CENTRAL AZUCARERA DON PEDRO, PETITIONER, VS. COURT OF TAX APPEALS, AND COMMISSIONER OF INTERNAL REVENUE, RESPONDENTS.

Separate appeals, by the same petitioner, Central Azucarera Don Pedro, from two (2) decisions of the Court of
Tax Appeals, the first (CTA Case No. 1273) holding it liable for the payment of
the sum of P1,507.30, as 1/2% monthly (6% per annum) interest on the deficiency
income tax assessed against it for the fiscal year ending August 31, 1954; and,
the other (CTA Case No. 1278) denying its claim for refund in the total amount
of P2,307.10, already paid and collected, as 1/2% monthly (6% per annum)
interest on the de­ficiency income taxes assessed against it for the fiscal
years ending August 31 -1955, 1956, 1957, and 1958.

Inasmuch as these two (2) appeals involved the same parties and
identical issues; and the Solicitor General, upon motion, was allowed by this
Court to file a consolidated brief in these two cases, we will consider them
jointly.

In G. R. No. L-23236 (CTA Case No.
1273), the undisputed facts are:

Petitioner Central Azucarera Don Pedro,
a domestic
corporation with office at Nasugbu, Batangas, had been filing its income tax re­turns on the
“fiscal year” basis ending August 31 of every year.  Within the period allowed it under Section 46
of the National Internal Revenue Code, petitioner filed, on October 24, 1954, with the Bureau of
Internal Revenue, its income tax return for the fiscal year ending August 31, 1954, for which it paid
the total sum of P491,038.00, as income tax, computed
on the basis of said return.

On October 15, 1959,
respondent Commissioner of Internal Revenue assessed against petitioner the
amount of P167,935.00, as deficiency income tax for the
abovementioned fiscal year, but he did not assess and impose any interest
thereon.

Petitioner protested, in a letter dated October 26, 1959, said deficiency income tax
assessment and requested that the same be cancelled.

Acting on this letter-protest, respondent finally ascertained and
assessed, in a letter dated December 20, 1961, against petitioner the amount of
P10,062.00, as deficiency income tax, to which was added the sum of P1,509.30,
as 1/2% monthly interest thereon, which interest was imposed pursuant to
Section 51(d) of the National Internal Revenue Code, as amended by Republic Act
No. 2343 (ef­fective June 20, 1959), and computed from June 20, 1959 to
December 20, 1961 which was the date of the revised assessment.  In the same letter, respondent required
petitioner to pay said revised assessment and interest thereon on or before January 16, 1962.

Petitioner was satisfied with the revised assessment of said deficiency
income tax proper; and, accordingly, it paid, on January 16, 1962, the said
amount of P10,062.00 to respondent; however, it
objected, in
a letter protest dated January 18, 1962 , to the demand and imposition
of interest which was assessed and included for the first time in respondent’s
letter of December 20, 1961.

Respondent decided said protest in a letter dated September 22, 1962, maintaining the correctness
and validity of the imposition of the interest.

In due time, petitioner went to the Tax Court in a petition for
review, claiming that the imposition of 1/2 % monthly interest on its
deficiency income tax for the fiscal year 1954, pursuant to Section 51(d) of
the Revenue Code, as amended by Republic Act No. 2343, is illegal, because the
imposition of interest on deficiency income tax earned prior to the effectivity of the amendatory law (Rep. Act 2343) will be
tantamount to giving it (Rep. Act No. 2343) retroactive application.

Respondent filed his answer to the petition, and there being no
genuine issue raised therein as to any material fact, petitioner presented a
motion for summary judgment.  Respondent
did not oppose the mo­tion.

The Tax Court found that the only issue involved in the case is
purely legal.  It ordered the parties to
submit their respective memo­randa and, upon so doing, the case was deemed
submitted for decision.

On June 15, 1964,
the Tax Court rendered its decision, upholding the ruling of respondent
Commissioner.

In G. R. No. L-23254 (CTA Case No. 1278), the undisputed
facts are as follows:

The same petitioner (Central Azucarera
Don Pedro) filed its income tax returns within the prescribed period for the
succeeding fiscal years ending August 31 – 1955, 1956, 1957, and 1958, for
which it paid the corresponding income taxes, based on said returns.

