G.R. No. 13754. March 31, 1962
REPUBLIC OF THE PHILIPPINES, PLAINTIFF-APPELLANT, VS. DAMIAN P. RET, DEFENDANT-APPELLEE.
PAREDES, J.:
Revenue his Income Tax Return for the year 1948, where he made it
appear that his net income was only P2,252.53 with no income tax
liability at all. The BIR found out later that the return was
fraudulent since Ret’s income, derived from his sales of office
supplies ta different provincial government offices, totaled
P94,198.76. The BIR assessed him P34,907.33 as deficiency income tax
for 1948, inclusive of the 50% surcharge for rendering a false and/or
fraudulent return.
Defendant Ret failed to file his Income Tax return for 1949,
notwithstanding the fact that he teamed a net income of P150,447.32,
also from sale of office supplies. His income, as assessed for tax
purposes, showed a deficiency tax of P68,338.40 for 1949, inclusive of
the 50% surcharge.
On January 13, 1951, the Collector of Internal Revenue demanded from
Ret the payment of the above sums, but he failed and/or refused to pay
said amounts. On January 20, 1951, the Collector issued income tax assessment notices to Ret, urging him to pay the sums mentioned, but with the same result.
Upon recommendation of the Collector, Ret was prosecuted for a
violation of Section 45 [a] 51 [d] and 72, of the N.I.R.C. penalized
under Sec. 73, thereof (Crim. Cases Nos. 19037, and 19038. He pleaded
guilty to the two (2) cases and was sentenced to pay a fine of P300.00
in each.
After his conviction, on September 21, 1957, the Republic filed the
present complaint for the recovery of Ret’s deficiency taxes in the
total sum of PI03,245.73, plus 5% surcharge and 1% monthly interest.
Instead of answering, he presented a Motion to Dismiss on February 8,
1958, claiming that the “cause of action had already prescribed.” The
CFI handed down an Order, the pertinent portions of which are
reproduced below:
“There is no question that the assessment of the
income tax of the defendant for 1948 and 1949 was made within the
period of limitation, that is, on or before January 20, 1951, but the
present suit to collect the same was brought outside the five-year
period, to wit, on September 5, 1957, counted from the date of the
assessment of said tax.There can be no question that the
above-quoted provisions of Section 332, letter (c) of the National
Internal Revenue Code, apply to all internal revenue taxes including
income tax. The language therein used is all-embracing, and nowhere in
said code is found any other provision governing collection of income
tax by judicial action.WHEREFORE, the five-year, period
fixed by law for the filing of suit for the collection of income tax
having already expired, the plaintiff has no cause of action against
the defendant and the motion to dismiss should be and is hereby
granted, and the case is dismissed without pronouncement as to costs.”Plaintiff’s Motion for Reconsideration of the above Order, was denied on March 10, 1958. It appealed.
The
dominant issue raised in this appeal is whether or not appellant’s
right to collect the income taxes due from appellee through judicial
action has already prescribed.
The basis of the motion to dismiss is section 332 of the Revenue Code, which provides—
“(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.xx xx xx xx
(c)
Where the assessment of any internal revenue tax has been made within
the period of limitation above prescribed such tax may be collected by
destraint or levy or by a proceeding in court, but only if began (1)
within five years after the assessment of the tax, or (2) prior to the
expiration of any period for collection agreed upon in writing by the
Collector of Internal Revenue and the tax payer before the expiration
of such five-year period. The period so agreed upon may be extended by
subsequent agreements in writing made before the expiration of the
period previously agreed upon.”
