PHILIPPINE SUGAR ESTATE DEVELOPMENT CO., LTD., INC., PLAINTIFF AND APPELLEE, VS. JUAN POSADAS, JR., COLLECTOR OF INTERNAL REVENUE, DEFENDANT AND APPELLANT.

This is an appeal taken by the defendant, as
Collector of Internal Revenue of the Philippine Islands, from the
court’s judgment ordering him to pay to the plaintiff the sum of
P14,300.28.

The facts of the case have been stipulated as follows:

“The plaintiff and the defendant assisted by their respective counsel agree and stipulate the following facts:

“1. That the plaintiff is a corporation organized
and existing under the laws of the Philippine Islands, with offices at
No. 246 Anda Street, Walled City, Manila; the defendant is and during
the entire period mentioned in the complaint was the Collector of
Internal Revenue of the Government of the Philippine Islands.

“2. That during the years specified in paragraph 4 of this stipulation,
the plaintiff owned shares in the following corporations: Bank of the
Philippine Islands; San Miguel Brewery; Filipinas Compania de Seguros;
Philippine National Bank; Botica Boie; Brias Roxas; Benguet
Consolidated Mining Co.; Victorias Milling Co.; La Carlota; China
Banking Corporation; H. E. Heacock; Central Azucarera de Tarlac;
Central Azucarera de Bais.

“3. That the plaintiff likewise owned 154 liberty bonds at the par value of F100 each.

“4. That the plaintiff received from the above stated corporations, by
way of dividends on its said shares and interest on said liberty bonds,
the sums specified for the years mentioned in the statement, Annex A,
which is attached to and forms part of this stipulation.

“5. That the plaintiff, within the reglementary period, filed its
income tax returns for said years, which included the amount of the
dividends specified in said Annex A, as well as the interest on the
liberty bonds.

“6. That when the defendant computed the income tax to be paid by the
plaintiff for said years, the dividends and interest above stated were
included in the computation and the plaintiff, without protest, paid by
way of normal tax on said dividends and interest the sums specified in
the statement, Annex B, which is likewise attached to and forms part of
this stipulation. The respective dates on which said taxes were paid
also appear in said Annex B.

“7. That the income tax on
said dividends had already been paid at their source by the
corresponding corporations prior to the receipt thereof by the
plaintiff.

“8. That on March 30, 1933, the plaintiff, by
means of a letter which is attached to this stipulation as Annex C,
demanded of the defendant the refund of the taxes specified in the
sixth clause.

“9. That by means of a letter dated April
10,1933, which is attached to this stipulation as Annex D, the
defendant refused to refund said taxes to the plaintiff.

“10. That in its letter dated April 28, 1933, which is attached to this
stipulation as Annex E, the plaintiff excepted to said resolution of
the defendant refusing to refund the taxes in question.

“The parties, without prejudice to their presenting evidence relative
to matters not covered by this stipulation, respectfully submit the
same to this honorable court.”

The appellant assigns six (6) alleged errors as committed in the
decision, but this court believes that the case may be decided on its
merits merely by determining the principal question of whether or not
the action brought by the plaintiff-appellee lies, in spite of the fact
that it failed to pay under protest the income taxes corresponding to
the years from 1916 to 1931, inclusive.

The action brought by the appellee is based on the explanatory or
saving clause contained at the end of section 14 (a) of Act No. 2833,
which reads as follows:

“* * * provided, That upon the examination of any
return of income made pursuant to this Law, if it shall appear that
amounts of tax have been paid in excess of those properly due, the
taxpayers shall be permitted to present a claim for refund thereof.”

