G.R. No. L-18543. October 31, 1968
REPUBLIC OF THE PHILIPPINES, PLAINTIFF-APPELLEE, VS. GENERAL SALES SUPPLY CO., INC., GERARDO SAMSON, AND RESTITUTO SAMSON, DEFENDANTS-APPELLANTS.
CAPISTRANO, J.:
Appeal from the judgment of
the Court of First Instance of
Manila ordering the defendants to pay the plaintiff the sum of P79,379.69 as deficiency income taxes for the years 1946 to 1949 plus 5% surcharge and 1% monthly interest from April
15, 1955 until fully paid.
The General Sales Company
was engaged in the purchase and sale of school and office supplies and
equipment. Gerardo Samson and Restituto Samson were President and General Manager, respectively, of the corporation. For the taxable years 1946 to 1949 the defendant corporation filed its income tax returns and
paid the income taxes due on the net incomes reported therein.
In an investigation
conducted by the Senate Blue Ribbon Committee,
anomalous sales of school supplies and equipment to the
government wore unearthed. In view, thereof, on November
17, 1950, the Commissioner of
Internal Revenue assigned
examiner Valeriano Robles to investigate the income
tax returns of all dealers in
school supplies and equipment, including the General Sales Supply Co., Inc.
In due course of
investigation, examiner Robles found out that the records and books of account
of the General Sales Supply Co., Inc., showed that the purchases and expenses
reported in its income tax returns had been padded and did not correctly state
the taxes due the government in the
total sum of P108,557.90 including the 5% surcharge. On the basis of the aforesaid findings of
examiner Robles, the Commissioner of Internal Revenue, on February 28, 1951, sent a letter of demand to the
corporation requiring it to pay the deficiency income taxes for the taxable
years 1946 to 1949. Proper assessment
notices were issued to the corporation on March 8, 1951.
On April
14, 1951, the corporation
protested the assessment and requested for a reinvestigation. The request was granted and on May 22,
1952, the
Commissioner of Internal Revenue notified the defendant corporation to submit
within 20 days from notice a list of all its general and miscellaneous expenses
as well as its various local purchases duly supported by vouchers. The corporation requested further extensions
of time within which to submit vouchers and other records to substantiate its
allegation that the deficiency tax assessment was incorrect. These requests for extensions were dated June
10, August 9, September 9, October 9 and November 8, 1952.
On December
15, 1952, the
corporation submitted a detailed statement of merchandise purchased for
the years 1946 to 1949 without the vouchers and invoices. In view of the reÂpeated failure on the part
of the General Sales Supply ComÂpany to submit the required vouchers and
invoices, the Commissioner of Internal Revenue, on February 12, 1954, wrote the corporation a letter reiterating the demand for the
payÂment of the original assessment dated March 8, 1951, including the accrued interests.
On
April 20, 1954, the
corporation again requested for a reconsideration of the assessment,
which request was granted, and a reassessment was conducted. Based on the evidence submitted during the
reassessment, the Commissioner of Internal Revenue modified his assessment
against the corporation
by reducing the previous total assessment of P108,557.90
to P79,379.69. Assessment notice was
duly served upon the corporation on March
12, 1955. Still, the
corporation was not satisfied with the reduction and on June 25, 1956, it protested anew the latest
assessment. Finally, on March 15, 1957,
the corporation reiterated its protest and interÂposed the defense of
prescription under Sec. 51 (d) of the Tax Code.
The Commissioner of Internal Revenue replied, advising the corporation
that the applicable provision of law was that provided for in Section 332 (a)
of the Tax Code and not Section 51 (d) of the same. The
Commissioner insisted on the payment of the
assessment of March 12, 1955.
In view of the refusal of the corporation to pay, the present
suit was filed in the Court of First Instance of Manila in the name of the
Republic of the Philippines
as plaintiff, to recover from the defendant corporation the amount of P79,379.69 as deficiency income taxes due from defendant
corporation, as follows:
1946 …………………………………………..
