1.
Judicial Action
(1) Civil action Sec 228, Sec 220
SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the
taxpayer of his findings: Provided, however, That a preassessment notice shall not be
required in the following cases:
(a) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return; or(b) When a discrepancy
has been determined between the tax withheld and the amount actually remitted by the
withholding agent; or(c) When a taxpayer who opted to claim a refund or tax credit of
excess creditable withholding tax for a taxable period was determined to have carried
over and automatically applied the same amount claimed against the estimated tax
liabilities for the taxable quarter or quarters of the succeeding taxable year; or(d) When
the excise tax due on exciseable articles has not been paid; or(e) When the article locally
purchased or imported by an exempt person, such as, but not limited to, vehicles, capital
equipment, machineries and spare parts, has been sold, traded or transferred to non-
exempt persons.
The taxpayers shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the taxpayer
shall be required to respond to said notice.
If the taxpayer fails to respond, the Commissioner or his duly authorized representative
shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the assessment
in such form and manner as may be prescribed by implementing rules and regulations.
Within sixty (60) days from filing of the protest, all relevant supporting documents shall
have been submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred
eighty (180) days from submission of documents, the taxpayer adversely affected by the
decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from
receipt of the said decision, or from the lapse of one hundred eighty (180)-day period;
otherwise, the decision shall become final, executory and demandable.
SEC. 220. Form and Mode of Proceeding in Actions Arising under this Code. - Civil
and criminal actions and proceedings instituted in behalf of the Government under the
authority of this Code or other law enforced by the Bureau of Internal Revenue shall be
brought in the name of the Government of the Philippines and shall be conducted by
legal officers of the Bureau of Internal Revenue but no civil or criminal action for the
recovery of taxes or the enforcement of any fine, penalty or forfeiture under this Code
shall be filed in court without the approval of the Commissioner.
(a) Approval of CIR
i. Arches vs. Bellosillo et al GR. No. L-23534
May 16, 1967, 20 SCRA 32
Facts: Alhambra Industries, Inc, is a domestic corporation engaged in the manufacture and sale
of cigar and cigarette products. On May 7, 1991, Private respondent received a letter (26 of
April,1991) from the CIR assessing its deficiency Ad Valorem Tax (AVT) in the total amount of
(P488,396.62), inclusive of increments, on the removals of cigarette products from place of
production during (November 2, 1990 to January 22, 1991).Alhambra filed a protest but the
same was denied. CIR requested payment of the revised amount of P520, 835.39. Without
waiting for CIR’s reply to its reconsideration. Alhambra filed a petition for review with CTA.
Meanwhile, CIR denied the request for reconsideration. Alhambra then paid the disputed AVT in
the sum of P520,835.29 under protest. CTA, in its jurisdiction, ordered CIR to refund to
Alhambra the amount erroneously paid, explaining that the subject deficiency excise tax
assessment resulted from Alhambra’s use of the computation mandated by BIR Ruling 017-473-
88 dated October 4, 1998 as basis for computing the 15% AVT. BIR Ruling 017-91 revoked BIR
Ruling 473-88 for being violative of Sec. 142 of the Tax Code; it included back the VAT to the
gross selling price in determining the tax base for computing the AVT on cigarettes.
Issue: Whether or not private respondent’s reliance on a void BIR ruling conferred upon the
latter a vested right to apply the same in the computation of its AVT and claim for tax refund?
Held: The present dispute arose from the discrepancy in the taxable base on which the excise
tax is to apply on account of two incongruous BIR Rulings: (1) BIR Ruling 473-88 dated October
4, 1988 which EXCLUDED the VAT from the tax base in computing the 15% excise tax due; and
(2) BIR Ruling 017-91 dated Feb 11, 1991 which INCLUDED back the Vat in computing the tax
base for purposes of the 15% AVT.
The question as to correct computation of the excise tax on cigarettes in the case at bar has
been sufficiently addressed by BIR Ruling 017-91 which revoked BIR Ruling 473-88.
It is to be noted that Section 127 (b) of the Tax Code as amended applies in general to domestic
products and excludes the value added tax in the determination of the gross selling price, which
is the tax base for purposes of the imposition of AVT. On the other hand, the last par., of Sec
142 of the same code which includes the VAT in the computation of the AVT refers specifically
to cigar and cigarettes only. It does not include/apply to any other articles or goods subject to
the AVT. Accordingly, Sec. 142 must perforce prevail over SEC 127 (B) which is a general
provision of law insofar as the imposition of AVT on cigar and cigarettes is concerned,
Moreover, the phrase unless otherwise provided in Sec 127(b) purports of exceptions to the
general rule contained therein, such as that of Sec 142, last paragraph therof which explicitly
provides that in the case of cigarettes, the tax base for purposes of the AVT shall include, the
VAT.
Private respondent did not question the correctness of the above BIR ruling. In fact, upon
knowledge of the effectivity of BIR Ruling No. 017-91, private respondent immediately
implemented the method of computation mandated therein by restoring the VAT in computing
the tax base for purposes of the 15 % AVT.
However, well-entrenched is the rule that rulings and circulars, rules and regulations
promulgated by the Commissioner of Internal Revenue would have no retroactive application if
to so apply them would be prejudicial to the taxpayers.
The applicable law is Sec. 246 of the Tax Code which provides -
Sec. 246. Non-retroactivity of rulings.- Any revocation, modification, or reversal of any
rules and regulations promulgated in accordance with the preceding section or any
of the rulings or circulars promulgated by the Commissioner of Internal Revenue
shall not be given retroactive application if the revocation, modification, or reversal will
be prejudicial to the taxpayers except in the following cases: a) where the taxpayer
deliberately misstates or omits material facts from his return or in any document
required of him by the Bureau of Internal Revenue; b) where the facts subsequently
gathered by the Bureau of Internal Revenue are materially different from the facts on
which the ruling is based; or c) where the taxpayer acted in bad faith.
Without doubt, private respondent would be prejudiced by the retroactive application of the
revocation as it would be assessed deficiency excise tax.
What is left to be resolved is petitioner’s claim that private respondent falls under the third
exception in Sec. 246, i.e., that the taxpayer has acted in bad faith. (b) Can the power to approve filing or civil and
Bad faith imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It criminal actions be delegated?
partakes of the nature of fraud; a breach of a known duty through some motive of interest or ill
will. We find no convincing evidence that private respondent’s implementation of the i. Republic vs. Hizon GR 130430 December 13,
computation mandated by BIR Ruling 473-88 was ill-motivated or attended with a dishonest 1999, 320 SCRA 574
purpose. To the contrary, as a sign of good faith, private respondent immediately reverted to the
Facts: On July 18, 1986, the BIR issued to respondent Salud V. Hizon a deficiency
computation mandated by BIR Ruling 017-91 upon knowledge of its issuance on 11 February
income tax assessment of P1,113,359.68 covering the fiscal year 1981-1982. Respondent
1991.
not having contested the assessment, petitioner, on January 12, 1989, served warrants of
As regards petitioner's argument that private respondent should have made consultations with it
distraint and levy to collect the tax deficiency. However, for reasons not known, it did not
before private respondent used the computation mandated by BIR Ruling 473-88, suffice it to
proceed to dispose of the attached properties.
state that the aforesaid BIR Ruling was clear and categorical thus leaving no room for
More than three years later, or on November 3, 1992, respondent wrote the BIR
interpretation. The failure of private respondent to consult petitioner does not imply bad faith on
requesting a reconsideration of her tax deficiency assessment. The BIR, in a letter dated
the part of the former.
August 11, 1994, denied the request. On January 1, 1997, it filed a case with the Regional
Admittedly the government is not estopped from collecting taxes legally due because of
Trial Court, Branch 44, San Fernando, Pampanga to collect the tax deficiency. The
mistakes or errors of its agents. But like other principles of law, this admits of exceptions in the
complaint was signed by Norberto Salud, Chief of the Legal Division, BIR Region 4, and
interest of justice and fair play, as where injustice will result to the taxpayer.
verified by Amancio Saga, the Bureau's Regional Director in Pampanga.