The appellant contends that the action does not lie on the ground
that the appellee failed to make its payments under protest, in open
violation of the provisions of section 1579 of the Revised
Administrative Code, as amended by Act No. 3685, which reads as follows:

“SEC. 1579. Recovery of tax paid under protest.—When
the validity of any tax is questioned, or its amount disputed, or other
question raised as to liability therefor, the person against whom or
against whose property the same is sought to be enforced shall pay the
tax under instant protest, or upon protest within thirty days, and
shall thereupon request the decision of the Collector of Internal
Revenue. If the decision of the Collector of Internal Revenue is
Adverse, or if no decision is made by him within six months from the
date when his decision was requested, the taxpayer may proceed, at any
time within two years after the payment of the tax to bring an action
against the Collector of Internal Revenue for the recovery without
interest of the sum alleged to have been illegally collected, the
process to be served upon him, upon the provincial treasurer, or upon
the officer collecting the tax.”

The appellee, in turn, contends that section 1579 of the Revised
Administrative Code is not applicable to income tax cases on the ground
that these should be governed exclusively by Act No. 2833, which is
special in character. Interpreting literally the saving clause above
stated, said appellee maintains that the protest was unnecessary in
view of the fact that the law does not require it. But in arguing thus,
the appellee ignores section 19 of said Act Nov. 2833, in accordance
with which all special and general provisions of law relative to the
collection and refund of taxes not inconsistent therewith, are extended
and made applicable to the provisions of said Act No. 2833. Said
section reads as follows:

“SEC. 19. All administrative, special, and general
provisions of law, including the laws in relation to the assessment,
remission, collection, and refund of internal-revenue taxes not
heretofore specifically repealed and not inconsistent with the
provisions of this Law are hereby extended and made applicable to all
of the provisions of this Law and to the tax herein imposed.”

By virtue of this latter section and in view of the fact that the
provisions of section 1579 of the Revised Administrative Code are not
in conflict with the saving clause of section 14 (a) of Act
No. 2833, it should be understood that said section 1579 is applicable
to Act No. 2833 relative to the refund of income taxes unduly paid.

The alleged distinction between a payment made by reason of an
error of fact and another due to an error of law, is unfounded. The law
neither establishes nor permits such distinction. In the former case,
it is true that the error is not immediately discovered but for that
reason the law prescribes a period of thirty (30) days within which to
file the protest. If the person who erroneously made payment fails to
file his protest within the reglementary period, he must suffer the
consequences of his carelessness and negligence. As to an error of
illegality which is apparent or manifest before payment is made, there
is no doubt but that the protest should be filed immediately upon
making such payment.

But the truth is that according to the evidence before us, the
alleged error could not be due to the appellee’s ignorance of the fact
that the dividends on which it had paid the tax, which it now seeks to
recover, had already been taxed at their source before the same were
paid to it. Our finding on this matter is based on the contents of the
appellee’s letter to the appellant (Exhibit C) wherein no reference is
made to the alleged discovery of such fact. According to said letter,
what was discovered was the illegality of the payment, because,
according to the law, said dividends and interest on the liberty bonds
were exempt from the payment of income tax.

The appellee invokes the ruling laid down in the case of Fox vs.
Edwards (287 Fed. Rep., 669), wherein it was established that pursuant
to section 252 of the Act of Congress of 1918, relative to income tax,
the refund of any unduly paid income tax may be obtained without the
necessity of a protest. However, by reading the decision rendered in
said case, it will be noted that the ruling therein laid down was based
on the provisions of the saving clause of section 252 of said Act of
Congress wherein no requisite is imposed notwithstanding the provisions
of section 3228 of the Revised Statutes. The terms of said saving
clause which was incorporated therein are practically the same as those
of section 14 (a) of the Act of Congress of 1916, which was made
applicable to the Philippine Islands, as follows:

“* * * . Provided, Thai upon the
examination of any return of income made pursuant to this title, the
Act of August fifth, nineteen hundred and nine, entitled, ‘An Act to
provide revenue, equalize duties and encourage the industries of the
United States, and for other purposes’, and the Act of October third,
nineteen hundred and thirteen, entitled ‘An Act to reduce tariff duties
and to provide revenue for the Government, and for other purposes’, if
it shall appear that amounts of tax have been paid in excess of those
properly due, the taxpayers shall be permitted to present a claim for
refund thereof notwithstanding the provisions of section thirty-two
hundred and twentyeight of the Revised Statutes.”

