COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. PASCOR REALTY AND DEVELOPMENT CORPORATION, ROGELIO A. DIO AND VIRGINIA S. DIO, RESPONDENTS.

Commissioner of Internal Revenue versus Pascor Realty and Development Corporation

The Case

This is a petition for review on certiorari brought by the Commissioner of Internal Revenue against Pascor Realty and Development Corporation and its officers, Rogelio Dio and Virginia Dio. The Commissioner asks the Supreme Court to reverse the Court of Appeals, which had sustained the Court of Tax Appeals in holding that a criminal complaint for tax evasion, supported by a joint affidavit of revenue examiners, amounted to an assessment that the taxpayer could protest and appeal. The case matters because it draws the line between an assessment and a criminal charge, and it tells every reviewee exactly what an assessment must contain and to whom it must be sent.

Procedural History

The Commissioner filed a criminal complaint for tax evasion with the Department of Justice. The taxpayers filed an urgent request for reconsideration or reinvestigation, which the Commissioner denied in a letter dated May 17, 1995, on the ground that no formal assessment had yet been issued. The taxpayers then elevated that denial to the Court of Tax Appeals on a petition for review. The Commissioner moved to dismiss on the ground that the tax court had no jurisdiction, there being no formal assessment. The Court of Tax Appeals denied the motion to dismiss, ruling that the criminal complaint itself was the assessment and that the letter of denial was the appealable decision. The Commissioner did not file an answer and instead went to the Court of Appeals on certiorari. The Court of Appeals sustained the tax court, holding that the joint affidavit attached to the criminal complaint contained the details and amount of tax due and therefore constituted an assessment, and that the assailed order being interlocutory and free of grave abuse of discretion, certiorari did not lie. The Commissioner then came to the Supreme Court by petition for review on certiorari.

Facts

By virtue of a letter of authority, the Commissioner authorized revenue officers to examine the books of accounts and other accounting records of Pascor Realty and Development Corporation for the years ending 1986, 1987 and 1988. The examination resulted in a recommendation for the issuance of an assessment in the amounts of 7,498,434 pesos and 65 centavos for 1986, and 3,015,236 pesos and 35 centavos for 1987.

On March 1, 1995, the Commissioner filed a criminal complaint before the Department of Justice against the corporation, its President Rogelio Dio, and its Treasurer Virginia Dio, alleging evasion of taxes in the total amount of 10,513,671 pesos. The taxpayers filed an urgent request for reconsideration or reinvestigation disputing the tax assessment and the tax liability. On March 23, 1995, they received a subpoena from the Department of Justice in connection with the criminal complaint.

In a letter dated May 17, 1995, the Commissioner denied the urgent request on the ground that no formal assessment had as yet been issued. The taxpayers then brought the matter to the Court of Tax Appeals, which took the view that the criminal complaint, particularly the joint affidavit of the revenue examiners attached to it, contained the details of the assessment, such as the kind and amount of tax due and the period covered, and was therefore an assessment that could be protested and appealed.

Issues

• Whether or not the criminal complaint for tax evasion, together with the joint affidavit of the revenue examiners attached to it, can be construed as an assessment.
• Whether or not an assessment is necessary before criminal charges for tax evasion may be instituted.
• Whether or not the Court of Tax Appeals can take cognizance of the case in the absence of an assessment.

Applicable Provisions

Section 205 of the National Internal Revenue Code provides:

Sec. 205. Remedies for the Collection of Delinquent Taxes. -- The civil remedies for the collection of internal revenue, fees, or charges, and increment thereto resulting from delinquency shall be: (a) By distraint of goods, chattels, or effects, and other personal property of whatever character, including stocks and other securities, debts, credits, bank accounts, and interest in and rights to personal property, and by levy upon real property and interest in or rights to real property; and (b) By civil or criminal action. Either of these remedies or both simultaneously may be pursued in the discretion of the authorities charged with the collection of such taxes: Provided, however, That the remedies of distraint and levy shall not be availed of where the amount of tax involved is not more than One hundred pesos (P100). The judgment in the criminal case shall not only impose the penalty but shall also order payment of the taxes subject of the criminal case as finally decided by the Commissioner. The Bureau of Internal Revenue shall advance the amounts needed to defray costs of collection by means of civil or criminal action, including the preservation or transportation of personal property distrained and the advertisement and sale thereof, as well as of real property and improvements thereon.

