BARCELON, ROXAS SECURITIES, INC. (NOW KNOWN AS UBP SECURITIES, INC.) PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Barcelon, Roxas Securities versus Commissioner of Internal Revenue

The Case

This is a petition for review on certiorari brought by Barcelon, Roxas Securities, Incorporated, now known as UBP Securities, Incorporated, against the Commissioner of Internal Revenue. The petitioner is a corporation engaged in the trading of securities. The respondent assessed it for deficiency income tax for the taxable year 1987, and the petitioner insists that the assessment never reached it, so that the government's right to assess and collect has already prescribed. The case matters because it fixes the evidentiary standard for proving that an assessment notice was mailed within the three-year prescriptive period, and because it reminds the Bar candidate that the Court of Tax Appeals, being dedicated exclusively to tax problems, commands the highest respect for its findings of fact.

Procedural History

The Commissioner issued a formal assessment notice for deficiency income tax, which the petitioner denies receiving. A warrant of distraint and levy was later served on the petitioner, which protested. When the protest was denied with finality, the petitioner filed a petition for review with the Court of Tax Appeals. The Court of Tax Appeals ruled in favor of the petitioner, cancelling the deficiency assessment on the ground of prescription, and it found it unnecessary to pass upon the validity and propriety of the assessment. The Commissioner moved for reconsideration, which was denied, and then appealed to the Court of Appeals. The Court of Appeals reversed the Court of Tax Appeals, found the respondent's evidence sufficient to show that the notice was mailed, applied the presumption of receipt in the regular course of mail, and ordered the petitioner to pay the deficiency tax plus surcharge and interest. The petitioner's motion for reconsideration was denied. Hence, this petition for review on certiorari before the Supreme Court.

Facts

Barcelon, Roxas Securities, Incorporated filed its Annual Income Tax Return for taxable year 1987 on 14 April 1988. The last day prescribed by law for filing that return was 15 April 1988, so the Commissioner had until 15 April 1991 within which to send an assessment notice.

After an audit investigation, the Commissioner issued a formal assessment notice for deficiency income tax arising from the disallowance of salaries, bonuses and allowances as deductible business expense, because the petitioner had failed to subject those amounts to withholding taxes. The Commissioner claims the notice was sent by registered mail on 6 February 1991, within the three-year period. The petitioner denies ever receiving it.

On 17 March 1992, the petitioner was served with a warrant of distraint and levy to enforce collection. It filed a formal protest dated 25 March 1992, asking for cancellation of the warrant. On 3 July 1998, the petitioner received a letter denying the protest with finality. It then filed its petition for review with the Court of Tax Appeals on 31 July 1998.

Issues

• Whether or not the Court of Appeals erred in reversing the findings of fact of the Court of Tax Appeals.
• Whether or not the Commissioner's right to assess the petitioner for deficiency income tax for 1987 has prescribed.
• Whether or not the Commissioner's right to collect the alleged deficiency income tax for 1987 has prescribed.
• Whether or not the petitioner is liable for the deficiency income tax assessment for 1987.
• Whether or not the assessment violated the petitioner's right to due process.

Applicable Provisions

Section 203 of the National Internal Revenue Code provides:

Section 203. Period of Limitation Upon Assessment and Collection. Except as provided in the 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 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 is the provision that fixes the three-year window for assessment, and the whole case turns on whether the notice was sent within it.

Section 3, Rule 131 of the Rules of Court provides:

Section 3. Disputable presumptions. The following presumptions are satisfactory if uncontradicted, but may be contradicted and overcome by other evidence: (v) That a letter duly directed and mailed was received in the regular course of the mail.

This is the presumption of receipt in the regular course of mail that the Commissioner invokes, and which the Court holds to be merely disputable.

Section 44, Rule 130 of the Rules of Court provides:

Section 44. Entries in official records. Entries in official records made in the performance of his duty by a public officer of the Philippines, or by a person in the performance of a duty specially enjoined by law, are prima facie evidence of the facts therein stated.