The position of the Government may be stated as follows :—
- The provisions of section 332(c) of the N.I.R.C. do not
apply to income taxes. It premised its argument on the ruling in the
case of Collector vs. Avelino and CTA (100 Phil., 327; 53 Off. Gaz.,
[3] 645), wherein it was held that sections 331 and 332 of the Tax Code
“x x x merely apply to internal revenue taxes in general and not to
income taxes, the collection of which is specifically provided for
under a different title of the same law. x x x”; that the special
provision alluded to is section 51 (d), Title II, of the Code, which
refera only to the collection of income tax thru the summary remedies
of restraint and levy within three years after the return was filed or
should have been filed (Collector vs. Villegas, 56 Phil., 554;
Collector vs« Haygood, 65 Phil., 520; De la Vina vs. Government, 65
Phil., 265; Phil. Sugar Estate, Inc. vs. Posadas, 68 Phil., 216;
Collector vs. A. P. Reyes, 100 Phil., 822; Collector vs. Zulueta, 100
Phil., 872; 53 Off. Gaz.[19] 6532) and after the lapse of the three
year period, collection of income taxes must be had thru judicial
action (Sec. 316[b] N.I.R.C.); but in all these decisions, it is
alleged, no mention of any period of limitation for the collection of
income tax thru judicial action has been made. - Even
granting that section 332 (N.I.R.C.) is applicable, the Government is
not barred from instituting the present action, as shown by the very
wordings of said section. It is claimed that as appellee Ret had
admitted that he filed a false and fraudulent income tax return for 1948 and unlawfully failed to file his income tax return for 1949, for
which he pleaded guilty in the two criminal cases heretofore mentioned,
the collection of the tax may be enforced by a proceeding in court
within 10 years after the discovery of the falsity, fraud or omission
(see also Avelino case, supra). And the present action was filed within
10 years from the discovery of the falsity, fraud or omission (sec.
332[a]) N.I.R.C. - Further granting, that section 332,
aforecited is applicable, the Government claims that it is not barred
from instituting the present action because the period within which to
collect the taxes due was suspended upon the filing of the two
informations against the defendant-appellee on May 29, 1952, and began
to accrue again from the receipt of the decision on April 20,1955. In
support of this contention, plaintiff-appellant cites section 1, of
Rule 107, Rules of Court and Sec. 333 of N.I.R.C. These provisions
state;—
“Sec. 1. Rules governing civil actions arising from
offenses.— Except as otherwise provided by law, the following rules
should be observed:“x x x x x x x x x
(b)
Criminal and civil actions arising from the same offense may be
instituted separately, but after the criminal action has been
commenced, the civil action cannot be instituted until final judgment
has been rendered in the criminal action;(c) After a
criminal action has been commenced, no civil action arising from the
same offense can be prosecuted; and the same shall be suspended, in
whatever stage it may be found, until final judgment in the criminal
proceeding has been rendered”;“Sec. 333. Suspension of
running of statute.—The running of the statute of limitations provided
in section three hundred thirty-one or three hundred thirty-two on the
making of assessments and the beginning of distraint or levy or a
proceeding in court for collection, in respect of any deficiency, shall
be suspended for the period during which the Collector of Internal
Revenue is prohibited from making the assessment or beginning distraint
or levy or a proceeding in court, and for sixty days thereafter.”
Under the above-quoted provisions, it is alleged that from January
20, 1951 (date of assessment) to May 29, 1952 {date of filing of the
informations), there is an interval of 1 year, 4 months and 9 days, and
from April 20, 1955 (date of decision in the criminal cases which
plaintiff appellant assume to be the date of receipt, as this does not
appear) to September 4, 1957 (date of filing of the complaint at bar),
there is an intervening period of 2 years, 4 months and 15 days; and in
all, the Government has only consumed a total of 3 years, 8 months and
24 days from the date the income tax assessment notice was issued to
the date of filing of the complaint, of the 5 years prescribed by law.
The government further alleged that the Collector was prohibited from
going to court for the collection of the taxes due from the
defendant-appellee, in view of the filing of the two criminal cases,
the nature of which covered the subject-matter of the civil complaint
and there was need for the criminal charges to be determined first by
the lower court, before a civil action for the collection of the tax
could be resorted to. In other words, it is contended, that the filing
of the criminal actions constituted a prejudicial question which should
be resolved before the Civil Action for collection could be filed. And
this was the very thing the Government did in the instant case.
Moreover, the period of prescription was suspended because of the
written extra-judicial demand made by the Collector, citing Art. 1155
of the N.C.C. in support thereof.
- The Government submits also that the collection
of income tax thru judicial action is imprescriptible, relying upon
certain rules of statutory construction and the decision of this Court
in the case of Estate of De la Vina, vs. Government of the Philippine
Islands, 65 Phil. 263, holding that “x x x the statutes of limitations
do not run against the State; and this principle is applicable to
action brought for the collection of taxes (26 R.C.L., 388; 37 C. J.,
711.)” The doctrine was reiterated in the case of Philippine Sugar
Estate Development Co. vs. J. Posadas, et al., 68 Phil., 216, declaring
that “x x x when the taxpayer paid the additional tax under protest and
brought the corresponding action to recover the protested additional
payment, the collection became judicial and the right of the Collector
of Internal Revenue to effect the collection through that means has not
prescribed.” - Assuming arguendo, that the action is
prescriptible then the provisions of Art. 1144 of the N.C.C. on
prescription of actions is applicable, inasmuch as aside from sections
331, 332 and 51 (d), there is no provision in the Revenue Code which
deals on the limitation of action for the collection of income tax thru
judicial action. The plaintiff-appellant argues that the income tax
liabilities of the defendant-appellee being an obligation created by
law and that the right of action having accrued on January 20, 1951,
the date of assessment, and the complaint at bar having been filed on
September 5, 1957, within the ten year period, the cause of action has
not prescribed.
