IN THE MATTER OF THE TESTATE ESTATE OF PATRICK) PONFERRADA, DECEASED, JOAQUIN CORDERO, ADMINISTRATOR-APPELLEE, VS. JOSE CONDA, IN HIS CAPACITY AS REPRESENTATIVE OF THE COMMISSIO…

On September 18,
1953, a
demand by letter was made on Patricio Ponferrada by
the Bureau of Internal Revenue^[1]
for the payment of P3,805.88, covering forest charges for the period from
November 2,
1946 to
January 29, 1949.^[2] Ponferrada made a partial payment of P262. 37, ^[3] leaving a balance of P3,543.51.

Ponferrada died on November 25,
1957. In
the Testate Estate proceedings,^[4]
Joaquin Cordero was named Administrator.

On July
29, 1959,
the BIR, thru respondent Jose Conda, filed in the
proceedings just mentioned a claim for the said sum of P3,543.51. The (Administrator opposed. Ground:
Prescription.^[5
]

Upon a stipulation of facts, the
probate court, on August 28,
1963,
declared that said claim for P3,543.51 had
prescribed.^[6]

BIR now appeals direct to this
Court.^[7]

1. Our Tax Code^[8] provides for two main periods of
prescription. The first refers to assessment^[9]
the second to the remedies of collection.^[10] Not concerned with the first, we are with
the second.

That an assessment has here been
made, we do not doubt. By the very fact that, on September 18,
1953, a
formal demand was made by the government upon the deceased Patricio Ponferrada for the payment of forest charges in a definite amount – P3,805.88 – assessment is deemed to have been made.^[11]

September 18,
1953 then
is a safe starting point for the
statutory limitation to commence collection suit. Here, the court
claim was filed on July 29,
1959.
From September 18,
1953 to
July 29,
1959, a
period of 5 years, 10 months and 11 days has passed. The five-year prescriptive
period had thus elapsed. Section 332 (c) of the Tax Code reads:

“(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 distraint or
levy or by a proceeding in court,
but only if begun (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 Commissioner of
Internal Revenue and the taxpayer 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.^[12]

We note the narrowly-confined
restriction of time within which a proceeding in court may be brought: “but only if begun (1) within five
years after the assessment of the tax”. Implicit in the words but
only is that, unless otherwise authorized by statute, the 5-year period is
absolute.

The Code itself recognizes but
one exception: If suit is started “prior to the expiration of any period for
collection agreed upon in
writing by the Commissioner of Internal Revenue and the taxpayer
before the expiration of such five-year period” – which may be extended by
subsequent written agreements made “before the expiration of the period
previously agreed upon”. In Collector of Internal Revenue vs. Pineda, etc.,
L-14522, May 31, 1961, this Court ^[13]
said in terms equally pertinent here, that: “the only agreement that could have
suspended the running of the prescriptive period for the collection of the tax
in question is, x x x a
written agreement between Solano (the taxpayer) and the Collector, entered into
before the expiration of the five-year prescriptive period, extending the period
of limitation prescribed by law (Sec. 332 [c], N. I. R. C.).” No such written
agreement exists here. The original 5-year limit governs.

2. Appellant’s brief draws our
attention to jurisprudence where a taxpayer may not avail of the limitations
statute.^[14] These cases are inapposite. In Arcache, delay in tax collection was excused
because of “his [taxpayer’s] own repeated requests for re-investigation and
similarly repeated requests for extension of time to pay”. In Sison, “the taxpayer’s petition for reconsideration or
reinvestigation had stopped the running of the five-year limitation period”. In
Capitol Subdivision, the
pendency of a taxpayer’s petition for clarification
interrupted said period. None of these situations obtains
here.