P 2,850.36
1947 ………………………………………….. P26,290.59
1948 …………………………………………..
P15,593.27
1949 …………………………………………..
P34,645.46
The complaint also alleged that the defendant corporation was
liable for the payment of 5% surcharge (fraud peÂnalty) under Section 72 of the
National Internal Revenue Code because it overstated its purchases and
manipulated its books of accounts purposely to evade the payment of taxes due
from it.
Instead of answering the
complaint the defendant corporation filed a motion to dismiss solely based on
the ground that the deficiency income taxes sought to be collected were
assessed beyond the 3-year period prescribed by law (Sec. 51[d], Tax
Code). The motion was denied for lack of
merit. Consequently, defendants filed
their answer which was subÂsequently amended.
After the issues were joined, the parties proceeded to trial. The plaintiff presented its evidence, oral
and documentary. No evidence was
presented by the defendants.
On March 17, 1961,
the lower court rendered judgment holding that the right of the appellee to assess and colÂlect the deficiency taxes from
the appellants for the years 1946 to 1949
has not prescribed. The court
ordered the plaintiff to pay the total
amount of P79,379.69 plus 5% surcharge and 1% monthly
interests from April 15, 1955, until fully paid. The defendants filed a motion for
reconsideration and for a new trial alleging that they were deprived of their
day in court and that the lower court erroneously admitted some exhibits
presented during the hearing. The motion
for reconsideration and new trial was denied.
Defendants appealed to the Supreme Court on questions of law.
There is no question that the tax imposed upon the apÂpellant corporation in the
amount of P79,379.69 is correct, final and
conclusive. Indeed, the appellant
questioned the assessment. Nevertheless,
they did not appeal the decision of the Commissioner of Internal Revenue to the
Court of Tax Appeals to assail the correctness of the assessment. It is the Court of Tax
Appeals which has the original and exclusive jurisdiction to entertain cases
involving disputed assessments. (Sec. 7,
Rep. Act No. 1125.) Having failed to appeal the tax assessment to the Court of
Tax Appeals within the time provided by law, the same became final and
collectible. It is only cases involving
the collection of taxes which fall within the jurisdiction of the regular
courts.
The remaining
interrelated issues may be crystallized into two main problems: First, had the action for collection off the
deficiency income taxes prescribed; second, were the
defendants deprived of their day in court?
1. Appellants contend that
the deficiency income tax assessment for 1946 to 1949, inclusive, having been
issued on March 19, 1955, is illegal on two grounds: (a) It was made
beyond the three-year period prescribed in Section 51 (d) of the Internal Revenue Code and (b) the action was not
instituted within five years as provided by Section 331 of the same Code.
Section 51 (d) of the Tax
Code prior to its amendment by Republic Act No. 2343,
provided that:
“(d) REFUSAL OR NEGLECT TO MAKE RETURNS; FRAUDULENT RETURNS,
etc. – In cases of refusal or neglect to make a return and in cases erroneous, false, or fraudulent returns, the
Collector of Internal Revenue shall, upon the discovery thereof, at any time
within three years after the said return is due, or has been made, make a
return upon information obtained as provided for in this code 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.”
The Supreme Court has
repeatedly held that the prescriptive period of three years in the aforequoted proviÂsion of the Internal Revenue Code refers
to summary collection of taxes by distraint and
levy. (Collector of Internal Revenue vs.
Villegas, 56 Phil. 554, citing Holmes, Fed Income Tax 2d p.581;
Collector of Internal Revenue vs. Haygood, 65 Phil. 520; and Juan de la Viña vs. El Gubierno de las Islas Filipinas, G.R. No. 42669, Jan. 29, 1938; Philippine Sugar Estate Development Co., Inc.
vs. Posadas, 68 Phil. 215; The
Collector of Internal Revenue vs. Aurelio P. Reyes, et al., G.R. No. L-8685, January
31, 1957.)
