REPUBLIC OF THE PHILIPPINES, PLAINTIFF AND APPELLANT, VS. BENITO H. LOPEZ, DEFENDANT AND APPELLEE.

This is an appeal interposed by the government from the order of 2
November 1960 of the Court of First Instance of Baguio (Judge Jesus de
“Veyra, presiding) dismissing the complaint in a resolution, as follows:

“A motiqn to dismiss has been filed on the ground
that the action has already prescribed. Defendant has attached to his
motion a copy of his ‘Waiver of the Statute of Limitations (Annex ‘9 )
wherein he waives the, running of the statutory period for assess-.
ment and collection but not beyond December 31, 1957. It is admitted
that this case refers to an assessment made m 1950. Under Section 332
of the National Internal Revenue Code, the government had until
December 31, 1957, within which to make its assessment and collection.
It is admitted that this assessment was made only on March 23, 1960-too
late. The government assails this ‘Waiver on the ground that it is null
and void. The government is in estoppel to attack this ‘Waiver’, and as
this ‘Waiver’ was made on a form prepared by the Bureau of Internal
Revenue and filed on demand of this same bureau.

“That action having prescribed, this case is hereby dismissed without pronouncement as to” costs”.

No brief was filed for appellee.

The record reveals that on 6 December 1950 Benito , H. Lopez filed
his income tax returns for 1950, for which an assessment was issued by
the Bureau of/ Internal Revenue on 13 November 1952 demanding payment
of (“245,100,29 as deficiency income tax. Lopez, through counsel, in a
communication dated 30 November 1952, . requested for reconsideration.
This was denied in plaintiff’s letter of 14 July 1953-, Appellee
reiterated his peti- r tion through counsel’s letters of 14 November
and 11 December 1953. This was given due course, and resulted in the
reduction of the assessment to 120,346.14 on 29: May 1954. Apparently
satisfied, defendant.. manifested in . his letter of 1 July 1954 that
he will settle the obligation by the end of the month. Without
complying thereto, on 9 July 1955, Lopez pleaded for another
reinvestigation, which was granted by the BIR. ‘ As a result thereof,,
an . assessment was issued demanding payment of P6,019.00 as-additional
deficiency income tax for 1950, the total (P26,365,14) of which he did
not pay,, notwithstanding repeated demands. ¦’ . ¦ , .

On 16 January and 11 February 1956, appellee prayed for a third
reinvestigation, which, strangely enough, was -acceded to by the BIR
iii its letter of 25 February 1956, provided he waives the statute of
limitations. Ironically, however, instead of executing an unconditional
waiver, defendant imposed a deadline of 31 December 1957 within which
the government should finish the third reinvestigation. Ignoring the
same, on 23 March, 1960, the BIE issued an assessment demanding the
same amount of P26,365.14 as deficiency income tax for 1950. For
nonpayment, a collection suit was filed: with the court a quo on IS
August 1960. On 30 September 1960, defendant-appellee filed a motion
to. dismiss the complaint, which, as has already been stated, was
sustained. :

Obviously, the first issue is: Would the time limit of. 31 December
1967, enjoined by appellee in the contemplated “Waiver of the Statute
of Limitations”, be binding and operative? We believe, and hold, that
it is not, on several grounds.

It is now a settled rule in our jurisdiction that (1) the five-year
prescriptive period fixed by section 332 (e) of the Internal Revenue
Code within which the Government may sue to Collect an assessed tax is
to be counted from the last revised assessment resulting from a
re-investigation asked for by the taxpayer xxxxx and (2) that where a
taxpayer demands a reinvestigation, the time employed in
reinvestigating should be deducted from the total period of
limitation.xxxxx

An application of these rules will show that when action was brought
by the Republic, the prescriptive period of 5 years had not elapsed
from the revision of 1954. If from the period that intervened between
the first revised assessment (29) May 1954) and the filing of the
complaint (18 August 960) is deducted the time consumed in considering
and deciding the taxpayer’s subsequent petition for reconsideration and
reinvestigation (from 16 January 1956 to 22 April 1960), it will be
seen that less than 5 years can be counted against the Government.