Concurring opinion of Justice Vitug:
Respondent moved to dismiss the case on two grounds: (1) that the complaint was not
I concur in the ponencia written by my esteemed colleague, Mr. Justice Josue N. Bellosillo. I
filed upon authority of the BIR Commissioner as required by §221 2 of the National
only would like to stress that the 1988 opinion of the Commissioner of Internal Revenue cannot
Internal Revenue Code, and (2) that the action had already prescribed. Over petitioner's
be considered void, considering that it evinces what the former commissioner must have felt to
objection, the trial court, on August 28, 1997, granted the motion and dismissed the
be a real inconsistency between Section 127 and Section 142 of the Tax Code. The non-
complaint. Hence, this petition.
retroactivity proscription under Section 246 of the Tax Code can thus aptly apply. I reserve my
vote, however, in a situation where, as the Solicitor General so points out, the revoked ruling is
Issues:
patently null and void in which case it could possibly be disregarded as being inexistent from the
1. Whether or not the institution of the civil case for collection of taxes was
very beginning.
without the approval of the commissioner in violation of section 221 of the
National Internal Revenue Code; and
2. Whether or not the action for collection of taxes filed against respondent
had already been barred by the statute of limitations.

Held: #1
Revenue Administrative Order No. 10-95 specifically authorizes the Litigation and
Prosecution Section of the Legal Division of regional district offices to institute the
necessary civil and criminal actions for tax collection. As the complaint filed in this case
was signed by the BIR's Chief of Legal Division for Region 4 and verified by the Regional
Director, there was, therefore, compliance with the law.

As amended by R.A. No. 8424, the NIRC is now even more categorical. Sec. 7 of the present
Code authorizes the BIR Commissioner to delegate the powers vested in him under the
pertinent provisions of the Code to any subordinate official with the rank equivalent to a division
chief or higher, except the following:

(a) The power to recommend the promulgation of rules and regulations by the Secretary of
Finance;
(b) The power to issue rulings of first impression or to reverse, revoke or modify any existing
ruling of the Bureau;
(c) The power to compromise or abate under §204 (A) and (B) of this Code, any tax
deficiency:Provided, however, that assessment issued by the Regional Offices involving basic
deficiency taxes of five hundred thousand pesos (P500,000.00) or less, and minor criminal
violations as may be determined by rules and regulations to be promulgated by the Secretary of
Finance, upon the recommendation of the Commissioner, discovered by regional and district
officials, may be compromised by a regional evaluation board which shall be composed of the
Regional Director as Chairman, the Assistant Regional Director, heads of the Legal, Assessment
and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer,
as members; and
(d) The power to assign or reassign internal revenue officers to establishments where articles
subject to excise tax are produced or kept.
None of the exceptions relates to the Commissioner's power to approve the filing of tax
collection cases.
Held: #2
The contention of the petitioner has no merit. Sec. 229  of the Code mandates that a
request for reconsideration must be made within 30 days from the taxpayer's receipt of the
tax deficiency assessment, otherwise the assessment becomes final, unappealable and,
therefore, demandable.  The notice of assessment for respondent's tax deficiency was
issued by petitioner on July 18, 1986. On the other hand, respondent made her request for
reconsideration thereof only on November 3, 1992, without stating when she received the
notice of tax assessment. She explained that she was constrained to ask for a
reconsideration in order to avoid the harassment of BIR collectors.   In all likelihood, she
must have been referring to the distraint and levy of her properties by petitioner's agents
which took place on January 12, 1989. Even assuming that she first learned of the
deficiency assessment on this date, her request for reconsideration was nonetheless filed
late since she made it more than 30 days thereafter. Hence, her request for
reconsideration did not suspend the running of the prescriptive period provided under
§223(c). Although the Commissioner acted on her request by eventually denying it on
August 11, 1994, this is of no moment and does not detract from the fact that the
assessment had long become demandable.
Petitioner's reliance on the Court's ruling in Advertising Associates Inc.  v.  Court of
Appeals is misplaced. What the Court stated in that case and, indeed, in the earlier case
of Palanca v.  Commissioner of Internal Revenue,  is that the timely service of a warrant of
distraint or levy suspends the running of the period to collect the tax deficiency in the
sense that the disposition of the attached properties might well take time to accomplish,
extending even after the lapse of the statutory period for collection. In those cases, the
BIR did not file any collection case but merely relied on the summary remedy of distraint
and levy to collect the tax deficiency. The importance of this fact was not lost on the
Court. Thus, in Advertising Associates, it was held:   16  "It should be noted that the
Commissioner did not institute any judicial proceeding to collect the tax. He relied on the
warrants of distraint and levy to interrupt the running of the statute of limitations.
For the foregoing reasons, we hold that petitioner's contention that the action in this case
had not prescribed when filed has no merit. Our holding, however, is without prejudice to
the disposition of the properties covered by the warrants of distraint and levy which
petitioner served on respondent, as such would be a mere continuation of the summary
remedy it had timely begun. Although considerable time has passed since then, as held in
Advertising Associates Inc.  v.  Court of Appeals and Palanca v.  Commissioner of Internal
Revenue, the enforcement of tax collection through summary proceedings may be carried
out beyond the statutory period considering that such remedy was seasonably availed of.
(c) Collection case upon finality of assessment
i. Dayrit et al vs. Cruz et al L-39910 Sept 26,
1988
The application of tax amnesty to the estate of the Teodoros is the issue in this case.
FACTS: Petitioners are the legitimate children and heirs of the deceased spouses Marta J.
Teodoro who died intestate on July 1, 1965 and Don Toribio Teodoro who died testate on
August 30, 1965. Thereafter, the heirs of the deceased filed separate estate and inheritance tax
returns for the estates of the late spouses with the Bureau of Internal Revenue. **
In the meantime, testate and intestate proceedings for the settlement of the decedents’ estates
were filed 1 by Cecilia Teodoro-Dayrit, one of the petitioners herein, in the then Court of First
Instance of Caloocan City, *** Branch XII docketed as Special Proceedings No. C-113. 2 On
August 14, 1968, said petitioner was appointed administratrix of the estate of Doña Marta and
letters testamentary was issued in her favor as executrix of the estate of Don Toribio.
On August 9, 1972, the respondent Commissioner of Internal Revenue issued the following
deficiency estate and inheritance tax assessment.
The aforementioned notice of deficiency assessments was received by petitioner Dayrit on
August 14, 1972. In a letter dated October 7, 1972, ***** petitioners through counsel asked for a
reconsideration of the said assessments alleging that the same are contrary to law and not
supported by sufficient evidence. 4 In the same letter, petitioners requested a period of thirty
(30) days within which to submit their position paper in support of their claim.
Meanwhile, on October 16, 1972, Presidential Decree (P.D) No. 23, entitled "Proclaiming Tax
Amnesty Subject to Certain Conditions," was issued by then President Ferdinand E. Marcos,
quoted hereunder as follows:chanrob1es virtual 1aw library
"1. In all cases of voluntary disclosure of previously untaxed income realized here or abroad by
any taxpayer, natural or juridical, the collection of the income tax and penalties incident to
nonpayment, as well as all criminal and civil liabilities under the National Internal Revenue Code,
the Revised Penal Code, the Anti-Graft and Corrupt Practices Act or any other law applicable
thereto, is hereby condoned and, in lieu thereof, a tax of TEN PERCENTUM (10%) on such
previously untaxed income is hereby imposed, subject to the following conditions:chanrob1es
virtual 1aw library
(a) Such previously untaxed income must have been earned or realized prior to 1972;
(b) The taxpayer must file a notice and return with the Commissioner of Internal Revenue on or
before March 31, 1972 showing such previously untaxed income; . . .
