S. Enerio to examine petitioner’s books of account
in connection with said income tax return. Enerio conducted the examination, and thereafter submitted a report
dated June 21, 1960 recommending that petitioner be assessed for (a) deficiency
income tax in the amount of P1,068.79, and (b) fixed taxes as a lending
investor at P300.00 each year for the
years 1955 through 1959.

Protesting the fairness and accuracy of Enerio’s report,
petitioner wrote a letter dated January 30, 1961 to the BIR Regional Office
requesting for a re­examination. The
Regional Office granted his request and directed examiner Emiliano Onoan to
re-examine petitioner’s books of account. On November 3, 1961, Onoan submitted his report stating that, upon
reinvestigation of petitioner’s 1958 return, “it was ascertained there was
no discrepancy on the said return.”^[2]
Nonetheless, the Regional Office sent a letter bearing Demand No. 61-242 to
petitioner on June 2, 1961, demanding that he pay the sum of P2,400.00 as
lending investor’s fixed tax for the years 1953 to 1960.

On May 30, 1962, the BIR brought an action against petitioner
before the City Court of Dumaguete to collect the sum of P2,400.00 representing
unpaid fixed taxes for the years 1953 to 1960. After trial, the City Court rendered its decision on July 14, 1965
dismissing the complaint for being premature. The court found that no assessment for the sum sought to be recovered
had been received by petitioner, hence, the case was not one of
“undisputed assessment” within the jurisdiction of the City
Court. The court, however, directed
petitioner to take whatever action he deems proper on the assessment made upon
him within thirty (30) days from receipt of the decision; failure to take any
action shall be deemed a waiver of his rights to contest said assessment, and
the government shall proceed to enforce the same in accordance with law.

In compliance with the City Court’s decision, petitioner formally
filed his protest to the assessment on August 6, 1965, which protest was denied
by the BIR Regional Office in Bacolod City by way of a letter dated March 31,
1966.

Upon receipt of the letter of denial, petitioner filed on May 16,
1966, a petition to review the decision of the Regional Director, acting in the
name of respondent Commissioner of Internal Revenue, with the Court of Tax
Appeals. After trial, the Court of Tax
Appeals rendered its decision affirming the decision appealed from and ordered
petitioner to pay the sum of P2,400.00, as lending investor’s fixed taxes. Hence, this appeal.

Petitioner argued that he is not a lending investor subject to a
fixed tax under Section 128 of the Internal Revenue Code, and that respondent
Commissioner’s right to assess tax for the years 1953 to 1959 had already
prescribed.

We find the petition unmeritorious.

Petitioner contended that the Court of Tax Appeals erred in
holding that he was a lending investor within the purview of the Internal
Revenue Code since the “loans” he had given to several banks were
actually bank deposits and that the loans he had extended to several individuals
were isolated transactions and actually accommodations for his friends.

A lending investor is defined under Section 194 (u)^[3]
of the Internal Revenue Code as one “who make[s] a practice of lending
money for themselves or other at interest.”

The mere fact that petitioner had consistently reported interest
income from four banks, namely the Philippine National Bank Dumaguete City
branch, the Philippine National Bank Cebu City branch, the Bank of Philippine
Islands, Cebu City branch and the China Banking Corporation in Manila, under
the schedule “Interest on bonds, bank deposits, mortgages and all other
interest,” does not warrant the conclusion that the interest was due to
loans extended by petitioner to said banks.

It is obvious that the interest came from deposits the petitioner had with said banks. While it is admitted that bank deposits are
in the nature of loans, this does not make the depositor a lending investor since the act of opening and
maintaining a deposit with a bank can not be considered a business. Besides, We find it highly unlikely that an
individual would extend several loans to three major banks such as the
Philippine National Bank, the Bank of the Philippine Islands and the China
Banking Corporation.