The first reinvestigation was granted, and a reduced assessment
issued, on 29 May 1954, from which date-the Government had five years
for bringing- an action to collect.

The second reinvestigation was asked on 16 January 1956, and lasted
until it was decided on 22 April 1960, or a period of 4 years, 3
months, and 6 days, during which the limitation period was interrupted.

Deducting this interval from the period intervening between the
first revised (and executory) assessment to the filing of the complaint
(i.e., from 29 May, 1954 to 13 August 1960, which is a total of six (6)
years, two (2) months, and fifteen (15) days) leaves only one (1) year,
three (3) months, and six (6) days, counted against the government.

The fixing by the taxpayer of a prescriptive period “not beyond
December 31, 1957” operates to reduce the time available to the
government for the collection of the tax from 29 May 1954 to 31
December 1957 only, which is much less than the 5 years prescribed by
law [Revenue Code sec. 332 (c)]. Even though we disregard the lack of
written conformity thereto by the Collector of Internal Revenue,, it is
seriously to be doubted-that the said official eould validly agree to
reduce the prescriptive period to less than that granted by law to the
detriment of the state, since it diminishes the opportunities of
collecting taxes due to the Republic.

Even if we consider, that, because of the date fixed by the
taxpayer, the second reinvestigation asked on 16 January 1956 should
have been decided on 31 December 1957, and that the interruption due to
the second reinvestigation was, therefore, only one (1) year, eleven
(11) months, and sixteen (16) days, still it would appear that the
government brought suit after only four (4) years, nine (9) months, and
one il) day, -and, therefore, well within the prescriptive 5-year
period.

Another ground for reversing the dismissal of the complaint is that
the proper remedy of the taxpayer against the. assessment complained of
was to, appeal the ruling: of the Collector to the Court of Tax
Appeals. Section 1, paragraph 1, and section 11, first paragraph, of
Republic Act No. 1125 (effective since. 1954) expressly provide:

“Sec. 7. Jurisdiction.—The Court of Tax Appeals shall exercise: exclusive appellate jurisdiction to review by appeal, as herein provided—

(1)
Decisions of the Collector of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters’
arising under the National Internal Revenue Code or other law or part
of law administered by the Bureau of Internal Revenue.”

“Sec. 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.”

The failure to appeal the Collector’s ruling is a waiver of the
defenses against it, and estops the taxpayer from subsequently raising
those objections thereafter. Otherwise, the period of thirty days for
appeal to the Tax Court would make little sense. (Republic vs. del
Rosario, 105 Phil., 277; Uy Ham vs. Republic, L-13809, 20 Oct. 1959).

However, we feel it our duty to c”all attention to the extraordinary
reduction by the revenue authorities of the taxes due in this case from
the original P245.100.29 to less than one-tenth of it (P20,346.14) upon
reihvestiga-tion. Such a result is ample evidence that the first
assessment was carelessly made, without regard to the true facts, and
it strongly reflects upon the efficiency of the revenue examiner who
made the grossly excessive assessment. Equally anomalous is the fact
that after the taxpayer had promised to pay the computed tax, and after
he had failed to keep his promise, the tax authorities should still
agree to a further revision of the assessment. Irregularities of this.
kind inevitably provoke suspicion over the competency and honesty of.
the tax collecting operations, and. it is expected that the: competent
authorities will take immediate and drastic steps to stop such
deplorable practices.

Premises considered, the order of dismissal appealed from is revoked
and set aside, and the records are ordered remanded to the court of
origin for further proceedings conformable to this opinion.

Bengzon, C. J., Padilla, Bautista Angelo, Labrador, Canception, Barrera, Paredes, Dizon and Makalintal,. JJ., concur.

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^[a] Collector vs. Pineda, L-14522, 31 May 3,961; Querol vs. Collector, L-16705, SO October 1962.

^[b] Suyoc Cons. Mining Co. vs. Collector, 104 Phil., 819.