IN RE ESTATE OF THE DECEASED DIEGO DE LA VINA. THE COLLECTOR OF INTERNAL REVENUE, PETITIONER AND APPELLANT, VS. ESPIRIDION VILLEGAS, ADMINISTRATOR AND APPELLEE.

The Collector of Internal Revenue appealed to this court from the order of
the Court of First Instance of Oriental Negros dated April 29, 1930, denying the
motion filed by him in the proceedings In re testamentary estate of
Diego de la Viña, praying that the administrator of said estate be ordered to
pay to the Government the amount of P18,420.93 as income tax, and that should
there be no funds available for this purpose, a sufficient portion of the estate
be ordered sold, to satisfy said tax.

In support of the appeal, the appellant assigns the following alleged errors
as committed by the trial court in said order, to wit:

“1. The lower court erred in finding that the right to collect the tax in
question has prescribed.

“2. The lower court erred in denying the motion of the Collector of Internal
Revenue, dated November 21, 1929.”

The relevant facts necessary to reach a decision on the points raised in this
appeal, which are summed up in. the order appealed from, and as to which neither
party-has raised any question, are the following:

“On the 13th of March, 1926, the administrator in these proceedings filed an
income tax return for the year 1925 (Exhibit B) of the estate of the late Diego
de la Vina; this income tax return was received and kept by the representatives
of the Collector of Internal Revenue, from the time it was submitted to the year
1929; on August 7, 1929, Narciso Rosales and Pedro R. Dayao, auditors of the
Bureau of Internal Revenue, while going over the income tax return filed by the
administrator for the year 1925 (Exhibit B) discovered that it was erroneous and
false, in that the space reserved for recording the sale of realty was not
filled out, whereas the records of the Court of First Instance show that realty
was sold during that year, 1925, and that the profit of P234,340 is not
recorded. Through this examination the Collector of Internal Revenue discovered
that the administrator, as such, owes the Government the sum of P18,420.93
(Exhibit D) ; that he was duly informed of such indebtedness and required to pay
it before October 81, 1929, but he refused to do so.”

The first question to decide in this appeal, in view of the facts set forth
above, is that raised in the first assignment of error, to wit, whether the
right of the Collector of Internal Revenue to collect the income tax in question
has prescribed.

Section 9 of. Act No. 2833, which took effect on January 1, 1920, contains
the following pertinent provision:

“Sec. 9 (a). All assessments shall be made by the Collector of Internal
Revenue and all persons shall be notified of the amount for which they are
respectively liable on or before the first day of June of each successive year,
and said amounts shall be paid on or before the fifteenth day of June, except in
cases of refusal or neglect to make such return and in cases of erroneous,
false, or fraudulent returns, in which cases the Collector of Internal Revenue
shall, upon the discovery thereof, at any time within three years after said
return is due, or has been made, make a return upon information obtained as
provided for in this law or by existing law, or require the necessary
corrections, to be made, * * *”

The appellant contends that the phrase “at any time within three years after
said return is due, or has” been made, make a return upon information obtained”
refers to the discovery of “erroneous, false, or fraudulent returns” and not to
the return, assessment or collection that the Collector of Internal Revenue must
make with reference to the taxes according to information obtained, as the trial
court and the appellee maintain.

The provision in question is similar to that contained in section 9,
subdivision (a), of the United States Revenue Act of 1916, the pertinent part of
which reads:

“In cases of refusal or neglect to make a return and in cases of erroneous,
false, or fraudulent returns, the Commissioner shall, upon the discovery
thereof, at any time within three years after the return is due, or has been
made, make a return upon information obtained as provided for in the law, or
require the necessary corrections to be made, and in such cases the assessment
made by the Commissioner thereon shall be paid by the taxpayer immediately upon
notification of the amount of such assessment.”

In his treatise on taxes, entitled Federal Income Tax, 2d edition, page 581,
Holmes says the following:

“The 1916 Law authorized the Commissioner to make a summary assessment of the
tax on undisclosed income, if the discovery was made within three,’ years after
the return in which such income should have been reported was due. The
assessment was not required to be made within three years, so long as the
discovery was made within that time. Three years’ limitation in this provision
was not a limitation upon the right of the government to sue for unpaid taxes,
but was at most a limitation upon the right of the collecting officers to make
assessment and enforce the payment by the summary statutory proceedings. * * *
“

It is also similar to the provision contained in the fifth subdivision of
section 38, chapter VI, of the United States Corporation Tax Law; of August 5,
1909, the relevant portion of which is as follows:

“* * * All assessments shall be made and the several corporations,
joint-stock companies or associations or insurance companies, shall be notified
of the amount for which they are respectively liable on or before the first day
of June of each successive year, and said assessments shall be paid on or before
the thirtieth day of June, except in cases of refusal or neglect to make such
return, and in cases of false or fraudulent returns, in which cases the
Commissioner of Internal Revenue shall, upon the discovery thereof, at any time
within three years after said return is due, make a return upon information
obtained as above provided for, and the assessment made by the Commissioner of
Internal Revenue thereon shall be paid by such corporation, joint-stock company
or association, or insurance company immediately upon notification of the amount
of such assessment; * * *:”

The District Court of W. D. Michigan, S. D., in the case entitled United
States vs. Grand Rapids and I. Ry. Co. (289 Fed., 153, 154), interpreting the
legal provision we have just quoted, said:

“1. The three-year clause of the fifth subdivision of section 38 of the 1909
Excise Law is not a limitation upon the right of the government to sue for
unpaid taxes, but, at most, is a limitation upon the right of the collecting
officers to make assessment and to enforce payment by the summary statutory
proceedings.