However, We do not find credible petitioner’s contention that the
loans he extended to several individuals were isolated transactions to
accommodate his friends. On this point,
We agree with the Court of Tax Appeals when it observed:

“Anent
petitioner’s allegation that the loans were made by him merely to accommodate
friends without deriving profit therefrom, no other evidence was adduced by
petitioner to corroborate said allegation except his own self-serving
deposition. Moreover, petitioner’s
contention is belied by the fact that he collected interest from the borrowers
and on several occasions required them to execute deeds of mortgages to
guarantee payment of said loans. These
interest income from loans and mortgage transactions are reflected in petitioner’s
income tax return.”^[4]

The case at bar is similar to the case of Molo vs. Yatco,^[5]
where it was held that a person who lent money to several persons with
interest, without proving that said loans were made accidentally or due to
certain peculiar circumstances, was presumed to be a lending investor within
the meaning of the law.

But petitioner argued
that, even on the assumption that he is liable to pay the lending investors’
tax, respondent’s right to collect the same had prescribed since no assessment
for lending investors’ tax was made within the five-year period from the filing
of petitioner’s income tax returns for the years 1953 to 1959, as provided by
Section 331^[6]
of the Tax Code.

We do not agree. Section
331 is inapplicable to the case at bar since fixed taxes are not included in an
income tax return, these not being part of the taxpayer’s income; neither is it
paid together with the income tax. In
fact, the Tax Code provided a different date for the payment of fixed taxes,^[7]
for which a separate return, B.I.R. Form No. 25015, the Business (Fixed) Tax
Return,^[8]
must be filed.

In order for petitioner to avail of the benefits of Section 331, he must file a return for the
lending investors’ fixed tax; otherwise, an assessment may be made within the period
provided for in Section 332 (a) of the Tax Code.^[9]
Section 332 (a)^[10]
of the Tax Code 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 the 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 with ten years after the discovery of the falsity, fraud, or
omission.”^[11]

The petitioner’s omission to file a return was discovered on June
21, 1960, when Revenue Examiner Bernardino S. Enerio submitted his report
concerning his examination of petitioner’s books of account. Therefore, the assessment for lending
investor’s tax made on June 2, 1961, was well within the period provided for in
Section 332 (a).

The collection must be made within the five-year period from the
assessment of the tax.^[12] The
tolling of period commenced from June 2, 1961, the date the assessment was
made, and was suspended on May 27, 1963 when the complaint for collection of
the tax was filed with the City Court of Dumaguete. The period began to run again upon the dismissal of the case on
July 14, 1965 and was stopped on October 27, 1966 when respondent filed his
Answer to the petition filed before the Court of Tax Appeals. All in all, a total of three (3) years,
three (3) months and eight (8) days had elapsed. Therefore, the right of respondent to assess and collect the
lending investors’ tax had not prescribed.

WHEREFORE, finding no error in the decision appealed from,
the same is hereby affirmed in toto. Costs against petitioner.

SO ORDERED.

Narvasa, C.J., (Chairman), Padilla, and Regalado, JJ., concur.

Melo, J., no part.

^[1]
Under Sec. 1, of Rep. Act No. 5440.

^[2]
Petitioner’s brief, p. 3.

^[3]
Now Sec 157 (u).

^[4]
Decision of the Court of Tax Appeals, pp. 5-6.

^[5] 71 Phil. 465 (1941).

^[6]
Now Sec. 268. Under said section, the prescriptive period within which to
assess internal revenue taxes is now three years from the last day
prescribed by law to file a return.

^[7]
Sec. 180, presently Sec. 160. Sec. 180
provided that all fixed taxes “shall be payable, at the option of the
taxpayer, annually, on or before the twentieth of January, or semi-annually, on
or before the twentieth of January or July.” Sec. 160 provides that
“[a]ll fixed taxes shall be payable annually, or on or before the last day
of the first month of the taxable year adopted by the taxpayer for income tax
purposes.”

^[8]
Annex “A”, Respondent’s Brief.

^[9]
Butuan Sawmill, Inc. vs. Court of Tax Appeals, L-20601, 16 SCRA 277
(1966).

^[10]
Now Sec. 269 (a).

^[11]
Emphasis supplied.

^[12]
Sec. 322 (c), presently Sec. 268 (c). Sec. 268 (c) now provides that any internal revenue tax assessed within the
period of limitation may be collected by destraint or levy or by a proceeding
in court within three years following the assessment.