The government also urges that
partial payment is “acknowledgment of the tax obligation”, hence, a “waiver of
the defense of prescription”. But partial payment would not prevent the
government from suing the taxpayer. Because, by such act of payment, the
government is not thereby “persuaded to postpone collection to make him feel
that the demand was not unreasonable or that no harassment or injustice is
meant”. Which, as stated in Collector vs. Suyoc
Consolidated Mining Co., et al., L-11527, November 25, 1958, is the underlying
reason behind the rule that prescriptive period is arrested by the taxpayer’s
request for re examination or reinvestigation – even if he “has not previously
waived it [prescription] in writing”. And, partial payment is no waiver “in
writing”. Particularly is this true here where, out of the claim of P3,805.88,
but P262.37 were paid; and in reference to the other claim of P6,220.65, ^[15] appellee made a
substantial payment of P6,000.00 and acknowledged liability for
P220.65.

3. The government leans heavily
upon the Barretto case^[16] to strengthen its claim that the action had
not yet prescribed. Because, this Court there said:

“x x
x Moreover, as already stated in the decision, forest
charges and surcharges are payments for
timber taken from public forests, and they are considered as
internal revenue taxes only in the sense that they are to be collected by the
Collector of Internal Revenue and the regulations for their collection are
contained in the National Internal Revenue Code. Forest products are obtained under
licenses issued by the Government and forest charges are in a sense contractual in origin. this No prescriptive
period having been prescribed by law for this case, Sec. 43 of the
Code of Civil Procedure should apply. x x x“^[17]

This opinion was planted on the
views of the Tax Commission (1939), as follows:

“Forest charges, which are not properly
taxes but rather the price paid for exploiting national resources, need to be
revised^[18] to make them more in harmony with
present-day conditions in the industry and with public policies.”

“Forest charges are to be distinguished
from taxes. They are, strictly speaking, the price which the Government charges
for the privilege granted to concessionaires to exploit the public domain,
rather than a tax imposed to support the general services of the government. x
x x“^[19]

Compelling reasons there are
which constrain us to revise the views expressed in the Barretto case.

By law, forest charges have
always been categorized as
internal revenue taxes – for all purposes. Our statute books say
so.

We start with the Tax Code.
Forest charges appear below the heading
“TITLE VIII – MISCELLANEOUS TAXES”, under Chapter V, along with such others as
tax on banks (Chapter I), taxes on receipts of insurance companies (Chapter II),
franchise tax (Chapter III), and amusement taxes (Chapter IV). And Section 18 of
the same Code, includes “charges on forest products” in
the list of those that “are deemed to be national internal revenue taxes”,
thus:

“SEC.
18. Sources of
revenue. – The following taxes, fees and charges are deemed to be national internal revenue
taxes:

(a) Income
tax;

(b) Estate, inheritance and gift
taxes;

(c) Specific taxes on certain
articles;

(d) Privilege taxes on business
or occupation;

(e) Documentary stamp
taxes;

(f) Mining
taxes;

(g) Miscellaneous taxes, fees and charges,
namely, taxes on banks and insurance companies, franchise taxes, taxes on
amusements, charges on forest
products, fees for sealing weights and measures, firearms license
fees, tobacco inspection fees, and water rentals. (As amended
by Rep. Act No. 1476, approved June 15, 1956.)”^[20]

With the exception of radio registration fees, which were
eliminated, the foregoing is a reproduction in toto of
the original Section 18 of the Tax Code approved on June
15, 1939.

Section 1438, Administrative Code
of 1917, the law which Section 18 of the Tax Code of 1939 replaced, states in
part:

“SEC.
1438. Sources of
taxes. – The following taxes fees, and charges in the nature
of tax are deemed to be internal-revenue taxes: x x
x

(f) Charges for forest products.
x x x“.

Section 1438 of the
Administrative Code, in turn, proceeded from Section 21, Act 2339 of the
Philippine Legislature known as the Internal Revenue Law of 1914, which
provides:

“ARTICLE I. – Sources of internal
revenue.