After verification and examination of petitioner’s income tax re­turns
for the abovestated fiscal years, respondent
Commissioner ascertained and assessed, for each of said fiscal years, against
peti­tioner, deficiency income taxes in the total amount of P21,330.00, and interests thereon in the total sum of
P2,307.10, which interests were likewise imposed pursuant to Section 51(d) of
the Internal Revenue Code, as
amended by Republic Act No. 2343.

Petitioner paid said deficiency income taxes and interests with­in
the period prescribed by respondent to pay the same; however, on January 19,
1962, it filed with the latter a claim for refund or tax credit of the
aforesaid sum of P2,307.00, which was paid as
interests, claiming that said payment was erroneous and the collection thereof
by respondent was illegal, which contention is similar to that all alleged in its previous protest (now CTA Case
r o. 1273).

Respondent
Commissioner was unable to decide immediately this claim for refund, and
in view of the fact that the two-year prescriptive period provided for in
Section 306 of the Revenue Code was about
to expire, petitioner filed, on October 23, 1962, its petition for re­view in
the Court of Tax Appeals, disputing the legality and validity of the imposition
of interests on taxable incomes earned prior to, although assessed after, the effectivity of Republic Act No. 2343, and praying that the
said sum of P2,307.10, which it paid as in­terests, be ordered refunded.

Respondent answered the
petition, maintaining, among other things, that the imposition of said
interests is in accordance with law.

The issues having
been joined, the case was set for hearing wherein the parties presented their
respective evidences which were entirely documentary.  Thereafter, the case was submitted for
decision.

On June 29, 1964,
the Court of Tax Appeals rendered its deci­sion, sustaining the ruling of
respondent Commissioner.

In both cases, the Court of Tax Appeals ruled that Congress had
power to impose interest on deficiency income tax due on income earned prior to
the amendatory law, but assessed after its enactment; that the deficiency
income tax in the case at bar was assessed after the effectivity
of the new law (Rep. Act No.
2343), and inasmuch as the interest imposed thereon has been computed only from
June 20, 1959 (which was the date of effectivity of
said new law), Republic Act No. 2343 is not being applied retroactively.  It also ruled that the provision of
Section 13 of Republic Act No.
2343 providing that its new tax rates
should apply to income earned in 1959, did not in­dicate that Congress intended to limit the
applicability of the interest prescribed in Section 51(d) of the Revenue Code,
as amended by Rep­ublic Act No. 2343, to the deficiency income tax on income
earned after, the effectivity of
the new law, since said Section 51(d) does not distinguish between taxable
income earned prior to, or after, the effectivity of
said Republic Act No. 2343.

The petitioner appealed in both cases to this Court, insisting on
its original stand previously
outlined.

The common issue posed
in both cases is:  whether or not the
interest of six per centum (6%) per annum (or 1/2% monthly
interest), provided for in Section 51(d) of the National Internal Revenue Code, as amended by
Republic Act No. 2343 (effective June 20, 1959) is imposable on deficiency
income tax due on income earned prior to the effectivity
of said Republic Act No. 2343, but assessed after it.

It is not disputed that petitioner is a domestic corporation
which filed its income tax returns on a fiscal year basis;
that it filed its income tax
returns and paid the corresponding income taxes, based on said returns, within the period prescribed therefore; that
the taxable incomes, in these two
cases, were earned before, but were as­sessed
after, the effectivity on June 20, 1959 of Republic
Act No. 2343; that the deficiency income tax assessments proper, including the
interests in the later case (CTA Case No. 1278) were paid by petitioner within the period prescribed by respondent
Commissioner to pay the same; and that these deficiency income tax
assessments were made on account of petitioner’s erroneous (but not fraudulent
or false) returns.

