KER & COMPANY, LTD., PETITIONER, VS. THE COURT OF TAX APPEALS AND THE COLLECTOR OF INTERNAL REVENUE, RESPONDENTS.

Ker and Company versus Court of Tax Appeals and the Collector of Internal Revenue

The Case

This is a petition brought by Ker and Company, Limited against the Court of Tax Appeals and the Collector of Internal Revenue, asking the Supreme Court to reverse the Tax Court's dismissal of its petition for review. The Tax Court had held that it had no jurisdiction over the taxpayer's petition because the appeal was filed long after the thirty-day period allowed by law had lapsed. The case matters because it fixes two enduring rules for the Bar: that the thirty-day period to appeal an assessment to the Court of Tax Appeals is jurisdictional, and that the appealable "decision" of the Collector is the assessment or demand letter itself, which remains the appealable ruling for as long as it is not altered or modified.

Procedural History

Ker and Company filed a petition for review with preliminary injunction before the Court of Tax Appeals on March 1, 1956, seeking to contest the Collector's assessments. After the issues were joined, the Tax Court, on its own motion, set the case for hearing to determine whether it had jurisdiction over the petition. The Collector then filed a motion to dismiss on the ground of lack of jurisdiction, and over the taxpayer's opposition, the Tax Court dismissed the petition on January 5, 1957. The taxpayer's motion for reconsideration was denied on May 9, 1957. Ker and Company then appealed to the Supreme Court, which decided the case on January 31, 1962.

Facts

On the basis of its income tax returns for the years 1947, 1948, 1949 and 1950, Ker and Company was assessed by the Collector of Internal Revenue in the amounts of 42,342 pesos and 30 centavos, 18,651 pesos and 87 centavos, 139 pesos and 67 centavos, and 12,813 pesos, respectively. When the taxpayer failed to pay, the Collector sent a demand letter dated February 16, 1953. Through counsel, the taxpayer sought reconsideration in a letter dated May 24, 1953.

The Collector then revised the assessments in his letter of January 5, 1954, reducing the 1947 liability from 42,342 pesos and 30 centavos to 27,026 pesos and 28 centavos, and the 1950 liability from 12,813 pesos to 8,542 pesos. The assessments for 1948 and 1949 remained the same. This letter of January 5, 1954 remained unaltered and unrevised despite repeated requests for reconsideration, and the Collector reiterated it in later letters dated July 28, 1954 and December 9, 1954. The taxpayer replied to the December 9, 1954 letter in a letter dated August 1, 1955, which the Collector wholly denied in his letter dated January 23, 1956, the last letter reiterating the assessment of January 5, 1954. On February 9, 1956, the Collector issued a warrant of distraint and levy against the taxpayer, and it was only on March 1, 1956 that the taxpayer filed its petition for review with the Tax Court.

Issues

• Whether or not the ruling of the Collector that was appealable to the Tax Court was his letter of January 5, 1954 or his letter of January 23, 1956.
• Whether or not the thirty-day period under Section 11 of Republic Act Numbered 1125 should commence to run only on February 1, 1956, the date the taxpayer received the Collector's letter of January 23, 1956.
• Whether or not the thirty-day period is a jurisdictional requirement.
• Whether or not the Collector was barred from filing a motion to dismiss based on Section 11 after he had filed an answer that did not contain such a defense.
• Whether or not the Tax Court erred in not holding that the Collector's order to collect by warrant of distraint and levy had been timely appealed.

Applicable Provisions

Section 11 of Republic Act Numbered 1125 provides:

Section 11. Who may appeal; effect of appeal. Any person, association or corporation adversely affected by a decision or ruling of the Collector of Internal Revenue, the Collector of Customs or any provincial or city Board of Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after the receipt of such decision or ruling.

This is the provision that fixes both the appealable act, which is the decision or ruling of the Collector, and the thirty-day period within which the appeal must be taken.

Ruling

On the first issue, the Court held that the appealable decision was the letter of January 5, 1954, not the letter of January 23, 1956. The latter was a mere reiteration of the earlier demand, and the assessment of January 5, 1954 had remained unaltered and unmodified up to the time the appeal was filed. The Court agreed with the Tax Court that a demand letter or assessment counts as a determination of the taxpayer's liability and must be considered the decision appealable to the Tax Court.

On the second issue, it followed that the thirty-day period should have been counted from the taxpayer's receipt of the January 5, 1954 letter on January 25, 1954. No appeal having been taken from that decision, it became final, conclusive and executory.

On the third issue, the Court held that the thirty-day period is jurisdictional. The right to appeal the Collector's decision is a statutory remedy, and where a statutory remedy makes timely commencement a condition precedent, that requirement is jurisdictional and its failure may be raised in a motion to dismiss. The Court stressed the imperious need for prompt collection of taxes, so that the Government may know promptly which assessments are acquiesced in and which are disputed.

On the fourth issue, the Court held that the Collector was not barred. A motion to dismiss may be allowed after the answer is filed or even after the hearing has commenced, and in any event the defense involved jurisdiction over the subject matter, which cannot be waived and may be raised at any stage. The Court also noted that the Tax Court, being a court of special jurisdiction, may raise the question of jurisdiction on its own initiative.

On the fifth issue, the Court held that the warrant of distraint and levy was not the proper subject of the appeal, since the incident of its legality had never been brought out or ventilated in the decision appealed from.

Doctrine

First, the appealable "decision or ruling" of the Collector of Internal Revenue is the assessment or demand letter itself, and it remains the appealable ruling for as long as it is not altered or modified; a later letter that merely reiterates it does not restart the period. Second, the thirty-day period under Section 11 of Republic Act Numbered 1125 is jurisdictional, and failure to comply with it may be raised in a motion to dismiss at any stage, because jurisdiction over the subject matter cannot be waived. Third, a taxpayer who receives an assessment before the organization of the Court of Tax Appeals may protect itself by paying the tax and suing for refund, or by filing a petition for review within thirty days after the Tax Court's organization.

Disposition

The Supreme Court affirmed the resolution of the Court of Tax Appeals in its entirety, with costs against Ker and Company.

Remember This

The one line to memorize: the assessment or demand letter is the appealable decision of the Collector, and the thirty-day period to appeal it to the Court of Tax Appeals is jurisdictional and cannot be waived. Examiners use this case to test the reckoning of the appeal period in tax cases and the rule that lack of jurisdiction over the subject matter may be raised at any stage, even by the court on its own motion.