SEC.
21. Sources of
taxes. –
The following taxes, fees, and charges in the nature of tax are deemed to be
internal-revenue taxes: x x x

(f) Charges for forest products;
x x x

Predecessor of this provision is
Section 25 of Act 1189, known as the Internal Revenue Law of 1904, which
reads:

“SEC.
25. The
following sources of revenue shall be included in the internal revenue for the
Philippine Islands, and the taxes imposed shall be collected by the Collector of
Internal Revenue x x x and
the revenue obtained therefrom shall be devoted to the
support of the several provinces and of the Insular and municipal governments in
the manner in this Act provided: x x x

11. Tax on forestry products.
x x x.”

4. Now, the law on prescription
in the Tax Code does not make any distinction at all as to the source of taxes
to which it is made applicable. Its broad sweep is articulated in the terms
“internal-revenue taxes”^[21]and
“any internal-revenue tax”.,^[22] Since
“charges on forest products” are “internal-revenue taxes”, they are within the
coverage of the law on prescription of actions to collect “internal-revenue
taxes” or “any internal-revenue tax”. Had the Tax Code intended that forest
charges be outside the operational rule on prescription,
that statute should have so provided. We cannot insert therein any such
exception now. Clearly, that is intrusion into the legislative domain in
violation of a definite proscription in the Constitution.

5. Authorities are not wanting to bring home the point that forest charges
are in reality internal revenue taxes, as such subject to the other provisions
of internal revenue law. As early as 1918,^[23] this Court held that forest charges are in
the nature of an internal revenue tax on property [“forest products removed from
the public forest”] and a distress warrant may be issued
thereon.

One month before the Barretto decision came the Lacson case.^[24] There, this Court made mention of the
observations of the Tax Commission [heretofore textually copied], which
recommended the enactment of the 1939 Internal Revenue Code. However, this Court
sustained the views of the
dissenting judge of the Court of Tax Appeals, thus:

“x x
x There appears to be no legal basis for not
considering forest charges as taxes when respondent considers them as taxes
under Republic Act No. 304, as amended, thus enabling holders of backpay certificates to pay forest charges out of their
backpay (B.I.R. ruling, November 22, 1955, Exh. B), and as internal revenue taxes under Chapter II,
Title IX, of the Revenue Code, so as to authorize collection of said charges by
distraint and levy (Op. Atty. Gen., Oct. 27, 1922).
The argument that forest charges are not taxes because they are the price paid for the sale by the
Government of forest products overlooks
the fact that some forest charges are imposed on forest products cut
and removed from unregistered private lands. (See Sec. 266, Revenue Code.) The
Government cannot sell forest products which it does not own. From this it may
be inferred that forest charges are not in reality the price paid for the sale
by the Government of forest products; they are essentially taxes for the
privilege of cutting and removing forest products x x x. They stand on the same footing as the mining
taxes imposed under Title VII of the Revenue Code, x x x.”^[25]

Even the Chairman of the 1939 Tax
Commission later on (November 20, 1939), in a decision he rendered as Secretary
of Finance, in the case of the Dulañgan Mining
Interests Co., Inc., covering forest
charges, adverted to the ruling in the Hongkong and Shanghai Banking Corporation case, supra. He applied Section 1588 of the
Administrative Code and declared that every internal revenue tax – which
includes forest charges -is a
lien on the property for which that tax is imposed.^[26]

51 Am. Jur. p. 1072 is authority for the
statement that:

“Taxes which, although imposed
under statutes containing many variations as to their precise phraseology, are
directed generally against the production, or severance from the soil, of such
natural resources as timber, oil, natural gas, ores, or the like, and are
normally measured according to the quantity or value of the articles produced or
severed, are usually, although not invariably, regarded as excise rather than
property taxes.”^[27]

The view that forest charges are
much like ad valorem taxes in mining, finds
jurisprudential support. In Cebu Portland Cement
Company vs. Commissioner of Internal Revenue, L-18649, February 27, 1965, we
said that this ad valorem tax (on minerals used for
cement) “is a tax not on the minerals, but upon the privilege of severing or extracting
the same from the earth, the government’s right to exact the said
impost springing from the Regalian theory of State
ownership of its natural resources”^[28]So
saying, this Court there applied Section 306^[29] under the General Administrative Provisions
[of the Tax Code] which include prescription of actions for tax
collection.

In another case, ^[30] upon the premise that forest charges “are
in the coffers of the government as taxes collected”, the pronouncement was that
internal revenue taxes cannot be the subject of compensation. Reason: government
and taxpayer “are not mutually creditors and debtors of each other” under
Article 1278 of the Civil Code and a “claim for taxes is not such a debt, demand, contract or judgment as is allowed to
be set-off.” This decision inferentially takes forest charges out of the Barretto rule, because they are taxes – not “in a sense
contractual in origin.”