When petitioner filed its income tax returns and paid the corres­ponding
income taxes, based on said returns, the pertinent provisions of the Tax Code
then in force (before the effectivity of Rep. Act
2343) read –

“SEC. 51.  Assessment and
payment of income tax. – (a)
Assessment of Tax – All assessments shall be made by
the Collector of Internal Revenue and all persons and corporations subject to
tax shall be notified of the amount for which they are respectively liable on
or before the first day of May of each successive year.

“(b) Time of payment.
– The total amount of tax imposed by this Title shall be paid on or before the
fifteenth day of May following the close of the calendar year, by the person
subject to tax, and, in case of a corporation, by the president, vice
president, or other responsible officer thereof.  If the return is made on the basis of a
fiscal year, the total amount of the tax shall be paid on or before the
fifteenth day of the fifth month following the close of the fiscal year.

x                    x                      x                      x.

“(d) Refusal or neglect to make
returns; fraudulent returns, etc. – In case(s) of x x x erroneous x x x returns, the Collector
of Internal Revalue shall, upon discovery thereof, x x x make a return upon information obtained as
provided for in this code or by existing law, or require the necessary
corrections to be made, and the assessment made by the Collector of Internal
Revenue thereon shall be paid by such person or corporation immediately upon
notification of the amount of such assessment.

“(e) Surcharge and interest
in case of delinquency. – To any sum or sums
due and unpaid after the dates pre­scribed in subsections (b), (c) and (d) for
the payment of the same, there shall be added the sum of five per centum
on the amount of tax unpaid and interest at the rate of one per centum
a month upon said tax from the time the same became due, except from the
estates of insane, deceased, or insolvent persons.”

“SEC. 46.  Corporation returns. – x x x

“(b) When to file.- The return shall be
rendered on or before the first day of March of each year for the preced­ing
calendar year, or if the corporation has designated a fiscal year, then within
sixty days after the close of such fiscal year.”

while the
pertinent provisions of the same Sections 51 and 46, after their amendment by
Republic Act No. 2343, read as follows:

“SEC. 51.  Payment and Assessment
of income tax. – (a) Payment of tax.-
(1) In general. – The total amount of tax imposed by this Title
shall be paid at the time the return is filed but not later than the fifteenth day
of April fol­lowing the close of the calendar year, or, if the return is made
on the basis of a fiscal year, then not later than the fifteenth day of the
fourth month following the close of the fiscal year.  Such tax shall be paid by the person subject
thereto, and in the case of a corporation by the President, Vice-President, or
other responsible officer thereof:  Prov­ided,
That if in any preceding year, the payer was entitled to a refund of any amount
thereof, if not yet refunded, it may be deducted from the amount of tax to be paid.

x                                x                                  x.

“(b) Assessment and payment
of deficiency tax. – After the return is filed, the
Commissioner of Internal Revenue shall examine it and assess the correct amount
of the tax.  The tax or deficiency in tax
so discovered shall be paid upon notice and demand from the Commissioner of
Internal Revenue.

x                                x                                  x.

“(d)
Interest on deficiency.- Interest upon the amount
determined as a deficiency shall be assessed at the same time as the deficiency
and shall be paid upon notice and demand from the Commissioner of Internal
Revenue; and shall be collected as a part of the tax, at the rate of six per
centum per annum from the date prescribed for the payment of the tax
(or, if the tax is paid in installments, from the date prescribed for the
payment of the first installment) to the date the deficiency is assessed:  Provided, That the maximum amount that
may be collected as interest on de­ficiency shall in no case exceed the amount
corresponding to a period of three years, the present provisions regard­ing prescription to
the contrary notwithstanding.”

“SEC. 46.  Corporation returns. – x x
x.

“(b) When
to file. – The return shall be filed on or before the
fifteenth day of April of each year for the pre­ceding calendar year, or if the
corporation has designated a fiscal year, on or before the fifteenth day of the
fourth month following the close of such fiscal year.”

and insofar as
the effectivity of said Republic Act No. 2343 is con­cerned,
Section 13 thereof provides –

“SEC. 13.  This Act shall take effect upon its
approval:  Provided, That the rate hereinabove stipulated shall apply to income
received from January first, nineteen hundred and fifty-nine, and for the
fiscal periods ending after June thirty, nineteen hundred and fifty-nine.”

