TALIGAMAN LUMBER CO., INC., PETITIONER, VS. THE COLLECTOR OF INTERNAL REVENUE, RESPONDENT.

This is an appeal from a decision of the Court of Tax Appeals
sentencing petitioner, Taligaman Lumber Co., Inc., to pay the aggregate
sum of P85,790.91 as deficiency sales tax and surcharge computed as
follows:

Caloocan Branch
Sales tax assessed by respondent				P68,829.79
25% surcharge				17,207.45
				—————–
Total tax and surcharge				P86.037.24
Less:	(a)	Overpayment of graduated fixed tax	P450.00
	(b)	Overassessment, see pages 14-15, supra	619.90
	(c)	Overpayment of forest charges	P247.58	P 1,917.48
			—————–	—————–
Deficiency sales tax and surcharge				P84,119.76
Butuan Branch
Sales tax and surcharge assessed by respondent				P39,527.97
Less:	(a)	Overassessment on shipments valued at P197,347.08	P12,334.19
	(b)	Overassessment arising from overvaluation of certain shipments	3,994.66	16,328.85
			—————–	—————–
Deficiency sales tax and surcharge				P23,199.12
Less payments made by petitioner				21,527.97
				—————–
Balance unpaid				PI,671.15
SUMMARY
	Caloocan Branch		P84,119.76
	Butuan Branch		1,671.15
			—————–
	Total		P85,790.91

Petitioner herein, a domestic corporation with principal office in
the City of Manila and branch offices in Grace Park, Caloocan, Rizal,
and Butuan City, Agusan, is a duly licensed forest and timber
concessionnaire. 4s such, it is engaged in the business of cutting logs
in its concessions and convert- ing said logs into lumber, as well as
buying logs from other concessionaires. Most of the lumber cut in its
sawmill in Agusan were sent to its branch office in Grace Park, Caloocan, Rizal, to be sold to different lumber dealers in Manila and
suburbs.

Upon examination of the books of account of the Grace Park branch,
an agent cf the Bureau of Internal Revenue recommended, on December 23,
1953, an assessment of P134,381.11 as deficiency sales tax on the sales
made in said branch for the years 1948 to 1952. Upon reexamination of
said books of account, the agent recommended a reduction of the
assessment to P93,931.86, plus 25% surcharge, or a total of
P117,414.83. After a reinvestigation, made at the request of the
company, upon receipt of the corresponding assessment, dated February
12, 1954, the amount of the assessment was further reduced, on or about
May 31, 1955, to P66,916.21, plus 25% surcharge, or a total of
P83,645.26, computed as follows:

1948
Sales		P272,620.51
		—————–
5% sales tax due thereon		P13,631.03
1949
Sales		P474,821.88
		—————–
5% sales tax due thereon		P23,741.09
1950
Cash sales		P57.009.74
Sales on account		P605,142.35
Total		P662,152,09
Return sales		12,527.84
		—————–
Net sales		P649,624.25
Lumber purchase	P38,725.60
Estimated 25% gross profit	9,681.40	48,407.00
	—————–	—————–
Net taxable sales		P601,217.25
Logs purchased from January 1—
Sept. 21,1950	P161,910.30
Gross profit rate—60%
Cost is, therefore, 40%.
Therefore sales equals cost divided by
40% times 100. Hence, P161,910.30
divided by 40% equals	P404,775.75
Logs purchased from Sept. 22 to Dec.
31, 1950	P66,062.60
P66,062.60 divided by 40 % x 100
equals	P165,156.50	P569,932.25
	—————–	—————–
Sales from concession		P31,285.00
		—————–
5% sales tax due thereon		P1,564.25
		—————–
Sales from logs purchased		P404,775.75
		—————–
Less cost		P161,910.30
		—————–
Taxable sales		P242,865.45
		—————–
Sales tax due thereon		P12,143.27
		—————–
1951
Sales		P308,522.24
Logs purchased		—————–
	P108,730.63
Gross profit rate—47%
Sales therefore is PI08,730.63 divided by 53% x l00		P205,152.13
		—————–
Sales from concession		P103,370.11
		—————–
5% sales tax due thereon		P5,168.51
		—————–
1950 & 1951
Purchase of logs from Sept. 22, 1950 to Dec. 31, 1950		P66,062.60
Purchase of logs from 1951		108,730.63
		—————–
Total		P174.793.23
		—————–
33-1/3 thereof		P58,264.41
		—————–
5% sales tax due thereon		P2,913.22
		—————–
1952
Sales		P193.368.41
		—————–
5% sales tax due thereon		9,668.42
		—————–
SUMMARY
Sales tax due for 1948		P13,631.03
Sales tax due for 1949		23,741.09
Sales tax due for 1950 (part)		1,664.25
Sales tax due for 1950 (part)		12,143.27
Sales tax due for 1951		5,168.51
Sales tax due for 1950 & 1951 (part)		2,913.22
Sales tax due for 1952		9,668.42
		—————–
Total		P68,829.79
Tax paid	P1,066.00
To be refunded	847.58	1,913.58
	—————–	—————–
Sales tax still due		P66,916.21
25% surcharge		16,729.05
		—————–
Total tax due and collectible		P83,645.25

Meanwhile, another internal revenue agent had examined the records
of the Butuan City branch and as a consequence, the sum of P93,145.94
was assessed on or about June 21, 1954, as deficiency sales tax,
surcharge and penalties due on the sales made in said branch for the
period from 1948 to 1953. Upon reinvestigation, the assessment was
reduced, on or about November 15, 1954, to P39,527.97 computed as
follows:

F.O.B. Exports (1950-1953)		P1,062,401.44
Local sales of logs		70,358.48
Local sales of lumber		796.59
		—————–
Total sales		P1,135,556.51
Less: Sales not subject to tax —
Co-owners exports	P520, 515.14
Purchased Logs	80,593.87	501,109.01
	—————–	—————–
Taxable sales		P632,447.50
5% tax thereon		31,622.38
25% surcharge		7,905.59
		—————–
Total amount due		p39,527.97
		—————–

Upon receipt of this assessment on February 26, 1955, petitioner
proposed—in order to avoid distraint and levy which the Government had
meanwhile sought to effect—the payment of said sum of P39,527.97 as
follows: “P3,597.97 in cash and the balance of P36,000 to be paid
within twelve (12) months time at P3,000.00 a month, payable every end
of the month”, with a performance bond in favor of the Bureau of
Internal Revenue to guarantee the payment of said balance of P36,000.
Of this amount, the sum of P18,000 has already been paid.

Upon refusal of the Collector of Internal Revenue to reconsider or
modify either assessment, petitioner brought the matter for review to
the Court of Tax Appeals, which, as pointed out above, reduced the
amount collectible from petitioner to the aggregate sum of P85,790.91.
Hence this appeal by petitioner, who assails the decision of said
Court, upon the ground: (1) that the right of the Government to collect
deficiency taxes for the years 1948 and 1949 is already barred by the
statutes of limitations; and (2) that the export sales made by
petitioner’s Butuan branch were consummated abroad and, hence, not
taxable in the Philippines.

With respect to the first ground, petitioner alleges that the right
of the Government to collect deficiency sales tax for the years 1948
and 1949 had already prescribed for, pursuant to section 331 of the
Revised Internal Revenue Law:

“Except as provided in the succeeding section,
internal revenue taxes shall be assessed within live 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.”

Respondent, in turn, maintains that this case falls under section 332 (a) of the Internal Revenue Code, reading:

“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 objects to the application of this section 332 (a) upon
the ground that there is no affirmative evidence that it had not filed
the corresponding returns for the years 1948 1949. Thus the issue boils
down to which of the two parties had the burden of proving such failure
to file said returns. It is, however, clear that since prescription is
one of the affirmative defenses set up by petitioner herein, it was
incumbent upon the latter, if it wanted to avail itself of the benefits
of section 331, to prove that it had submitted said returns, and that,
having failed to do so, the conclusion must be that no such returns had
been filed and that the Government had ten (10) years within which to
make the corresponding assessments, as it did in this case.

It is urged that in alleging, in its amended answer to the amended
petition filed with the Court of Tax Appeals, that “petitioner had
failed to declare its correct taxable receipts during the years in
question”, the Government had admitted impliedly that petitioner had
declared its receipts, though not correctly, thus relieving petitioner
of the burden of proving that it had filed the corresponding returns.
That the conclusion thus drawn from the above quoted averment is
unwarranted becomes patent when we consider that petitioner omitted the
clause following said allegation, namely: “hence, the assessment and
collection of said taxes are authorized under the provisions of section
332 of the National Internal Revenue Code.” In short, the Government
relied upon the “failure to file a return”, referred to in said section
332, not to mere inaccuracies in the return filed, which fall under
section 331.

The second question raised by petitioner hinges on whether the
export sales made by the Butuan City branch to Japanese buyers were
consummated in the Philippines, as held by the lower court, or abroad,
as petitioner” would have us believe. In this connection, petitioner’s
president testified that the real intent of the parties to the
aforementioned sales was to effect the transfer of title to the buyers
in Japan. However, petitioner did not introduce in evidence the
corresponding contracts of sale. Upon the other hand, it is admitted
that the agreed price was “F.O.B. Agusan”, thus indicating, although
prima facie, that the parties intended the title to pass to the buyer
upon delivery of the logs in Agusan, on board the vessels that took the
goods to Japan. Moreover, said prima faciee proof was bolstered up by the
following circumstances, namely:

1. Irrevocable letters of credit were opened by the Japanese buyers in favor of the petitioners.
2. Payment of freight charges of every shipment by the Japanese buyers.
3. The Japanese buyers chartered the ships that carried the logs they purchased from the Philippines to Japan.
4. The Japanese buyers insured the shipment of logs and collected the insurance coverage in case of loss in transit.
5. The
   petitioner collected the purchase price of every shipment of logs by
   surrendering the covering letter of credit, bill of lading, which was
   indorsed in blank, tally sheet, invoice and export entry, to the
   corresponding bank in Manila of the Japanese agent bank with whom the
   Japanese buyers opened letters of credit.
6. In case of
   natural defects in logs shipped to the buyers discovered in Japan, the
   latter, instead of returning such defective logs, accepted them, but
   were granted a corresponding credit based on the contract price.
7. The
   logs purchased by the Japanese buyers were measured by a representative
   of the Director of Forestry and such measurement was final, thereby
   making the Government of the Philippines a sort of agent of the
   Japanese buyers.

Upon the foregoing facts and the authority of Bislig Lumber Co. vs.
Collector of Internal Revenue, 110 Phil., 746; Misamis Lumber Co., Inc.
vs. Collector of Internal Revenue (102 Phil., 116; 56 Off. Gaz., 517)
and Western Mindanao Lumber Development Co., Inc. vs. Court of Tax
Appeals, et al. (G. R. No. L-11710, June 30, 1958), it is clear that
said export sales had been cosummated in the Philippines and were,
accordingly, subject to sales tax therein.

WHEREFORE, the decision appealed from is hereby affirmed, with costs against the petitioner. It is so ordered.

Bengzon, C.J., Padilla, Labrador, Barrera, Paredes, Dizon, and De Leon, JJ., concur.