2. The tax imposed under Paragraph 1 hereof, shall be paid within the following
period:chanrob1es virtual 1aw library
(a) If the amount does not exceed P10,000.00 the tax must be paid at the time of the filing of
notice and return but not later than March 31, 1973;
(b) If the amount exceeds P10,000.00 the tax may be paid in two (2) installments, the first
installment to be paid upon the filing of the notice and return but not later than March 31, 1973;
and the second installment within three (3) months from the date of the filing of the return but not
later than June 30, 1973 . . ."cralaw virtua1aw library
On November 24, 1972, P.D. No. 67, was issued amending paragraphs 1 and 3 of P.D. No. 23,
to read as follows:jgc:chanrobles.com.ph
"1. In all cases of voluntary disclosures of previously untaxed income and/or wealth such as
earnings, receipts, gifts, bequests or any other acquisitions from any source whatsoever which
are taxable under the National Internal Revenue Code, as amended, realized here or;abroad by
any taxpayer, natural or juridical; the collection of all internal revenue taxes including the
increments or penalties on account of non-payment as well as all civil, criminal or administrative
liabilities arising from or incident to such disclosures under the National Internal Revenue Code,
the Revised Penal Code, the Anti-Graft and Corrupt Practices Act, the Revised Administrative
Code, the Civil Service laws and regulations, laws and regulations on Immigration and
Deportation, or any other applicable law or proclamation, are hereby condoned and, in lieu
thereof, a tax of ten per centum (10%) on such previously untaxed income or wealth is hereby
imposed, subject to the following conditions:chanrob1es virtual 1aw library
a. Such previously untaxed income and/or wealth must have been earned or realized prior to
1972;
b. The taxpayer must file a return with the Commissioner of Internal Revenue on or before
March 31, 1973, showing such previously untaxed income and/or wealth; . . ."cralaw virtua1aw
library
In a tax return dated March 31, 1973, petitioner Cecilia Teodoro-Dayrit declared an additional
amount of P3,655,595.78 as part of the estates of the Teodoro spouses, for additional valuation
over and above the amount declared in the previous return for estates and inheritance taxes of
the said late spouses. 5 The Bureau of Internal Revenue issued tax payment acceptance order
Nos. 1127185-86 and 1533011. 6 Pursuant to the aforesaid tax acceptance orders, the estates
and heirs of the deceased spouses Teodoro paid the amounts of P5,000.00, P30,046.68 and
P250,000.00 per official receipts Nos. 73201, 774037 and 964467 dated April 2, 1973, July 17,
1973 and October 31, 1973, respectively, 7 amounting to a total of P285,046.68.
On March 14, 1974, respondent Commissioner of Internal Revenue filed a motion for Allowance
of Claim against the estates of spouses Teodoro and for an order of payment of taxes in S.P.
No. C-113 with the then Court of First Instance of Rizal, Branch XII, praying that petitioner Dayrit
be ordered to pay the Bureau of Internal Revenue the sum of P6,470,396.81 plus surcharges
and interest. 8 Petitioners filed two (2) separate oppositions alleging that the estate and
inheritance taxes sought to be collected have already been settled in accordance with the
provisions of P.D. No. 23, as amended by P.D. No. 67 and that at any rate, the assessments
have not become final and executory. 9 In reply thereto, respondent Commissioner alleged that
petitioners could not avail of the tax amnesty in view of the existence of a prior assessment. 10
Petitioners insisted that the tax amnesty could still be availed of invoking Section 4, BIR
Revenue Regulation No. 8-72. 11
On July 10, 1974, respondent Judge issued an order approving the claim of respondent
Commissioner and directing the payment of the estate and inheritance taxes. 12 Dissatisfied
with the decision, petitioners filed a motion for reconsideration 13 but it was denied 14 in an
order dated September 30, 1974.
Hence, the present petition.
Petitioners contend that respondent Judge acted without jurisdiction or in excess of jurisdiction
or with grave abuse of discretion amounting to lack of jurisdiction in granting the respondent
Commissioner’s claim for estate and inheritance taxes against the estates of the Teodoro
spouses on the ground that due to the pendency of their motion for reconsideration of the
deficiency assessments issued by the Commissioner, said tax assessments are not yet final and
executory. Petitioners stressed that the absence of a decision on the disputed assessments was
a bar against collection of taxes. Finally, petitioners insist that their act of filing an estate and
inheritance tax return of a previously untaxed wealth of the estates entitles said estates to tax
amnesty under P.D. No. 23, as amended by P.D. 67 and hence, it is an error to grant
respondent Commissioner’s claim for collection of estate and inheritance taxes.
On the other hand, respondent Commissioner contends that petitioners cannot avail of the tax
amnesty in view of the prior existing assessments issued against the estates of the deceased
spouses before the promulgation of P.D. No. 23. In support thereof, respondent cited Section 4
of Revenue Regulation No. 15-72, amending Section 4 of Regulation No. 8-12. Respondent
Commissioner contends further that neither may petitioners’ act of filing a return of a previously
untaxed income or wealth in the amount of P3,655,595.98 entitled the estates to tax amnesty
where petitioners failed to pay the 10% tax in full within the time frame required under P.D. No.
23, and that to allow petitioners to avail of the tax amnesty will render nugatory the provisions of
P.D. No. 68. Moreover, said respondent argues that certiorari is not the proper remedy in that
respondent Judge committed no grave abuse of discretion in allowing the claim for collection of
taxes and that if at all, it was merely an error of judgment which can be corrected only on appeal,
and in which case the reglementary period for the same has already prescribed.
ISSUE: Whether an estate may avail of tax amnesty under Presidential Decree No. 23 where
there is already an existing assessment made prior to the issuance of the said decree on the
basis of the submitted estate and inheritance tax returns by merely filing separate estate tax
returns of an undeclared and untaxed income over and above the original amount of the estate
declared.
HELD: Anent petitioners’ claim that the tax assessments against the estates of the Teodoro
spouses are not yet final, the court finds the claim untenable. In petitioners’ motion for
reconsideration of the aforementioned assessments, petitioners requested then Commissioner
Misael P. Vera for a period of thirty (30) days from October 7, 1972 within which to submit a
position paper that would embody their grounds for reconsideration. However, no position paper
was ever filed. 15 Such failure to file a position paper may be construed as abandonment of the
petitioners’ request for reconsideration. The court notes that it took the respondent
Commissioner a period of more than one (1) year and five (5) months, from October 7, 1972 to
March 14, 1974, before finally instituting the action for collection. Under the circumstances of the
case, the act of the Commissioner in filing an action for allowance of the claim for estate and
inheritance taxes, may be considered as an outright denial of petitioners’ request for
reconsideration.
From the date of receipt of the copy of the Commissioner’s letter for collection of estate and
inheritance taxes against the estates of the late Teodoro spouses, petitioners must contest or
dispute the same and, upon a denial thereof, the petitioners have a period of thirty (30) days
within which to appeal the case to the Court of Tax Appeals. 16 This they failed to avail of.
Tax assessments made by tax examiners are presumed correct and made in good faith. A
taxpayer has to prove otherwise. 17 Failure of the petitioners to appeal to the Court of Tax
Appeals in due time made the assessments in question, final, executory and demandable. 18 
The petitioners’ allegation that the Court of First Instance (CFI) lacks jurisdiction over the subject
of the case is likewise untenable. The assessments having become final and executory, the CFI
properly acquired jurisdiction. 19 Neither is there merit in petitioners’ claim that the exclusive
jurisdiction of the Court of Tax Appeals (CTA) applies in the case. The aforesaid exclusive
jurisdiction of the CTA arises only in cases of disputed tax assessments. 20 As noted earlier,
petitioners’ letter dated October 7, 1972 asking for reconsideration of the questioned
assessments cannot be considered as one disputing the assessments because petitioners failed
to substantiate their claim that the deficiency assessments are contrary to law. Petitioners asked
for a period of thirty (30) days within which to submit their position paper but they failed to submit
the same nonetheless. Hence, petitioners’ letter for a reconsideration of the assessments is
nothing but a mere scrap of paper.

Petitioners’ contention that the absence of a decision on their request for reconsideration of the
assessments is a bar to granting the claim for collection is likewise without merit. In Republic v.