This provision supports the ruling that the civil and criminal aspects of tax collection may be pursued simultaneously, so that a criminal charge does not depend on a prior assessment.

Section 222 of the National Internal Revenue Code provides:

Sec. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. -- (a) In the case of a false or fraudulent return with intent to evade tax or of the failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (10) years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in civil or criminal action for the collection thereof.

This provision expressly allows a proceeding in court to be filed without an assessment in cases of false or fraudulent returns or failure to file a return.

Section 203 of the National Internal Revenue Code provides:

SEC. 203. Period of Limitation Upon Assessment and Collection. -- Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided, That in a case where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return was filed. For 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.

This provision shows why the issuance of an assessment is vital, because it fixes the period of limitation for assessment and collection.

Section 228 of the National Internal Revenue Code provides:

SEC. 228. Protesting of Assessment. -- When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a preassessment notice shall not be required in the following cases: (a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return; or (b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or (c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or (d) When the excise tax due on excisable articles has not been paid; or (e) When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons. The taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings.

This provision establishes that an assessment is a notice to the taxpayer and may be protested within thirty days from receipt, which presupposes that the taxpayer actually receives it.

Ruling

On the first issue, the Court ruled that the criminal complaint and the joint affidavit attached to it do not constitute an assessment. The Court held that an assessment contains not only a computation of tax liabilities but also a demand for payment within a prescribed period, and it signals the time when penalties and interests begin to accrue. Due process requires that it be served on and received by the taxpayer. The joint affidavit merely contained a computation of the tax liability; it did not state a demand or a period for payment, and worse, it was addressed to the justice secretary, not to the taxpayers. Its purpose was merely to support and substantiate the criminal complaint for tax evasion, not to serve as a notice of tax due and a demand for payment. The Court stressed that an assessment is deemed made only when the collector of internal revenue releases, mails or sends such notice to the taxpayer.

On the second issue, the Court ruled that an assessment is not necessary before criminal charges for tax evasion may be instituted. Section 222 expressly states that in cases of a false or fraudulent return or failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment. Section 205 likewise allows the civil and criminal aspects to be pursued simultaneously. The Commissioner has discretion whether to issue an assessment, to file a criminal case, or to do both. The criminal charge need only be supported by a prima facie showing of failure to file a required return, and this fact need not be proven by an assessment.

On the third issue, because there was no assessment to protest and no appealable decision of the Commissioner on a disputed assessment, the Court of Tax Appeals had no jurisdiction over the petition for review. The denial by the Commissioner of the request for reconsideration was not a decision on a disputed assessment but a denial of a request directed at the criminal charges.

Doctrine

An assessment is a notice duly sent to the taxpayer stating the amount due as tax and demanding payment within a specific period. It must be served on and received by the taxpayer, because it fixes the period of limitation for assessment under Section 203, the period to protest under Section 228, and the accrual of penalties and interest. A document containing a mere computation of tax liability, not addressed to the taxpayer and containing no demand or period for payment, is not an assessment. A criminal complaint for tax evasion is not an assessment and cannot be questioned before the Court of Tax Appeals. Under Section 222 and Section 205, an assessment is not a condition precedent to the filing of a criminal charge for tax evasion, and the Commissioner may pursue civil and criminal remedies simultaneously.

Disposition

The petition was granted; the decision of the Court of Appeals was reversed and set aside, and the petition for review in the Court of Tax Appeals was dismissed, with no costs.

Remember This

An assessment is a notice and a demand sent to the taxpayer, not a computation buried in a criminal complaint addressed to the Secretary of Justice. Examiners use this case to test the elements of a valid assessment and the rule that a criminal charge for tax evasion may be filed without a prior assessment.