REPUBLIC OF THE PHILIPPINES, PLAINTIFF-APPELLANT, VS. LUCIA TAN, DEFENDANT-APPELLEE.

Appeal on questions of law from the orders of the Court of First
Instance of Misamis Occidental in its Civil Case No.
2108 dismissing the complaint filed by the Republic for collection of deficiency income taxes, surcharges and
interests, and denying the plaintiff’s motion for reconsideration.

In August, 1954, after discovery that Lucia Tan had not filed
income tax returns for the
years 1949, 1950, 1951 and 1952,
although she was liable for income taxes for the said years, the Commissioner
of Internal Revenue, thru his authorized representative, filed the
corresponding returns on her behalf.  On the basis of the said returns, the Bu­reau of Internal.  Revenue, hereinafter referred to as the BIR,
issued assessment notices to Lucia Tan requiring her to pay, on or before June
30, 1955, the amounts of P248.00, P129.50 and P450.50 as income taxes for the
years 1949, 1950 and 1951, respectively. 
Another assessment notice was issued to Lucia Tan on May 6, 1955, requiring her to pay on
or before August 15, 1955,
the sum of P1,482.50 as income tax for 1952.  Lucia Tan refused to pay any of the aforesaid
assessments.

The Republic filed a complaint dated May 8, 1958, seeking to collect from Lucia Tan deficiency
income taxes, surcharges and interests in the total amount of P2,310.50 for the years 1949, 1950, 1951 and 1952.  In her answer the defendant admitted not
having filed income tax returns for the above-mentioned years and alleged that
the assess­ments were arbitrary, capricious and oppressive, and that she was
not given an opportunity to present her side. 
The defendant also set up the affirmative defense of prescrip­tion.  Defendant averred that the assessments for
1949, 1950 and 1951 had already prescribed because they were made beyond the
three-year period provided in Section 51(d) of the National Internal Revenue
Code; and that by virtue of said Section 51(d), in relation to Section 331, the
action was already barred by prescription.

At the hearing on February 15, 1960, the court ordered the BIR to
conduct a reinvestigation of the case in accord­ance with the defendant’s
request.  A reinvestigation was
conducted, and it was found out that the defendant’s income tax liability for
the years 1949 to 1952 was P6,123.60 in­stead of P2,310.50.  The BIR then sent to the Provincial Fiscal,
for filing, a motion for leave of court to amend the complaint, attaching
thereto an amended complaint.  The
defendant’s counsel was furnished copies of said motion and amended complaint.  However, for unknown reasons the said motion
and amended complaint were not filed in court. 
In an order dated November 23, 1964, the court gave the Provincial
Fiscal thirty (30) days within which to locate them.  Appa­rently, the motion and the amended
complaint could not be found; so the plaintiff prepared another amended
complaint and filed it on December 23, 1964. 
On February 20, 1965, the court issued an order denying admission of the
amended-com­plaint for the reasons that it was not accompanied by a mo­tion for
leave to file an amended complaint and the defend­ant was not even served a
copy of the amended complaint.  In a
separate order issued on the same date, the court, acting on the defendant’s
affirmative defense of prescription, the plaintiff having already rested its
case, dismissed the ori­ginal complaint on the ground that the action had
already prescribed.  The plaintiff filed
a motion for reconsidera­tion, but the same was denied by the order of March
20, 1965.  The plaintiff appealed from
the orders.

The principal question before us for resolution in this appeal is whether, as
contended by the defendant-appellee, the applicable
law is Section 51(d) of the National Internal Revenue Code before its amendment
by Republic Act No. 2343 on June 20, 1959, which reads:

“In cases of refusal or neglect to make a return and in cases
of erroneous, false or frau­dulent returns the Collector of Internal Revenue
shall, upon the discovery thereof, at any time within three years after said
return is due, or has been made, make a return upon information obtained as
provided for in this case or by exist­ing
law, or require the necessary corrections to be made, and the assessment made
by the Collector of Internal Revenue thereon shall be paid by such person or
corporation immediately upon notifica­tion of the amount of such
assessment.”

or, as contended
by the plaintiff-appellant, Section 332(a) of the same Code, which provides:

“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 said tax may be begun without
assessment, at any time within ten years after the discovery of the falsity,
fraud, or omission.” (Emphasis supplied.)

It is now settled that the three-year period provided in Section 51(d)
refers to the summary remedy of distraint and levy
(Republic vs. Ledesma, G.R. No. L-18759, February 28,
1967, citing Collector vs. Avelino, 100 Phil., 327;
Col­lector vs. Reyes, 100 Phil., 822; Collector vs. Zulueta,
et. al., 100 Phil., 872; Sambrano vs. CTA, 101 Phil., 1; Col­lector vs. Azner, G.R. No. L-8652, January
31, 1958; Gan­cayco vs. Collector, G.R. No.
L-13325, April 20, 1961); that said Section 51(d) did not bar an assessment as
a step pre­liminary to collection by judicial action (Republic vs. Ledesma, supra, citing Republic vs. Gamboa, G.R. No. L-16504, October 27, 1961); that even
after the lapse of the three-year period, the Government could still proceed to
recover the taxes due by the institution of the corresponding civil action (Collector
vs. Zulueta, et al., supra); and that the
judicial action may be instituted at any time within ten (10) years after the
discovery of the falsity, fraud or omission (Cf. Republic vs. Gamboa, supra), pursuant to Section 332(a) of the
Tax Code.

This being a judicial action for the collection of in­come taxes
where the taxpayer had failed to file income tax returns, the same could be
brought at any time within ten (10) years after the discovery of the
omission.  Here, the defendant-appellee’s failure to file the returns was discovered in
August, 1954.  Hence, the Republic had
ten (10) years from that date, or until August, 1964, within which to institute
an action for collection.  The action in
the instant case having been commenced in May, 1958, or four (4) years after
the discovery of the omission, it is clear that the lower court erred in
dismissing the complaint on the ground of prescription under Section 51(d).

PREMISES CONSIDERED, the orders appealed from are set
aside and the Case is hereby
remanded to the court below for further proceedings.

Costs against the defendant-appellee
in this instance.

Reyes, J.B.L. (Acting C.J.), Dizon, Makalintal, Zaldivar, Sanchez, and Fernando., JJ., concur.

Teehankee and Barredo, JJ.,
did not take part.

Concepcion, C.J., and Ruiz Castro, J.,
on leave.