Lim Tian Teng Sons & Co., Inc., 21 this Court had occasion to rule that a decision on a request
for reinvestigation is not a condition precedent to the filing of an action for collection of taxes
already assessed. This Court ruled that "nowhere in the Tax Code is the Collector of Internal
Revenue required to rule first on a taxpayer’s request for reconsideration before he can go to
court for the purpose of collecting the tax assessed. On the contrary, Section 305 of the same
Code withheld from all courts, except the Court of Tax Appeals under Republic Act No. 1125, 22
the authority to restrain the collection of any national internal revenue tax, fee or charge, thereby
indicating the legislative policy to allow the Collector of Internal Revenue much latitude on the
speedy and prompt collection of taxes."cralaw virtua1aw library
Petitioners argue, however, that the Commissioner of Internal Revenue must first rule on the
taxpayer’s protest against tax assessment so as not to deprive the taxpayer of the remedy of
appeal and that it is only from the receipt of the decision that the right to appeal to the Court of
Tax Appeals should run, citing for the purpose San Juan v. Velasquez 23 as well as
Commissioner of Internal Revenue v. Gonzales. 24  Petitioners argue, however, that even if a notice of deficiency assessment had already been
The aforementioned cases are both not in point. In San Juan, the taxpayer concerned, through
his accountant, disputed the assessments of income tax and deficiency income tax by adducing
the reasons and explanations why said assessments of income tax were not due and owing from
the taxpayer. Thus, it was therein ruled that having disputed the assessments at the opportune
time, the Commissioner of Internal Revenue cannot ignore the disputed assessments by
immediately bringing an action to collect. By the same token in Commissioner of Internal
Revenue v. Gonzales, the assessments of estate and inheritance taxes were disputed by the
taxpayer by invoking prescription as a defense claiming that the assessments were made after
the lapse of more than five (5) years.
Payment of taxes being admittedly a burden, taxpayers should not be left without any recourse
when they feel aggrieved due to the erroneous and burdensome assessments made by a
Bureau of Internal Revenue agent or by the Commissioner. Said right is vested upon adversely
affected taxpayers under Republic Act No. 1125. It cannot be rendered nugatory through the
Commissioner’s act of immediately filing an action for collection without ruling beforehand on the
disputed assessments. 25 However, the remedy of an aggrieved taxpayer is not without any
limitation. A taxpayer’s right to contest assessments, particularly the right to appeal to the Court
of Tax Appeals, may be waived or lost as in this case. 26
The requirement for the Commissioner to rule on disputed assessments before bringing an
action for collection is applicable only in cases where the assessment was actually disputed,
adducing reasons in support thereto. In the present case where the petitioners did not actually
contest the assessments by stating the basis thereof, the respondent Commissioner need not
rule on their request.
Taxes are the lifeblood of the nation through which the government agencies continue to operate
and with which the State effects its functions for the welfare of its constituents. We cannot
tolerate taxpayers hampering expedient collection of taxes by their failure to act within a
reasonable period. No government could exist if all litigants were permitted to delay the
collection of its taxes. 27 Thus, this Court ruled earlier that a suit for the collection of internal
revenue taxes, as in this case, where the assessment has already become final and executory,
the action to collect is akin to an action to enforce the judgment. No inquiry can be made therein
as to the merits of the original case or the justness of the judgment relied upon. 28
In view of the foregoing discussions, petitioners’ allegation of grave abuse of discretion on the
part of the respondent judge must perforce fall. Considering further that the court a quo properly
acquired jurisdiction over the subject matter of the case, petitioners should have appealed the
case. The order of the court a quo dated September 30, 1974, was received by the petitioners
on October 16, 1974. Petitioners should have appealed within a period of fifteen (15) days from
receipt thereof but they failed to do so. ******* As petitioners failed to file a timely appeal from the
order of the trial court, they can no longer avail of the remedy of a special civil action
for certiorari in lieu of appeal. There is no error of jurisdiction committed by the trial court. 29
On the other hand with respect the petitioners’ plea that the estate is at any rate entitled to tax
amnesty, a reading of P.D. No. 23 30 reveals that in order to avail of tax amnesty, it is required,
among others, that there should be a voluntary disclosure of a previously untaxed income. This
was the pronouncement of this Court in Nepomuceno v. Montecillo 31 with respect to P.D. 370
32 which was decreed as a complement of P.D. Nos. 23 and 157. In addition thereto, said
income must have been earned or realized prior to 1972 and the tax return must be filed on or
before March 31, 1973. Considering that P.D. No. 23 was issued on October 16, 1972, the court
rules that the said decree embraces only those income declared in pursuance thereof within the
taxable year 1972. The time frame cannot be stretched to include declarations made prior to the
issuance of the said decree or those made outside of the time frame as envisioned in the said
decree. Thus, the estates of the Teodoro spouses which have been declared separately
sometime in the 1960’s are clearly outside the coverage of the tax amnesty provision.
issued, the estates may still avail of tax amnesty if the basis of such deficiency assessment is
either the failure to file a return or the omission of items of taxable income for a return already
filed or the under declaration of said return, citing P.D. No. 67 and Section 4 of BIR Revenue
Regulation No. 8-72.
There is no merit in this contention. Even if P.D. No. 67, as an amendment to P.D. 23, enlarges
the coverage of tax amnesty to include wealth such as earnings, receipts, gifts, bequests or any
other acquisitions from any source whatsoever, said decree reiterates the need of voluntary
disclosure on the part of the taxpayer filing the return in order to avail of the tax amnesty. The
only noticeable departure from P.D. No. 23 is the extension of the date for the filing of the return
from March 31, 1972 to March 31, 1973. Thus, this Court finds that the same policy observed in
the issuance of P.D. No. 23, governs P.D. No. 67. In addition thereto, it gives the tax evaders
who failed to avail of the provisions of P.D. No. 23 a chance to reform themselves. An
examination of both decrees does not show that taxpayers availing of the tax amnesty in
accordance with P.D. No. 67, are entitled to blanket coverage of declarations made prior to the
issuance of said decrees.
Petitioners argue that the estates of their parents declared for estate tax valuation sometime in
the 1960’s can avail of the tax amnesty when petitioners declared an additional amount of the
estates over and above that which was previously declared. A reading of P.D. No. 67 reveals
that tax amnesty is extendible only to those declarations made pursuant to said decree. Thus, if
at all, it is only the estates in the amount of P3,655,595.78 declared pursuant to P.D. No. 67 that
is covered, upon payment of 10% of the said amount within the period prescribed under P.D. No.
23, which was up to June 30, 1973. Considering that there has been partial compliance with the
said requirement by the payment of P285,046.68, petitioner may claim the benefit of amnesty for
said declared amount upon payment of the balance of 10% thereof required to be paid.

(2) Criminal action
(a) As a collection remedy Sec 205(b) 2nd par
SEC. 205. Remedies for the Collection of Delinquent Taxes. - The civil remedies for
the collection of internal revenue taxes, fees or charges, and any increment thereto
resulting from delinquency shall be:
(b) By civil or criminal action.
Either of these remedies or both simultaneously may be pursued in the discretion of the
authorities charged with the collection of such taxes: Provided, however, That the
remedies of distraint and levy shall not be availed of where the amount of tax involve is
not more than One hundred pesos (P100).
The judgment in the criminal case shall not only impose the penalty but shall also order
payment of the taxes subject of the criminal case as finally decided by the Commissioner.
The Bureau of Internal Revenue shall advance the amounts needed to defray costs of
collection by means of civil or criminal action, including the preservation or
transportation of personal property distrained and the advertisement and sale thereof,
as well as of real property and improvements thereon.
(b) As enforcement of statutory penalties Sec 221
SEC. 221. Remedy for Enforcement of Statutory Penal Provisions. - The remedy for
enforcement of statutory penalties of all sorts shall be by criminal or civil action, as the
particular situation may require, subject to the approval of the Commissioner.
i. Statutory offenses and penalties Secs. 250 – 268
SEC. 250. Failure to File Certain Information Returns. - In the case of
each failure to file an information return, statement or list, or keep any
record, or supply any information required by this Code or by the
Commissioner on the date prescribed therefor, unless it is shown that such
failure is due to reasonable cause and not to willful neglect, there shall,
upon notice and demand by the Commissioner, be paid by the person
failing to file, keep or supply the same, One thousand pesos (1,000) for
each failure: Provided, however, That the aggregate amount to be imposed
for all such failures during a calendar year shall not exceed Twenty-five
thousand pesos (P25,000).
SEC. 251. Failure of a Withholding Agent to Collect and Remit
Tax. - Any person required to withhold, account for, and remit any tax
imposed by this Code or who willfully fails to withhold such tax, or account
for and remit such tax, or aids or abets in any manner to evade any such
tax or the payment thereof, shall, in addition to other penalties provided
for under this Chapter, be liable upon conviction to a penalty equal to the
total amount of the tax not withheld, or not accounted for and remitted.