After going over the law and jurisprudence pertinent to the issues
raised, We have come to the conclusion that the cause of action has
already prescribed.
It is true that this Court has declared in the Avelino case (1956, supra),
that sections 331 and 332 of the Revenue Code do not apply “to income
taxes, the collection of which is specifically provided for under a
different title to the same law.” But plaintiff-appellant overlooked
the fact that this Court was only referring to the collection of income
tax by summary proceeding and not by court action.
Clarifying this matter, in the more recent case of Collector vs. Solano
and Court of Tax Appeals, G. R. No. L-11475, July 31, 1958, this Court
held:—
“x x x The decesion in the Avelino case was closely
followed by our holding in the case of Collector vs. Zulueta, 53 Off.
Gaz., No. 19, 6532, that the three-year prescriptive period provided
for in section 51 (d) of the Code was meant to serve as a limitation on
the right of the government to collect income taxes by the summary methods of distraint and levy, said
period to be computed from the time the return is filed, or if there
has been a neglect or refusal to file one from the date the return is
due, which is March 1st of the succeeding year. Thus our decision
makes it clear that prescriptive period of three years was intended to
be a general limitation on the right of the government to collect
income taxes by summary proceedings, irrespective of whether the
tax-payer filed a return or not, or whether his return was true and
correct or erroneous or fraudulent”.
Again We declared:—
“We notice, however, that Section 51 (d) of the
National Internal Revenue Code, which refers to the collection of
income tax, does not provide for any prescriptive period insofar as the
collection of income tax by judicial action is concerned, the prescriptive period therein mentioned being merely applicable to collection by summary methods,
as interpreted by this Court. Considering this void in the law
applicable to income tax, and bearing in mind that Section 331 of the
Code which provides for the limitation upon assessment and collection
by judicial action comes under Title IX, Chapter II, which refers to
‘CIVIL REMEDIES FOR COLLECTION OF TAXES’, we may conclude that the
provisions of said Section 331 are general in character which may be considered suppletory with regard to matters not covered by the title covering income tax.
In other words, Title II of the Code is a special provision which
governs exclusively all matters pertaining to income tax, whereas Title
IX, Chapter II, is a general provision which governs all internal
revenue taxes in general, which cannot apply insofar as it may conflict
with the provisions of Title II as to which the latter shall prevail,
but that in the absence of any provision in said Title II relative to
the period and method of collection of the tax, the provisions of Title
IX, Chapter II, may be deemed to be suppletory in character. Hence, in
our opinion, the Court of Tax Appeals did not err in holding that the
right of the Government to collect the deficiency income taxes for the
years 1945,1946 and 1947 has already prescribed under section 331 of
the National Internal Kevenjie Code.. x x x (Coll. of Int, Rev. vs.
Bohol Land Trans. Co., G.R. Nos. L-13099 & 13453, Apr. 2, 1960)
From all of which, it may be reasonably inferred that section 332 of
the Revenue Code does not apply to income taxes if the collection of
said taxes will be made by summary proceedings, because this is
provided for by Section 51 (d) aforementioned; but if the collection of
income taxes is to be effected by court action, then section 332 will
be the controlling provision. It is alleged, however, that this Court
did not mention any period of limitation for the collection of income
tax thru judicial action. To this, it may be observed that it was
unnecessary to do so because the said section (332) has already so
provided. In the Solano case, it was declared, “Even so, section 332
(c) of the National Internal Revenue Code provides that such action may
be brought only within five years from the time of the assessment of
the tax”.