The thoughts expressed in the
authorities just cited funnel down to one idea: forest charges are internal
revenue taxes, whether one labels them taxes on property, or excise taxes, i. e., taxes upon the privilege of cutting and carting away
timber and forest products. And they fall under the philosophy of taxation – to
support the general services of government. They go into the general fund.^[31]

6. The provisions on prescription
fall under Title IX, entitled General Administrative Provisions. This title
applies to all taxes, fees, and charges collected under the Code. In
this title’s first provision (Section 305), injunction is unavailing to a forest
concessionaire “to restrain the collection of any national internal-revenue tax,
fee, or charge imposed by this Code”. By Section 306, the concessionaire may
only sue for tax refunds within two years from the date of payment.^[32] Section 316 defines the “civil remedies for
the collection of internal-revenue taxes, fees, or charges” to be distraint and levy, and judicial action.^[33]

In Section 337, the forest
concessionaire ^[34] – like all other
taxpayers -is obligated to preserve his books of account for a period of five
years from the date of the last entry in each book.” Why? Because the government is given a like period of five years within
which to make assessment. If forest charges were “in a sense contractual
in origin”, then the concessionaire should be required to keep his accounting
records not for five years only, but for ten years, to jibe with the 10-year
prescriptive period in the Civil Code.^[35]

In sum, here is the situation of
a man called upon to pay forest charges. Applicable to him are the Tax Code
provisions on distraint and levy; the two-year period
for refund; the prohibition against injunction; the duty to keep his books for
five years. But, if we were to adhere to the Barretto decision, then the law on prescription
in the Code of Civil Procedure [now Art. 1144, Civil Code]^[36] must have to be scissored and pasted over Sections 331 and 332 of the Tax
Code. Uniformity in the application of the Tax Code provisions would suggest
that we veer away from this view.

7. Our stand is even fortified by
the facts set forth in the Barretto case. Assessment was not there based on
a return. The judgment on prescription therein was grounded on fraud. Because,
from an examination of the books, it was found that “many purchases of logs were
without invoices and sales underdeclared“. The
“deficiencies amounting to fraud were discovered” in 1953. And applying the
provisions of the Code of Civil Procedure, it was there declared that the period
for prescription should “be reckoned” from 1953. But the situation presented in
said case is precisely covered by Section 332 (a) of the Tax Code, which
reads:

“(a) In the case of a false or
fraudulent^[37] 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. “^[38]

Our conclusion, therefore, is
that the overwhelming implication from the text of the Tax Code leaves no other
reasonable construction except that: Forest charges come within the compass
of the prescriptive periods set forth therein.

The net result still is: From
September 18,
1953
(when demand for payment was made) to July 29,
1953
(when court claim was filed), more than 5 years have elapsed. By the terms of Art. 332 (c) of the Tax
Code, supra, action to
collect has prescribed.

Upon the premises, the judgment
appealed from is affirmed. No costs.

SO
ORDERED.

Concepcion, C.J., Barrera, Dizon, Regala, Makalintal, Bengzon, J. P., Zaldivar and Ruiz Castro, JJ.,
concur.

 Reyes, J. B. L., J., no part.

^[1] Hereinafter referred to simply
as BIR.

^[2] R. A., p.
15.

^[3]The date when the partial payment
was made does not appear on record, altho appellee (brief, p. 1) states that such payment took place
also in September, 1953.

^[4]Special Proceedings No. 897,
Court of First Instance of Masbate, entitled “In the
matter of the Testate Estate of Patricio Ponferrada,
deceased.”

^[5] R. A., p. 13. The amended answer
setting up the defense of prescription of this claim was admitted by this Court,
as part of the Record on Appeal, by resolution of December 9,
1964.
Rollo,
64.

^[6] R; A., p.
20.

^[7] R. A., p.
20.

^[8]As used here, the Tax Code refers
to the present National Internal Revenue Code.

^[9]Section 331,
National Internal Revenue Code.