SEC. 252. Failure of a Withholding Agent to refund Excess
Withholding Tax. - Any employer/withholding agent who fails or refuses
to refund excess withholding tax shall, in addition to the penalties provided
in this Title, be liable to a penalty to the total amount of refunds which was
not refunded to the employee resulting from any excess of the amount
withheld over the tax actually due on their return.
SEC. 253. General Provisions. -
(a)  Any person convicted of a crime penalized by this Code shall, in
addition to being liable for the payment of the tax, be subject to the
penalties imposed herein: Provided, That payment of the tax due after
apprehension shall not constitute a valid defense in any prosecution for
violation of any provision of this Code or in any action for the forfeiture of
untaxed articles.
(b)  Any person who willfully aids or abets in the commission of a crime
penalized herein or who causes the commission of any such offense by
another shall be liable in the same manner as the principal.
(c)  If the offender is not a citizen of the Philippines, he shall be deported
immediately after serving the sentence without further proceedings for
deportation. If he is a public officer or employee, the maximum penalty
prescribed for the offense shall be imposed and, in addition, he shall be
dismissed from the public service and perpetually disqualified from holding
any public office, to vote and to participate in any election. If the offender
is a Certified Public Accountant, his certificate as a Certified Public
Accountant shall, upon conviction, be automatically revoked or cancelled.
(d)  In the case of associations, partnerships or corporations, the penalty
shall be imposed on the partner, president, general manager, branch
manager, treasurer, officer-in-charge, and the employees responsible for
the violation.
(e)  The fines to be imposed for any violation of the provisions of this Code
shall not be lower than the fines imposed herein or twice the amount of
taxes, interest and surcharges due from the taxpayer, whichever is higher.
SEC. 254. Attempt to Evade or Defeat Tax. - Any person who willfully
attempts in any manner to evade or defeat any tax imposed under this
Code or the payment thereof shall, in addition to other penalties provided
by law, upon conviction thereof, be punished by a fine not less than Thirty
thousand (P30,000) but not more than One hundred thousand pesos
(P100,000) and suffer imprisonment of not less than two (2) years but not
more than four (4) years: Provided, That the conviction or acquittal
obtained under this Section shall not be a bar to the filing of a civil suit for
the collection of taxes.
SEC. 255. Failure to File Return, Supply Correct and Accurate
Information, Pay Tax Withhold and Remit Tax and Refund Excess
Taxes Withheld on Compensation. - Any person required under this
Code or by rules and regulations promulgated thereunder to pay any tax
make a return, keep any record, or supply correct the accurate
information, who willfully fails to pay such tax, make such return, keep
such record, or supply correct and accurate information, or withhold or
remit taxes withheld, or refund excess taxes withheld on compensation, at
the time or times required by law or rules and regulations shall, in addition
to other penalties provided by law, upon conviction thereof, be punished
by a fine of not less than Ten thousand pesos (P10,000) and suffer
imprisonment of not less than one (1) year but not more than ten (10)
years.
Any person who attempts to make it appear for any reason that he or
another has in fact filed a return or statement, or actually files a return or
statement and subsequently withdraws the same return or statement after
securing the official receiving seal or stamp of receipt of internal revenue
office wherein the same was actually filed shall, upon conviction therefore,
be punished by a fine of not less than Ten thousand pesos (P10,000) but
not more than Twenty thousand pesos (P20,000) and suffer imprisonment
of not less than one (1) year but not more than three (3) years.
SEC. 256. Penal Liability of Corporations. - Any corporation,
association or general  co-partnership liable for any of the acts or
omissions penalized under this Code, in addition to the penalties imposed
herein upon the responsible corporate officers, partners, or employees
shall, upon conviction for each act or omission, be punished by a fine of not
less than Fifty thousand pesos (P50,000) but not more than One hundred
thousand pesos (P100,000).
SEC. 257. Penal Liability for Making False Entries, Records or
Reports, or Using Falsified or Fake Accountable Forms. -
(A) Any financial officer or independent Certified Public Accountant
engaged to examine and audit books of accounts of taxpayers under
Section 232 (A) and any person under his direction who:
(1)  Willfully falsifies any report or statement bearing on any examination
or audit, or renders a report, including exhibits, statements, schedules or
other forms of accountancy work which has not been verified by him
personally or under his supervision or by a member of his firm or by a
member of his staff in accordance with sound auditing practices; or
(2)  Certifies financial statements of a business enterprise containing an
essential misstatement of facts or omission in respect of the transactions,
taxable income, deduction and exemption of his client; or
(B) Any person who:
(1)  Not being an independent Certified Public Accountant according to
Section 232(B) or a financial officer, examines and audits books of
accounts of taxpayers; or
(2)  Offers to sign and certify financial statements without audit; or
(3)  Offers any taxpayer the use of accounting bookkeeping records for
internal revenue purposes not in conformity with the requirements
prescribed in this Code or rules and regulations promulgated thereunder;
or
(4)  Knowingly makes any false entry or enters any false or fictitious name
in the books of accounts or record mentioned in the preceding paragraphs;
or
(5)  Keeps two (2) or more sets of such records or books of accounts; or
(6)  In any way commits an act or omission, in violation of the provisions of
this Section; or
(7)  Fails to keep the books of accounts or records mentioned in Section
232 in a native language, English or Spanish, or to make a true and
complete translation as required in Section 234 of this Code, or whose
books of accounts or records kept in a native language, English or Spanish,
and found to be at material variance with books or records kept by him in
another language; or
(8)  Willfully attempts in any manner to evade or defeat any tax imposed
under this Code, or knowingly uses fake or falsified revenue official
receipts, Letters of Authority, certificates authorizing registration, Tax
Credit Certificates, Tax Debit Memoranda and other accountable forms
shall, upon conviction for each act or omission, be punished by a fine not
less than Fifty thousand pesos (P50,000) but not more than One hundred
pesos (P100,000) and suffer imprisonment of not less than two (2) years
but not more than six (6) years.
If the offender is a Certified Public Accountant, his certificate as a Certified
Public Accountant shall be automatically revoked or cancelled upon
conviction.
In the case of foreigners, conviction under this Code shall result in his
immediate deportation after serving sentence, without further proceedings
for deportation.
SEC. 258. Unlawful Pursuit of Business. - Any person who carries on
any business for which an annual registration fee is imposed without
paying the tax as required by law shall, upon conviction for each act or
omission, be punished by a fine of not less than Five thousand pesos
(P5,000) but not more than Twenty thousand pesos (P20,000) and suffer
imprisonment of not less than six (6) months but not more than two (2)
years: Provided, That in the case of a person engaged in the business of
distilling, rectifying, repacking, compounding or manufacturing any article
subject to excise tax, he shall, upon conviction for each act or omission, be
punished by a fine of not less than Thirty thousand pesos (P30,000) but not
more than Fifty thousand pesos (P50,000) and suffer imprisonment of not
less than two (2) years but not more than four (4) years.
SEC. 259. Illegal Collection of Foreign Payments. - Any person who
knowingly undertakes the collection of foreign payments as provided under
Section 67 of this Code without having obtained a license therefor, or
without complying with its implementing rules and regulations, shall, upon
conviction for each act or omission, be punished by a fine of not less than
Twenty thousand pesos (P20, 000) but not more than Fifty thousand pesos
(P50, 000) and suffer imprisonment of not less than one (1) year but not
more than two (2) years.
SEC. 260. Unlawful Possession of Cigarette Paper in Bobbins or
Rolls, Etc. - It shall be unlawful for any person to have in his possession
cigarette paper in bobbins or rolls, cigarette tipping paper or cigarette filter
tips, without the corresponding authority therefor issued by the
Commissioner. Any person, importer, manufacturer of cigar and cigarettes,
who has been found guilty under this Section, shall, upon conviction for
each act or omission, be punished by a fine of not less than Twenty
thousand pesos (P20,000) but not more than One hundred thousand pesos
(P100,000) and suffer imprisonment for a term of not less than six (6)
years and one (1) day but not more than twelve (12) years.