This is the exception to the hearsay rule on which the Commissioner relied in offering the Bureau of Internal Revenue record book, and which the Court finds inapplicable.

Ruling

The Supreme Court granted the petition. On the first issue, it acknowledged the general rule that the factual findings of the Court of Appeals bind the Court, but noted the recognized exception where those findings are contrary to those of the trial court, here the Court of Tax Appeals. It stressed that the findings of fact of the Court of Tax Appeals are accorded the highest respect, because that court is dedicated exclusively to the consideration of tax problems and has developed an expertise on the subject, and its conclusions will not be overturned unless there has been an abuse or improvident exercise of authority.

On prescription, the Court held that an assessment is made within the prescriptive period if the notice is released, mailed or sent by the Commissioner to the taxpayer within that period, and receipt by the taxpayer within the period is not necessary. But the rule does not dispense with the requirement that the taxpayer should actually receive the notice, even beyond the prescriptive period. The Court then examined whether the presumption of receipt in the regular course of mail arose. It held that the facts to be proved to raise the presumption are that the letter was properly addressed with postage prepaid, and that it was mailed. Once proved, the presumption arises, but it is merely disputable and a direct denial of receipt shifts the burden to the party favored by the presumption to prove that the mailed letter was indeed received.

The Court found that the Commissioner failed to discharge that burden. The Bureau of Internal Revenue record book, offered as an entry in official records, did not qualify, because the records custodian did not have personal knowledge of the facts stated, did not attest that she personally prepared and mailed the notice, and did not show that she acquired the information from persons under a legal duty to submit the same. The Court quoted its earlier ruling:

While we have held that an assessment is made when sent within the prescribed period, even if received by the taxpayer after its expiration, this ruling makes it the more imperative that the release, mailing, or sending of the notice be clearly and satisfactorily proved. Mere notations made without the taxpayer's intervention, notice, or control, without adequate supporting evidence, cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense.

The Court added that independent evidence, such as the registry receipt of the assessment notice or a certification from the Bureau of Posts, could easily have been obtained, yet the respondent presented none. Consequently, the evidence was insufficient to give rise to the presumption of receipt, and the government's right to assess and collect the deficiency tax was barred by prescription. The remaining issues on liability and due process were resolved by that conclusion.

Doctrine

Under Section 203 of the National Internal Revenue Code, the Commissioner has three years from the last day prescribed by law for the filing of the return to assess internal revenue taxes. An assessment is deemed made within the prescriptive period if the notice is released, mailed or sent within that period, even if the taxpayer receives it after the period has lapsed. But the taxpayer must still actually receive the notice, and the fact of mailing must be clearly and satisfactorily proved.

The presumption under Section 3, Rule 131 of the Rules of Court that a letter duly directed and mailed was received in the regular course of the mail is disputable. It arises only upon proof that the letter was properly addressed with postage prepaid and that it was mailed. A direct denial of receipt by the taxpayer shifts the burden to the Commissioner to prove that the notice was indeed mailed and received.

Entries in official records under Section 44, Rule 130 of the Rules of Court are prima facie evidence of the facts stated only if the entrant had sufficient knowledge of those facts, acquired personally or through official information from persons under a legal duty to submit the same. A record book entry made without such knowledge is hearsay and cannot establish the fact of mailing.

Disposition

The petition was granted; the decision of the Court of Appeals was reversed and set aside, and the decision of the Court of Tax Appeals cancelling the deficiency tax assessment as barred by prescription was reinstated, with no pronouncement as to costs.

Remember This

Memorize this line: an assessment is made when the notice is mailed within the three-year period, but the mailing must be clearly and satisfactorily proved, and a bare record book entry will not do. Examiners use this case to test the disputable presumption of receipt in the regular course of mail, the shifting of the burden of proof upon a taxpayer's denial, and the respect accorded to the factual findings of the Court of Tax Appeals.