“2. In the collection of the taxes imposed by the statute, the government is
not confined to the summary proceedings therein provided, but may resort to a
plenary suit.

“3. Where a tax of a fixed percentage (like the one here sought to be
recovered) is imposed by the statute on a subject or object which is so
definitely described in the statute that its amount or value, on which the fixed
per centum is to be calculated, can be ascertained and determined, on evidence,
by a court, a suit for the tax will lie, without an assessment. (United States
vs. Tilden, 28 Fed. Cas., 161, No. 16,519; United States vs.
Hazard, 26 Fed., Cas., 251, No. 15,337; Dollar Savings Bank vs. United
States, 19 Wall., 227; 22 L. ed., 80; United States vs. Chamberlain, 219 U. S.,
250-264; 31 Sup. Ct, 155; 55 L. ed., 204; King vs. United States, 99 U. S., 229;
25 L. ed., 373; United States vs. Reading R. R., 123 U. S., 113; 8 Sup. Ct., 77;
31 L. ed., 138; United States vs. Cobb [C. C], 11 Fed., 76; United
States vs. M. H. & 0. R. Co. [C. C], 17 Fed., 719; 22 Cyc, 1670,
and cases there cited; Eliot Nat. Bank vs. Gill [D. C], 210 Fed., 933,
affirmed by Circuit Court of Appeals of First Circuit [December 21, 1914], 218
Fed., 600; 134 C. C. A., 358.)”

It is therefore a matter established by the American jurisprudence that the
three-year prescription refers to the discovery of erroneous, false, or
fraudulent returns, and to tax assessments and their summary collection, but not
to their collection through judicial channels. The motion filed by the Collector
of Internal Revenue in this case, is equivalent to a judicial action for the
collection of the accrued income tax. Therefore, the fact that the omission of
the net income from the administrator’s return was discovered after the period
of three years from the filing of such return, on March 13, 1926, does not
prevent the collection of the proper tax assessed after such discovery.

It has been suggested that the Congress of the United States having, through
section 250, subdivision (d), of the Act of 1918, amended section 9,
subdivision (a), of the United States Revenue Act of 1916, by extending the
period of prescription to five years, and making it applicable not only to the
discovery of erroneous, false, or fraudulent returns, but also to the assessment
the commissioner must make of the amount to be paid in accordance with that
discovery, and to the action that may be brought to collect that amount—which
points out the interpretation to be placed upon the amended provision—the
provision with which we are now concerned should be interpreted to mean that
both the discovery and the assessment of the amount that must be paid, as well
as the action to enforce such payment, prescribe three years after the taxpayer
has filed his income tax return or after such return has become due. We do not
think this inference can be logically sustained, because, in providing that both
the discovery and the assessment of the tax that must be paid as well as the
action to enforce such payment, prescribe in five years, the Congress of the
United States extended the time within which the officials charged with the
collection of taxes are to detect erroneous, false, or fraudulent returns. As
the amendment differs in its terms from the amended law, it cannot be looked
upon as a legislative interpretation of the latter. Furthermore, Act No. 2833
with which we are now dealing, took effect on January 1, 1920, and is therefore
subsequent to the Revenue Act of the Congress of the United States passed in
1918, amending the United States Revenue Act of 1916, from section 9,
subdivision (a), of which section 9, subdivision (a), of the
aforementioned Act No. 2833 is taken. Even admitting that an act amending
another may be considered as interpreting the act so amended, this cannot be
applied to said section 9, subdivision (a), of Act No. 2833, for the
reason that this Act is posterior to the Act of Congress of 1918.

Then again, even in section 250, subdivision (d), of the Act of
Congress of 1918, false or fraudulent returns made for the purpose of evading
the payment of the tax are excepted from the five-year prescription.

In view of the foregoing considerations, we are of opinion and so hold that
the three-year prescription established in section 9, subdivision (a),
of Act No. 2833, refers to the discovery of erroneous, false, or fraudulent
returns made by a taxpayer, and to the summary assessment and collection of said
tax, but not to its collection by an action in court.

Wherefore, the order appealed from is reversed, and it is ordered that the
administrator of the testamentary estate of Diego de la Vina pay the Government
of the Philippine Islands the amount of P18,420.93, with interest from August
20, 1929 until it is fully paid, and the costs. So ordered.

Avanceña, C. J., Johnson, Malcolm, Ostrand, Romualdez, and
Imperial, JJ., concur.

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STREET, J.

I reluctantly yield my adherence to the conclusion reached in this case upon
the ground that the rule here adopted has the support of decisions from the
federal courts of the United States dealing with the law, or laws, from which
our own has been adopted; and although, if the point were one of first
impression, I would not hesitate to adopt a different, view, yet, in dealing
with revenue statutes of settled interpretation in the courts of the United
States, it must be supposed that our Legislature intended to adopt the
interpretation impressed upon such laws in America as well as their literal
words. The conclusion to which we are thus driven is the more unfortunate for
the reason that Congress has amended the statute from which our own has been
copied so as to fix a definite period of prescription in favor of the taxpayer.
But the amendatory provision has not yet been incorporated in our law.

VILLAMOR, J.:

I join in the concurring opinion of Justice Street.