SEC. 261. Unlawful Use of Denatured Alcohol. - Any person who for
the purpose of manufacturing any beverage, uses denatured alcohol or
alcohol specially denatured to be used for motive power or withdrawn
under bond for industrial uses or alcohol knowingly misrepresented to be
denatured to be unfit for oral intake or who knowingly sells or offers for
sale any beverage made in whole or in part from such alcohol or who uses
such alcohol for the manufacture of liquid medicinal preparations taken
internally, or knowingly sells or offers for sale such preparations containing
as an ingredient such alcohol, shall upon conviction for each act or
omission be punished by a fine of not less than Twenty thousand pesos
(P20,000) but not more than One hundred thousand pesos (P100,000) and
suffer imprisonment for a term of not less than six (6) years and one (1)
day but not more than twelve (12) years.
Any person who shall unlawfully recover or attempt to recover by
distillation or other process any denatured alcohol or who knowingly sells
or offers for sale, conceals or otherwise disposes of alcohol so recovered or
redistilled shall be subject to the same penalties imposed under this
Section.
SEC. 262. Shipment or Removal of Liquor or Tobacco Products
under False Name or Brand or as an Imitation of any Existing or
Otherwise Known Product Name or Brand. - Any person who ships,
transports or removes spirituous, compounded or fermented liquors, wines
or any manufactured products of tobacco under any(sic) other than the
proper name or brand known to the trade as designating the kind and
quality of the contents of the cask, bottle or package containing the same
or as an imitation of any existing or otherwise known product name or
brand or causes such act to be done, shall, upon conviction for each act or
omission, be punished by a fine of not less than Twenty thousand pesos
(P20,000) but not more than One hundred thousand pesos (P100,000) and
suffer imprisonment of not less than six (6) years and one (1) day but not
more than twelve (12) years.
SEC. 263. Unlawful Possession or Removal of Articles Subject to
Excise Tax without Payment of the Tax. - Any person who owns and/or
is found in possession of imported articles subject to excise tax, the tax on
which has not been paid in accordance with law, or any person who owns
and/or is found in possession of imported tax-exempt articles other than
those to whom they are legally issued shall be punished by:
(a)  A fine of not less than One thousand pesos (P1,000) nor more than Two
thousand pesos (P2,000) and suffer imprisonment of not less than sixty
(60) days but not more than one hundred (100) days, if the appraised
value, to be determined in the manner prescribed in the Tariff and
Customs Code, including duties and taxes, of the articles does not exceed
One thousand pesos (P1,000).
(b)  A fine of not less than Ten thousand pesos (P10,000) but not more
than Twenty thousand pesos (P20,000) and suffer imprisonment of not less
than two (2) years but not more than four (4) years, if the appraised value,
to be determined in the manner prescribed in the Tariff and Customs Code,
including duties and taxes, of the articles exceeds One thousand pesos
(P1,000) but does not exceed Fifty thousand pesos (P50,000);
(c)  A fine of not less than Thirty thousand pesos (P30,000) but not more
than Sixty thousand pesos (P60,000) and suffer imprisonment of not less
than four (4) years but not more than six (6) years, if the appraised value,
to be determined in the manner prescribed in the Tariff and Customs Code,
including duties and taxes of the articles is more than Fifty thousand pesos
(P50,000) but does not exceed One hundred fifty thousand pesos
(P150,000); or
(d)  A fine of not less than Fifty thousand pesos (P50,000) but not more
than One hundred thousand pesos (P100, 000) and suffer imprisonment of
not less than ten (10) years but not more than twelve (12) years, if the
appraised value, to be determined in the manner prescribed in the Tariff
and Customs Code, including duties and taxes, of the articles exceeds One
hundred fifty thousand pesos (P150,000).
Any person who is found in possession of locally manufactured articles
subject to excise tax, the tax on which has not been paid in accordance
with law, or any person who is found in possession of such articles which
are exempt from excise tax other than those to whom the same is lawfully
issued shall be punished with a fine of not less than (10) times the amount
of excise tax due on the articles found but not less than Five hundred
pesos (P500) and suffer imprisonment of not less than two (2) years but
not more than four (4) years.
Any manufacturer, owner or person in charge of any article subject to
excise tax who removes or allows or causes the unlawful removal of any
such articles from the place of production or bonded warehouse, upon
which the excise tax has not been paid at the time and in the manner
required, and any person who knowingly aids or abets in the removal of
such articles as aforesaid, or conceals the same after illegal removal shall,
for the first offense, be punished with a fine of not less than ten (10) times
the amount of excise tax due on the articles but not less than One
thousand pesos (P1,000) and suffer imprisonment of not less than one (1)
year but not more than two (2) years.
The mere unexplained possession of articles subject to excise tax, the tax
on which has not been paid in accordance with law, shall be punishable
under this Section.
Sec. 264. Failure or refusal to Issue Receipts or Sales or
Commercial Invoices, Violations related to the Printing of such
Receipts or Invoices and Other Violations. -
(a) Any person who, being required under Section 237 to issue receipts or
sales or commercial invoices, fails or refuses to issue such receipts of
invoices, issues receipts or invoices that do not truly reflect and/or contain
all the information required to be shown therein, or uses multiple or double
receipts or invoices, shall, upon conviction for each act or omission, be
punished by a fine of not less than One thousand pesos (P1,000) but not
more than Fifty thousand pesos (P50,000) and suffer imprisonment of not
less than two (2) years but not more than four (4) years.
(b) Any person who commits any of the acts enumerated hereunder shall
be penalized in the same manner and to the same extent as provided for in
this Section:
(1)  Printing of receipts or sales or commercial invoices without authority
from the Bureau of Internal Revenue; or
(2)  Printing of double or multiple sets of invoices or receipts; or
(3)  Printing of unnumbered receipts or sales or commercial invoices, not
bearing the name, business style, Taxpayer Identification Number, and
business address of the person or entity.
SEC. 265. Offenses Relating to Stamps. - Any person who commits any
of the acts enumerated hereunder shall, upon conviction thereof, be
punished by a fine of not less than Twenty thousand pesos (P20,000) but
not more than Fifty thousand pesos (P50,000) and suffer imprisonment of
not less than four (4) years but not more than eight (8) years:
(a)  Making, importing, selling, using or possessing without express
authority from the Commissioner, any die for printing or making stamps,
labels, tags or playing cards;
(b)  Erasing the cancellation marks of any stamp previously used, or
altering the written figures or letters or cancellation marks on internal
revenue stamps;
(c)  Possessing false, counterfeit, restored or altered stamps, labels or tags
or causing the commission of any such offense by another;
(d)  Selling or offering for sale any box or package containing articles
subject to excise tax with false, spurious or counterfeit stamps or labels or
selling from any such fraudulent box, package or container as
aforementioned; or
(e)  Giving away or accepting from another, or selling, buying or using
containers on which the stamps are not completely destroyed.
Sec. 266. Failure to Obey Summons. - Any person who, being duly
summoned to appear to testify, or to appear and produce books of
accounts, records, memoranda or other papers, or to furnish information as
required under the pertinent provisions of this Code, neglects to appear or
to produce such books of accounts, records, memoranda or other papers,
or to furnish such information, shall, upon conviction, be punished by a fine
of not less than Five thousand pesos (P5,000) but not more than ten
thousand pesos (P10,000) and suffer imprisonment of not less than one (1)
year but not more than two (2) years.
SEC. 267. Declaration under Penalties of Perjury. - Any declaration,
return and other statement required under this Code, shall, in lieu of an
oath, contain a written statement that they are made under the penalties
of perjury. Any person who willfully files a declaration, return or statement
containing information which is not true and correct as to every material
matter shall, upon conviction, be subject to the penalties prescribed for
perjury under the Revised Penal Code.
SEC. 268. Other Crimes and Offenses. -
(A) Misdeclaration or Misrepresentation of Manufacturers Subject
to Excise Tax. - Any manufacturer who, in violation of the provisions of
Title VI of this Code, misdeclares in the sworn statement required therein
or in the sales invoice, any pertinent data or information shall be punished
by a summary cancellation or withdrawal of the permit to engage in
business as a manufacturer of articles subject to excise tax.
