REPUBLIC OF THE PHILIPPINES, PLAINTIFF AND APPELLANT, VS. LUIS G. ABLAZA, DEFENDANT AND APPELLEE.

Appeal from a judgment of the Court of First Instance of Manila, Hon.
Carmelino G. Alvendia, presiding, dismissing an action instituted by
the Government to recover income taxes from the defendant-appellee
corresponding to the years 1945, 1946, 1947 and 1948.

The
record discloses that on October 3, 1951, the Collector of Internal
Revenue assessed income taxes for the years 1945, 1946, 1947 and 1948
on the income tax returns of defendant-appellee Luis G. Ablaza. The
assessments total P5,254.70 (Exhibit “I”). On October 16, 1951, the
accountants for Ablaza requested a reinvestigation of Ablaza’s tax
liability, on the ground that (1) the assessment is erroneous and
incomplete; (2) the assessment is based on third-party information and
(3) neither the taxpayer nor his accountants were permitted to appear
in person (Exh. “J”). The petition for reinvestigation was granted in a
letter of the Collector of Internal Revenue, dated October 17, 1951. On
October 30, 1951, the accountants for Ablaza again sent another letter
to the Collector of Internal Revenue submitting a copy of their own
computation (Exh. “L”). On October 23, 1952, said accountants again
submitted a supplemental memorandum (Exh. “M”). On March 10, 1954, the
accountants for Ablaza sent a letter to the examiner of accounts and
collections of the Bureau of Internal Revenue, stating:

“In
this connection, we wish to state that this case is presently under
reinvestigation as per our request dated October 16, 1951, and your
letter to us dated October 17, 1951, and that said tax liability being
only a tentative assessment, we are not as yet advised of the results
of the requested reinvestigation.

“In view thereof, we wish
to request, in fairness to the taxpayer concerned, that we be furnished
a copy of the detailed computation of the alleged tax liability as soon
as the reinvestigation is terminated to enable us to prove the veracity
of the taxpayer’s side of the case, and if it is found out that said
assessment is proper and in order, we assure you of our assistance in
the speedy disposition of this case.” (Exh. “P”)

On February 11, 1957, after the reinvestigation, the Collector of
Internal Revenue made a final assessment of the income taxes of Ablaza,
fixing said income taxes for the years already mentioned at P2,066.56
(Exh. “Q”). Notice of the said assessment was sent (Exhs. “V”, “W” and
“X”) and upon receipt thereof the accountants of Ablaza sent a letter
to the Collector of Internal Revenue, dated May 8, 1957, protesting the
assessments, on the ground that the income taxes are no longer
collectible for the reason that they have already prescribed. As the
Collector did not agree to the alleged claim of prescription, action
was instituted by him in the Court of First Instance to recover the
amount assessed. The Court of First Instance upheld the contention of
Ablaza that the action to collect the said income taxes had prescribed.
Against this decision the case was brought here on appeal, where it is
claimed by the Government that the prescriptive period has not fully
run at the time of the assessment, in view especially of the letter of
the accountants of Ablaza, dated March 10, 1954, pertinent provisions
of which are quoted above.

It is of course true that when on
October 14, 1951, Ablaza’s accountants requested a reinvestigation of
the assessment of the income taxes against him, the period of
prescription of action to collect the taxes was suspended. (Sec. 3S3,
C. A. No. 466.) The provision of law on prescription was adopted in our
statute books upon recommendation of the tax commissioner of the
Philippines which declares:

“Under the
former law, the right of the Government to collect the tax does not
prescribe. However, in fairness to the taxpayer, the Government should
be estopped from collecting the tax where it failed to make the
necessary investigation and assessment within 5 years after the filing
of the return and where it failed to collect the tax within 5 years
from the date of assessment thereof. Just as the government is
interested in the stability of its collections, so also are the
taxpayers entitled to an assurance that they will not be subjected to
further investigation for tax purposes after the expiration of a
reasonable period of time.” (Vol. II, Report of the Tax Commission of
the Philippines, pp. 321-522)

The law
prescribing a limitation of actions for the collection of the income
tax is beneficial both to the Government and to its citizens; to the
Government because tax officers would be obliged to act promptly in the
making of assessment, and to citizens because after the lapse of the
period of prescription citizens would have a feeling of security
against unscrupulous tax agents who will always find an excuse to
inspect the books of taxpayers, not to determine the latter’s real
liability, but to take advantage of every opportunity to molest
peaceful, law-abiding citizens. Without such a legal defense taxpayers
would furthermore be under obligation to always keep their books and
keep them open for inspection subject to harassment by unscrupulous tax
agents. The law on prescription being a remedial measure should be
interpreted in a way conducive to bringing about the beneficent purpose
of affording protection to the taxpayer within the contemplation of the
Commission which recommend the approval of the law.

The
question in the case at bar boils down to the interpretation of Exhibit
“P”, dated March 10, 1954, quoted above. If said letter be interpreted
as a request for further investigation or a new investigation,
different and distinct from the investigation demanded or prayed for in
Ablaza’s first letter, Exhibit “L”, then the period of prescription
would continue to be suspended thereby. But if the letter in question
does not ask for another investigation, the result would be just the
opposite. In our opinion the letter in question, Exhibit “P”, does not
ask for another investigation. Its first paragraph quoted above shows
that the reinvestigation then being conducted was by virtue of its
request of October 16, 1951. All that the letter asks is that the
taxpayer be furnished a copy of the computation. The request may be
explained in this manner: As the reinvestigation was allowed on October
1, 1951 and on October 16, 1951, the taxpayer supposed or expected that
at that time, March, 1954 the reinvestigation was about to be finished
and he wanted a copy of the reassessment in order to be prepared to
admit or contest it. Nowhere does the letter imply a demand or request
for a different or new and distinct reinvestigation from that already
requested and, therefore, the said letter may not be interpreted to
authorize or justify the continuance of the suspension of the period of
limitations.

We find the appeal without merit and we hereby affirm the judgment of the lower court dismissing the action. Without costs.

Paras C. J., Bengzon, Montemayor, Bautista Angelo, Concepcion, Reyes, J. B. L., Endencia, Barrera, and Gutierrez David, JJ., concur.