From a perusal and comparison of the abovequoted
sections of the Tax Code, before and after its amendment, it will be observed
that, although the Commissioner (formerly Collector) of Internal Revenue, under
the old, Section 51(a) was required to assess the tax due, based on the
taxpayer’s return, and notify the taxpayer of said assess­ment, still, under
subsection (b) of the same old Section 51, the time prescribed for the payment
of tax was fixed, whether or not a notice of the assessment was given to the
taxpayer.  Under the new provision, the
time of payment is also fixed and pre-determined (usually coinciding with the filing of the return) without the
necessity of giving notification
of the assessment to the taxpayer by the Commissioner.

It should further be observed that, under the old Section 51(e),
the interest on deficiency was imposed from the time the tax became due; while
under the new Section 51 (d), said interest is imposed on the deficiency from
the date prescribed for the payment of the tax.

It is thus evident that petitioner’s contention that
“interest on such deficiency accrued only when the taxpayer failed to pay
the tax within the period prescribed therefor by
respondent (Commissioner of Internal Revenue)” is not correct; said interest
was imposable in case of non-payment on time, not only on the basic income tax,
but also on the deficiency tax, since
the deficiency was part and parcel of petitioner’s income tax liability.

It appearing that the new Section 51(d) under Republic Act 2343
expressly provides that the interest on deficiency shall be assessed at the
same time as the deficiency income tax; and that respondent Commissioner of
Internal Revenue imposed and sought to collect the interest only from June 20,
1959, which was the date of effectivity of said
Republic Act No. 2343; that the deficiency income taxes in question were
assessed and unpaid when said Act was already in force; the Tax Court correctly
held that said Section 51(d), as amend­ed, is not being applied retroactively
as contended by petitioner herein.

Moreover, the application of said Section 51(d), as amended, in
the cases at bar, operated and worked in favor of petitioner-appellant, since
instead of imposing the rate of one per centum (1%) monthly interest
prescribed in the old Section 51(e) from the time the tax became due, i.e.,
from January 15 – 1955, 1956, 1957, 1958 and 1959, respectively, respondent
Commissioner merely imposed the new 1/2% monthly interest from January 20,
1959, which interests, as computed, are less than what would be due under the
old law.

With respect to the petitioner’s contention that the application
of the amended provision (now Sec. 51-d of the Tax Code) to the cases at bar
would run counter to the constitutional restriction against the enactment of ex
post facto laws, it is to be noted that the collection of interest
in these cases is not penal in nature, thus –

“the
imposition of x x
x interest is but a just compensation to the
state for the delay in paying the tax, and for the concomitant use by the
taxpayer of funds that rightfully should be in the government’s hands (U.S.
vs. Goldstein, 189 [2d] 752; Ross vs. U.S.,
148 Fed. Supp. 330; U.S.
vs. Joffray, 97 Fed. [2d]
488).  The fact that the interest
charged is made proportionate to the period of delay constitutes the best
evidence that such interest is not penal but compensatory.” (Castro vs. Coll. of
Internal Revenue, G. R. No. L-12174, Resolution on Motion for
Reconsideration, December 28, 1962)

and we had
already held that –

“The doctrine of unconstitutionality raised by appellant is
based on the prohibition against ex post facto laws.  But this prohibition applies only to criminal
or penal matters, and not to laws which concern civil matters or proceedings generally, or
which affect or regulate civil
or private rights (Ex parte Garland,
18 Law Ed., 366; 16 C.J.S., 889-891).” (Republic vs. Oasan
Vda. de Fernandez, 99 Phil. 934, 937).

Finally, section 13 of the amendatory Republic Act No. 2343 refers
only to the basic tax rates, which are made applicable to income received in
1959 onward, but does not affect the interest due on deficiencies, which are
left to be governed by section 51(d).

WHEREFORE, the decisions under review in G. R. No. L-23236
(CTA Case No. 1273) and G. R.
No. L-23254 (CTA Case No. 1278) should be, as they are hereby,
affirmed.  With costs
against petitioner-appellant Central Azucarera Don
Pedro in both instances.

SO ORDERED.

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