(B) Forfeiture of Property Used in Unlicensed Business or Dies
Used for Printing False Stamps, Etc. - All chattels, machinery, and
removable fixtures of any sort used in the unlicensed production of articles
subject to excise tax shall be forfeited. Dies and other equipment used for
the printing or making of any internal revenue stamp, label or tag which is
in imitation of or purports to be a lawful stamp, label or tag shall also be
forfeited.
(C) Forfeiture of Goods Illegally Stored or Removed. - Unless
otherwise specifically authorized by the Commissioner, all articles subject
to excise tax should not be stored or allowed to remain in a distillery,
distillery warehouse, bonded warehouse or other place where made, after
the tax thereon has been paid; otherwise, all such articles shall be
forfeited. Articles withdrawn from any such place or from customs custody
or imported into the country without the payment of the required tax shall
likewise be forfeited.
(c) Civil liability in case of acquittal of criminal
liability
i. Republic vs. Patanao 20 SCRA 712
Facts: In the complaint filed by the Republic of the Philippines, through the Solicitor General,
against Pedro B. Patanao, it is alleged that defendant was the holder of an ordinary timber
license with concession at Esperanza, Agusan, and as such was engaged in the business of
producing logs and lumber for sale during the years 1951-1955; that defendant failed to file
income tax returns for 1953 and 1954, and although he filed income tax returns for 1951, 1952
and 1955, the same were false and fraudulent because he did not report substantial income
earned by him from his business; that in an examination conducted by the Bureau of Internal
Revenue on defendant's income and expenses for 1951-1955, it was ascertained that the sum of
P79,892.75, representing deficiency; income taxes and additional residence taxes for the
aforesaid years, is due from defendant; that on February 14, 1958, plaintiff, through the Deputy
Commissioner of Internal Revenue, sent a letter of demand with enclosed income tax
assessment to the defendant requiring him to pay the said amount; that notwithstanding
repeated demands the defendant refused, failed and neglected to pay said taxes; and that the
assessment for the payment of the taxes in question has become final, executory and
demandable, because it was not contested before the Court of Tax Appeals in accordance with
the provisions of section 11 of Republic Act No. 1125.
Defendant moved to dismiss the complaint on two grounds, namely: (1) that the action is barred
by prior judgment, defendant having been acquitted in criminal cases Nos. 2089 and 2090 of the
same court, which were prosecutions for failure to file income tax returns and for non-payment of
income taxes; and (2) that the action has prescribed.
After considering the motion to dismiss, the opposition thereto and the rejoinder to the
opposition, the lower court entered the order appealed from, holding that the only cause of
action left to the plaintiff in its complaint is the collection of the income tax due for the taxable
year 1955 and the residence tax (Class B) for 1953, 1954 and 1955. A motion to reconsider said
order was denied, whereupon plaintiff interposed the instant appeal, which was brought directly
to this Court, the questions involved being purely legal.
Issue: Whether or not respondent’s acquittal in a criminal case bars the collection of tax
penalties.
Held:In applying the principle underlying the civil liability of an offender under the Penal Code to
a case involving the collection of taxes, the court a quo fell into error. The two cases are
circumscribed by factual premises which are diametrically opposed to each either, and are
founded on entirely different philosophies. Under the Penal Code the civil liability is incurred by
reason of the offender's criminal act. Stated differently, the criminal liability gives birth to the civil
obligation such that generally, if one is not criminally liable under the Penal Code, he cannot
become civilly liable thereunder. The situation under the income tax law is the exact opposite.
Civil liability to pay taxes arises from the fact, for instance, that one has engaged himself in
business, and not because of any criminal act committed by him. The criminal liability arises
upon failure of the debtor to satisfy his civil obligation. The incongruity of the factual premises
and foundation principles of the two cases is one of the reasons for not imposing civil indemnity
on the criminal infractor of the income tax law. Another reason, of course, is found in the fact that
while section 73 of the National Internal Revenue Code has provided the imposition of the
penalty of imprisonment or fine, or both, for refusal or neglect to pay income tax or to make a
return thereof, it failed to provide the collection of said tax in criminal proceedings . The only civil
remedies provided, for the collection of income tax, in Chapters I and II, Title IX of the Code and
section 316 thereof, are distraint of goods, chattels, etc. or by judicial action, which remedies are
generally exclusive in the absence of a contrary intent from the legislator. (People vs. Arnault,
G.R. No. L-4288, November 20, 1952; People vs. Tierra, G.R. Nos. L-17177-17180, December
28, 1964) Considering that the Government cannot seek satisfaction of the taxpayer's civil
liability in a criminal proceeding under the tax law or, otherwise stated, since the said civil liability
is not deemed included in the criminal action, acquittal of the taxpayer in the criminal proceeding
does not necessarily entail exoneration from his liability to pay the taxes. It is error to hold, as
the lower court has held, that the judgment in the criminal cases Nos. 2089 and 2090 bars
the action in the present case. The acquittal in the said criminal cases cannot operate to
discharge defendant appellee from the duty of paying the taxes which the law requires to
be paid, since that duty is imposed by statute prior to and independently of any attempts
by the taxpayer to evade payment. Said obligation is not a consequence of the felonious
acts charged in the criminal proceeding, nor is it a mere civil liability arising from crime
that could be wiped out by the judicial declaration of non-existence of the criminal acts
charged. (Castro vs. The Collector of Internal Revenue, G.R. No. L-12174, April 20, 1962).
Regarding prescription of action, the lower court held that the cause of action on the deficiency
income tax and residence tax for 1951 is barred because appellee's income tax return for 1951
was assessed by the Bureau of Internal Revenue only on February 14, 1958, or beyond the five
year period of limitation for assessment as provided in section 331 of the National Internal
Revenue Code. Appellant contends that the applicable law is section 332 (a) of the same Code
under which a proceeding in court for the collection of the tax may be commenced without
assessment at any time within 10 years from the discovery of the falsity, fraud or omission.
The complaint filed on December 7, 1962, alleges that the fraud in the appellee's income tax
return for 1951, was discovered on February 14, 1958. By filing a motion to dismiss, appellee
hypothetically admitted this allegation as all the other averments in the complaint were so
admitted. Hence, section 332 (a) and not section 331 of the National Internal Revenue Code
should determine whether or not the cause of action of deficiency income tax and residence tax
for 1951 has prescribed. Applying the provision of section 332 (a), the appellant's action
instituted in court on December 7, 1962 has not prescribed.
(d) Imposition of subsidiary imprisonment
i. People vs. Balagtas 105 Phil 1362 (unrep)
FACTS: This is a petition for habeas corpus based upon the following facts:
On various dates between February 18 and May 14, 1948, the petitioner was convicted of estafa
in seventeen criminal cases and sentenced by final judgments of the Court of First Instance of
Manila to an aggregate penalty of 6 years, 4 months, and 26 days of imprisonment, to indemnify
the offended parties invarious sums aggregating P43,436.45, with subsidiary imprisonment in
case of insolvency in each case, and to pay the costs. The most severe of the seventeen
sentences against the petitioner was 6 months and 1 day of prison correcional plus an indemnify
of P8,000, with subsidiary imprisonment in case of insolvency, and the costs. He commenced to
serve these sentences on February 18, 1948.
The petitioner contends:
(a) That under section 70 of the Revised Penal Code the maximum duration of his sentence
cannot exceed threefold the length of time corresponding to the most severe of the penalties
imposed upon him, that is to say, 18 months and 3 days; (b) That the application of the threefold
rule does not preclude his enjoyment of the deduction from his sentenced of 5 days for each
mxonth of good behavior as provided in paragraph 1 of article 97 of the Revised Penal Code;
(c) That which such deduction his aggregate penalty should be only 15 months and 3 days, and
that therefore he should have been discharge from custody on June 3, 1949; and
(d) That the subsidiary imprisonment should be eliminated because article 70 provides that "no
other penalty to which he may be liable shall be inflicted after the sum total of those imposed
equals the said maximum period." 1. We sustain petitioners contention (a) and (b) above set
forth upon the threefold rule provided in article 70 of the Revised Penal Code, as amended by
section 2 of Commonwealth Act No. 217, and the decisions of this court in numerous cases.
(People vs. Garalde, 50 Phil., 823; Torres vs. Superintendent of San Ramon Prison and Penal
Farm, 58 Phil., 847, and cases therein cited.)