It is to be observed that
Section 51 (d) of the Tax Code provides:
” * * * 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. In the
case of Republic of the Philippines vs. Ernesto Gamboa, G.R. No. L-16504, October 27, 1961, this Court said:
“The period of three years prescribed in said Section 51 (d)
refers to the assessment for the purpose of ‘immediate’ collection of the tax
due, that is to say, by summary proÂceedings.”
The manner by which the
Republic proceeded to collect the deficiency tax in the instant case was by
judicial action, not by summary proceedings; hence, Section 51 (d) of the Tax Code relied upon by the appellants is not applicaÂble. Neither will Section 331 of the Internal Revenue Code apply.
The opening clause of said section itself warrants the institution of
the present suit. It provides:
“Sec. 331. Period of limitation
upon assessÂment and collection. – Except as provided in the succeeding section, internal revenue taxes shall be assessed within
five years after the return was filed, and no proceeding in court without
assessment for the collection of such taxes shall be begun after expiration of
such period. For the purÂposes 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.”
We stress the first
statement which reads: “Except as provided in the succeeding section,” and the succeeding section clearly provides:
“Sec. 332. Exceptions as to period
of liÂmitation of assessment and collection
of taxes.- (a) 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.”
There is no doubt that the income tax returns filed by the appellant corporation were false and fraudulent
with the intent to evade payment of taxes.
Hence, under Section 332 of the Tax Code, the 10-year prescriptive
period within which to file action in court shall commence not
from the filing of the income tax returns nor from the assessment of the
tax but from the “discovery of the falsity, fraud or omission.” We said so in the case of Collector of InÂternal Revenue vs. Aurelio P. Reyes, G.R. Nos. L-11534 and L-11558, November 25, 1958:
“This finding of fraud, also disposes adÂversely to the
taxpayer, of his contention that reassessment of his taxes was barred because
more than five years had elapsed since the disÂputed returns were filed. Under Section 332 of the Internal Revenue Code, collection of taxes may be started within
ten years from the discovery of the fraud.”
The padded and fraudulent
income tax returns filed by the General Sales Supply Co., Inc., defendant below
and apÂpellant here, were discovered and made known
to the Commissioner of Internal Revenue on February 3, 1951,when examiner
Valeriano Robles of the Bureau of Internal Revenue
filed a report of his investigation of the tax liability of the appellant
corporation. The instant suit was
commenced in the court below on February 27, 1959. The
action was filed within the 10-year limit prescribed by law. It is clear, therefore, that the present
action for collection of the deficiency taxes in question had not yet
prescribed when the action was commenced. (Republic of the Philippines vs. Damian P.
Ret, G.R. No. L-13754, March 31, 1952.)
The other issue raised in
this appeal is whether the appellants had been deprived of their day in
court. There is no merit in appellants’ contention in the affirmative. We agree with the observation of the lower
court on this point, to wit:
“* * *. The
records show that on February 2, 1961 when
this case was called for hearing, counsel for defendants failed to appear due
to illness, and on motion of defendants Gerardo and Restituto
Samson, the court postponed the hearing and set it on February 20, 1961. On the date set for hearing (February 20, 1961), counsel for
defendants failed again to appear. The court therefore ruled that the case be
submitted for decision.”
Undoubtedly, the trial court
acted correct when it considered the case submitted for decision sans the evidence for the defendants-appellants. Although a defendant who answered the complaint but fails to
appear at the scheduled trial cannot be declared in default, the trial, however,
may proceed without his presence. (Go Changjo vs. Roldan Sy-Changjo, 18 Phil. 405.) And if the absence of a party
during the hearing was due to his own fault, he cannot later on complain that
he was deprived of his day in court (Sandejas vs.Robles, 81 Phil. 421; Siojo
vs. Tecson, G.R. No. L-2807, April 23, 1951.)
PREMISES CONSIDERED,
the judgment appealed from is affirmed, with double costs against appellants.
SO ORDERED.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez,
Castro, Angeles, and Fernando, JJ.,
concur.
Zaldivar, J., did not take part.