Plaintiff-appellant maintains that granting the applicability of section 332, still, according to paragraph (a) thereto (supra),
it has 10 years from the discovery of the falsity, fraud or omission
within which to file the present action. Under said section, the
Collector is given two alternatives: (1) to assess the tax within 10
years from the discovery of the falsity, fraud or omission, or (2) to
file an action in court for the collection of such tax without assessment
also within 10 years from the discovery of the falsity, fraud, or
omission. In the case at bar, an assessment had been made and this fact
has taken out the case from the realms of the provisions of section 332
(a) and placed it under the mandate of section 332 (c), {supra), which
is the law applicable hereon and general enough to cover the present
situation.
As heretofore stated, the plaintiff-appellant made the assessment on
January 20, 1951 and had up to January 20, 1956 to file the necessary
action. It was only on September 5, 1957, that an action was filed in
Court for the collection of alleged deficiency income tax—far beyond
the 5 year period. This notwithstanding, plaintiff-appellant argues
that during the pendency of the criminal cases, it was prohibited from
instituting the civil action for the collection of the deficiency
taxes. This contention is untenable. The present complaint against the
defendant appellee is not for the recovery of civil liability arising
from the offense of falsification; it is for the collection of
deficiency income tax. The provisions of Section 1, Rule 107 (supra)
that “after a criminal action has been commenced, no civil action
arising from the same offense can be prosecuted”, is not applicable.
The said criminal cases would not affect, one way or another, the
running of the prescriptive period for the commencement of the civil
suit. The criminal actions are entirely separate and distinct from the
present civil suit. There is nothing in the law which would have
stopped the plaintiff-appellant from filing this civil suit
simultaneously with or during the pendency of the criminal cases.
Assuming the applicability of the rule, at most, the prosecution of the
civil action would be suspended but not its filing within the
prescribed period. Section 332 of the Tax Code provides: “the running
of the statutory limitation x x x shall be suspended for the period
during which the Collector of Internal Revenue is prohibited from
making the assessment, or beginning distraint or levy or a proceeding
in court, and for sixty days thereafter”. As heretofore stated, the
plaintiff-appellant was not prohibited by any order of the court or by
any law from commencing or filing a proceeding in court. It is also
averred that the period of prescription for the collection of tax was
suspended because of the written extra-judicial demand made by the
Collector against the defendant-appellee, citing Art. 1155 N.C.C.
Again, in the Solano case, (supra), We held that the only agreement
that could have suspended the running of the prescriptive period was a
written agreement between Solano and the Collector, entered before the
expiration of the five (5) year prescriptive period, extending the
period of limitations prescribed by law (sec. 332 [c] N.I. R.C.) which
“Rule is in accord with the general law on prescription that requires a
written acknowledgment of the debtor to renew the cause of action or
interrupt the running of the limitation period (Act 190, sec. 50; new
Civil Code, Art. 1155”. In the instant case, there is no such written
agreement, and there was nothing to agree about. The letter of demand
by the Collector on January 13, 1951, was made prior to the issuance of
the assessment notice to the defendant-appellee, made on January 20,
1951, from which date, the 5 year period was to be counted. The letter
of demand could not suspend something that started to run only on
January 20, 1951.
The very provisions of sections 331, 332 and 333 of the N.I.R.C.
specially the last, heretofore quoted, support the theory of
prescriptibility of a judicial action to collect income tax. To hold
otherwise, would render said provisions idle and useless. It is true
that in earlier decisions, there was a declaration to the effect that
the action to collect income tax is imprescriptible (Vina vs.
Government, 65 Phil, 262; Phil. Sugar Dev. vs. Posadas, 68 Phil. 216).
More recent decisions, however, recognized the prescriptibility of such
actions. Thus, it has been held: —
“The ‘judicial action’ mentioned in the Tax Code may
be resorted to within five (5) years from the date the return has been
filed, if there has been no assessment, or within five (6) years from
the date of the assessment made within the statutory period, or within
the period agreed upon, in writing, by the Collector of Internal
Revenue and the tax-payer, before the expiration of said five-year
period, or within such extension of said stipulated period as may have been agreed upon, in writing, made before the expiration of ; the
period previously stipulated, except that in the case of a false or
fraudulent return with intent to evade tax or for failure to file a
return the judicial action may be begun at any time within ten (10)
years after the discovery of the falsity, fraud or omission (Sections
331 and 332 of the Tax Code)” (Gancayco vs. Coll. of Int. Rev., G.R.
No. L-13325, April 20, 1961).
In view of the conclusions reached, it is deemed unnecessary to pass upon the other issues raised.
The decision appealed from is affirmed, without special pronouncement as to costs.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Dizon, and De Leon, JJ., concur.
Padilla, J., took no part.