^[10] Sections 316 and 332,
id.

^[11] Collector of Internal Revenue
vs. Bautista, et al., G.R. Nos. L-12250 and L-12259, May
27, 1959.

^[12] Emphasis
supplied.

^[13] Quoting from Collector of
Internal Revenue vs. Solano, G.R. No. L-11475, July
31, 1958.
See also: Republic vs. Ret, G.R. No. L-13754, March
31, 1962.

^[14] Republic vs. Arcache, et al.,G.R. No. L-15547,
February 29,
1964; Commissioner of Internal
Revenue vs. Sison, et al., G.R. No. L-13739,
April 30,
1963; Commissioner of Internal
Revenue vs. Capitol Subdivision, Inc., G.R. No. L-18993, April 30,
1964.

^[15] Litigated below, but not on
appeal.

^[16] Collector of Internal Revenue
vs. Pio Barretto & Sons,
Inc., G.R. No. L-11805, Resolution of August 31,
1960, on the second motion for
reconsideration.

^[17]The original decision (May 31,
1960) in the Barretto case states that “As the court
below had admitted, the Tax Commission had expressly stated that forest charges
are not taxes but the price of forest products”. Emphasis supplied. In the sense
that forest charges are contractual in origin, the prescriptive period under
Sec. 43, Code of Civil Procedure, should be 10 years
from the time the right of action accrues.

^[18] No revision as to the concept of
forest charges was made in the 1939 Tax Code.

^[19] Report of the Tax Commission,
Vol. I, pp. 36, 90.

^[20]Emphasis
supplied.

^[21] Section 331, National Internal
revenue Code reads: “SEC. 331. Period of limitation upon
assessment and collection. -Except as provided in the succeeding section,
internal-revenue taxes shall be assessed within five years after the return was
filed, and no proceeding in court without assessment for the collection of such
taxes shall be begun after expiration of such period. x x x“

^[22] Section 332 (c). National
Internal Revenue Code, supra.

^[23]Hongkong & Shanghai
Banking Corporation vs. Rafferty, etc., 39 Phil. 145, 147-152, citing Sections
1438 (f) and 1588, of the Administrative Code. On Oct.
27, 1922,
the Attorney-General came out with the same opinion.

^[24]Collector of
Internal Revenue vs. Lacson, G.R.
No. L-12945,
April 29,
1960.

^[25] The Philippine Tax Journal, Vol.
VI, pp. 741-742; emphasis supplied.

^[26]
Id., pp.
743-744.

^[27] Emphasis supplied. An excise tax
may be “roughly defined as a tax upon the performance, carrying on, or exercise
of some right, privilege, activity, calling, or occupation”; and this, “although
various kinds of property may be in some way involved in the exercise of the
privilege or activity taxed”. 51 Am. Jur., pp.
1068-1069; emphasis supplied.

^[28] Emphasis
supplied.

^[29] By Section 306, taxpayer can
only ask for refund in two years after payment.

^[30] Republic vs. Mambulao Lumber Co., et al.,G.R. No. L-17725, February 28,
1962
(after the Barretto ruling); emphasis
supplied.

^[31] Section 362, Tax
Code.

^[32] In pari materia;
Cebu Portland Cement Company vs. Commissioner of Internal Revenue,
supra.

^[33] Hongkong & Shanghai Tanking Corporation vs. Rafferty,
supra. 34/ See Section 384, Tax Code, which provides that “All x x x persons required to pay
internal revenue taxes” are required to “keep a journal and a ledger, or their
equivalents.”

^[34]
See
Section 334, Tax Code, which provides that “All persons required to pay internal revenue taxes” are required to “keep a
journal and a ledger, or their equivalents.”Art. 1144 (1), Civil Code.

^[35] Art. 1144(1),
Civil Code.

^[36] Article 1116, Civil Code,
provides: “Prescription already running before the effectivity of this Code shall be governed by laws
previously in force; but if since the time this code took effect the entire
period herein required for prescription should elapse, the present Code shall be
applicable, even though by the former laws a longer period might be
required.”

^[37] In reference to forest charges,
the invoices are the equivalent of returns.

^[38]
Italics
supplied.