Section 3228 of the Revised Statutes (paragraph 5951, U. S.
Compiled Statutes [1916]) reads as follows: “All claims for the
refunding of any internal tax alleged to have been erroneously or
illegally assessed or collected, or of any penalty alleged to have been
collected Without authority, or of any sum alleged to have been
excessive or in any manner wrongfully collected, must be presented to
the Commissioner of Internal Revenue within two yean next after the
cause of action accrued: Provided, That claims which accrued prior to
June six, eighteen hundred and seventy-two, may be presented to the
Commissioner at any time within one year from said date. But nothing in
this section shall be construed to revive any right of action which was
already barred by any statute on that date.”

Comparing the above section with section 1579 of our Revised
Administrative Code, as amended by Act No. 3685, it will be noted that
although the latter is differently worded, its purpose is the same and
that the only substantial difference between the two consists in that
instead of the period prescribed by section 3228 for the filing of the
claim, section 1579 requires the filing of a protest. It is this
distinction that makes the ruling laid down in the case invoked by the
appellee inapplicable to the case under consideration. In the former
case, it was held that there was no necessity of a protest or any
requisite whatsoever for the recovery of a payment unduly made because
it is so implied from section 252 of the Act of Congress of 1918, which
expressly provides that the relief is granted notwithstanding the provisions of section thirty-two hundred and twenty-eight of the Revised Statutes; while
in the saving clause of section 14 (a) of Act No. 2833, on which the
appellee bases its claim, there is no provision which in any manner
repeals or makes the provisions of section 1579 of the Revised
Administrative Code inapplicable. On the contrary, section 19 of Act
No. 2833 extends it and makes it applicable to all the general
provisions of said Act.

This is not the first time that this court has so construed the saving clause contained in section 14 (a) of Act No. 2833. Resolving the same question in the case of Filipinas Compaiiia de Seguros vs. Posadas (59 Phil., 667), this court held:

“The trial court held that inasmuch as the refund
authorized in the last clause of the above quoted section is not made
to depend upon any condition precedent, & protest was not an
indispensable requisite and the absence thereof did not deprive the
plaintiff of its right to bring the action.

“This court is
of the opinion that the conclusion of law arrived at by the trial court
is erroneous. In interpreting section 14 (a), it did not take
into consideration the provisions of section 1579 of the Revised
Administrative Code, as amended by Act No. 3685, and those of section
19 of Act No. 2833, which read as follows:

* * * * * * *

“According to the said section 1579, when the
validity of any tax is questioned, or its amount disputed, or other
question raised as to the liability therefor, the taxpayer, if he
desires to preserve his right, should pay it under instant protest, or
upon protest within thirty (30) days from the date of such payment.
Section 19 extended such rule and made it applicable to all the
provisions contained in Act No. 2833, otherwise known as the Income Tax
Law. Applying the rules on interpretation of laws, it is evident that
the refund authorized under the last clause of section 14 (a)
should be understood as subject to the indispensable prerequisite or
condition precedent that the taxpayer should make the payment under
protest, to be filed immediately or within thirty (30) days after such
payment is made.

“It being admitted that the plaintiff did
not pay under protest the tax which it now seeks to recover, nor did it
file such protest within the period of thirty (30) days fixed by law,
it follows that it has entirely lost its right to recover the same.”

After what has been said in the foregoing paragraphs, this court is
of the opinion that it is unnecessary to pass upon the questions raised
in the appellant’s other assignments of error. It being held that the
action brought by the appellee does not lie in view of the omission of
the protest required by the law, the appeal is finally decided on its
merits.

Wherefore, the appealed judgment is reversed and let another
judgment be entered dismissing the complaint, with the costs of both
instances against the plaintiff-appellee. So ordered.

Malcolm, Villa-Real, Butte, and Goddard, JJ., concur.