EMILIO E. LIM, SR. AND ANTONIA SUN LIM, PETITIONERS, VS. COURT OF APPEALS AND PEOPLE OF THE PHILIPPINES, RESPONDENTS.

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 instituted 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.

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 Decree No. 69 the amounts of P580,588.75 and P656,601.80 as
deficiency income taxes for 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 Code^[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 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 x x x,
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 begin 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 proceedings for its investigation
and punishment.

“The prescription 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.”
(Underscoring 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 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.” (Underscoring
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.

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.” (Underscoring 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 x x x
‘the institution of judicial proceedings for
its x x x
punishment.’^[12]
(Underscoring 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]

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 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:

“x x x 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 court 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 regards 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;

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 case 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.

Bidin and
Cortes, JJ., concur.

Gutierrez, Jr., J., see concurring opinion.

Feliciano, J., on leave.

^[1] Rollo, p.
118.

^[2] Commonwealth Act No. 466.

^[3] Rollo, p. 228.

^[4] Rollo, p. 233.

^[5] CA-G.R. Nos. 18814-18817-CR.

^[6] Rollo, p. 163.

^[7] Brief of the Petitioners, pp. 1-2, in
relation to the Motion for Correction, Rollo, p. 346.

^[8] Commonwealth Act No. 466.

^[9] Brief for the Petitioners,
pp. 22 and 133.

^[10]
No. L-10609, May 23, 1958.

^[11] Nos. L-17177-80, December 28, 1964, 12 SCRA 667, 671.

^[12] See above Section 354 cited.

^[13]
People vs. Ross, 156 N.E. 303, 304 cited in Black’s Law Dictionary,
Fourth Edition, p. 1077; Mertens, The Law on Federal
Taxation, vol. 10, p. 144.

^[14] Supra.

^[15] 92 Phil. 252 (1952).

^[16] See also People vs. Patanao, No. L-22356, July 21, 1967, 20 SCRA 712.

Clean

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