2. The important question to decide here is whether the subsidiary imprisonment should be
eliminated from the penalty imposed upon the petitioner as reduced to thrice the duration of the
gravest penalty imposed on him in accordance with article 70.
The pertinent provisions of said article reads as follows:
Notwithstanding the provisions of the rule next preceding, the maximum duration of the convict's
sentence shall not be more than threefold the length of time corresponding to the most severe of
the penalties imposed upon him. No other penalty to which he may be liable shall be inflicted
after the sum total of those imposed equals the said maximum period.
Article 100 says that every person criminally liable for a felony is also civilly liable.
Article 38 and 39 provide as follows:
ART. 38. Pecuniary Liabilities—Order of Payment. — In case the property of the offender should
not be sufficient for the payment of all his pecuniary liabilities, the same shall be met in the
following orders:
1. The reparation of the damage caused.
2. Indemnification of consequential damages.
3. The fine.
4. The costs of the proceedings.
ART. 39. Subsidiary Penalty. — If the convict has no property with which to meet the pecuniary
liabilities mentioned in paragraphs 1st, 2nd, and 3rd of the next preceding article, he shall be
subject to a subsidiary personal liability at the rate of one day for each 2 pesos and 50 centavos,
subject to the following rules:
1. If the principal penalty imposed be prison correcional or arresto and fine, he shall remain
under confinement until his fine and pecuniary liabilities referred in the preceding paragraph are
satisfied, but his subsidiary shall not exceed one-third of the term of the sentence, and in no
case shall it continue for more than one year, and no fraction or part of a day shall be counted
against the prisoner.
2. When the principal penalty imposed be only a fine, the subsidiary imprisonment shall not
exceed six months, if the culprit shall have been prosecuted for a grave or less grave felony, and
shall not exceed fifteen days, if for a light felony.lawphi1.nêt
3. When the principal penalty imposed is higher than prison coreccional no subsidiary
imprisonment shall be imposed upon the culprit.
4. If the principal penalty imposed is not to be executed by confinement in a penal institution, but
such penalty is of fixed duration, the convict, during the period of time established in the
preceding rules, shall continue to suffer the same deprivations as those of which the principal
penalty consists.
5. The subsidiary personal liability which the convict may have suffered by reason of his
insolvency shall not relieve him from reparation of the damage caused, nor from indemnification
for the consequential damages in case his financial circumstances should improve; but be shall
be relieved from pecuniary liability as to the fine.
In the case of People vs. Garalde, supra, the accused was sentenced in several cases for the
crime of estafa thru falsification of commercial documents, and his aggregate penalty was
reduced to threefold the most severe of the penalties, which was 8 years and 1 day of prision
mayor. The judgment in that case contained the following proviso: "Provided, however, that in
case of insolvency, by analogy, he is not to suffer subsidiary imprisonment, since his
imprisonment would be in excess of thrice the duration of the gravest penalty imposed on him."
That judgment is invoked by the petitioner herein in support of his contention that he should not
be made to suffer subsidiary imprisonment.
It will be noted, however, that in that case the principal penalty imposed was higher than prision
correcional, and therefore the accused was exempt from subsidiary imprisonment in accordance
with paragraph 3 of article 39 hereinabove quoted. That, in our opinion, should have been the
reason stated by the court in that case for exempting the accused from subsidiary imprisonment.
Subsidiary imprisonment forms part of the penalty and its imposition is required by article 39 in
case of insolvency of the accused to meet the pecuniary liabilities mentioned in the first three
paragraphs of article 38; it cannot be eliminated under article 70 so long as the principal penalty
is not higher than 6 years of imprisonment. The provision of article 70 that no other penalty to
which he may be liable shall be inflicted after the sum total of those imposed equals the said
maximum period, simply means that the convict shall not severe the excess over the maximum
of threefold the most severe penalty. For instance, if the aggregate of the principal penalties is
six years and that is reduced to two years under the threefold rule of article 70, he shall not be
required to serve the remaining four years.
In the case of Jose Arlinda vs. Director of Prisons, G. R. No. 47326, this court, by a resolution
dated March 18, 1940, held that the contention of the petitioner that in applying the threefold rule
the court should not have taken into account the indemnity of P498 or its corresponding
subsidiary imprisonment was without merit, "for an indemnity, to all intents and purposes, is
considered a penalty, although pecuniary in character, in Title Three of the Revised Penal Code,
so much so that it is reducible in terms of imprisonment at the rate of one day for each 2 pesos
and 50 centavos should the offender turn out to be insolvent (article 39, Revised Penal Code);
that, moreover, the indemnity which a person is sentenced to pay forms an integral part of the
penalty, it being expressly provided by article 100 of the Revised Penal Code that every person
criminally liable for a felony is also civilly liable"; that, finally, article 70 of the Revised Penal
Code, as amended by Commonwealth Act No. 217, in limiting the prisoner's penalty to not more
than threefold the length of the most severe penalty imposed upon him, makes no distinction
between the principal penalty and subsidiary imprisonment."
We note, however, that in the case just above cited the highest penalty which formed the basis
of the computation under the threefold rule was 4 years, 2 months, and 1 day of imprisonment
plus an indemnity in terms or subsidiary imprisonment, namely, 6 months and 19 days, to the
principal penalty of 4 years, 2 months, and 1 day and multiplied the sum by 3, with the result that
petitioner's aggregate penalty was fixed at 14 years and 2 months of imprisonment, instead of
multiplying the principal penalty (without the subsidiary imprisonment) by 3, and requiring the
convict to pay the indemnify, for which he should not have been made to suffer subsidiary
imprisonment in case of insolvency in view of the fact that the aggregate of the principal
penalties as reduced under article 70 exceeded 6 years of imprisonment to the principal penalty
at the outset for the purpose of applying the threefold rule, because the imposition of subsidiary
imprisonment is conditioned on the insolvency of the convict and the latter is required to serve it
only when he fails or is unable to pay the indemnity.
We hold that the correct rule is to multiply the highest principal penalty by 3 and the result will be
the aggregate principal penalty which the prisoner has to serve, plus the payment of all the
indemnities which he has been sentenced to pay, with or without subsidiary imprisonment
depending upon whether or not the principal penalty exceeds 6 years.
Applying that rule to the instant case, we find that the maximum duration of the principal penalty
which the herein petitioner has to serve under his conviction in the 17 cases in question is
threefold of 6 months and 1 day, or 18 months and 3 days, it being understood that he shall be
required to pay to the offended parties the indemnities aggregating P43,436.45, with subsidiary
imprisonment in case of insolvency which shall not exceed one third of the principal penalty.
Assuming that the petitioner will not be able to pay the indemnify, the maximum duration of his
imprisonment shall be 18 months and 1 day of subsidiary imprisonment, or a total of 2 years and
4 days.
It appearing that the petitioner has not yet served his sentence as above reduced, even with
good conduct time allowance, the petition is denied, without any finding as to costs.
(e) Is deficiency assessment necessary before filing a
criminal case? –
i. CIR vs. Pascor Realty GR 128315 June
29, 1999
Facts: Pascor Realty and Development Corporation (PRDC) was found out to be liable for a
total of P10.5 million tax deficiency for the years 1986 and 1987. In March 1995, the
Commissioner of Internal Revenue (CIR) filed a criminal complaint against PRDC with the
Department of Justice. Attached to the criminal complaint was a joint affidavit executed by the
tax examiners.
PRDC then filed a protest with the Court of Tax Appeals (CTA). PRDC averred that the affidavit
attached to the criminal complaint is tantamount to a formal assessment notice (FAN) hence can
be subjected to protest; that there is a simultaneous assessment and filing of criminal case; that
the same is contrary to due process because it is its theory that an assessment should come
first before a criminal case of tax evasion should be filed. The CIR then filed a motion to dismiss
(MTD) on the ground that the CTA has no jurisdiction over the case because the CIR has not yet
issued a FAN against PRDC; that the affidavit attached to the complaint is not a FAN; that since
there is no FAN, there cannot be a valid subject of a protest.
The CTA however denied the MTD. It ruled that the joint affidavit attached to the complaint
submitted to the DOJ constitutes an assessment; that an assessment is defined as simply the
statement of the details and the amount of tax due from a taxpayer; that therefore, the joint
affidavit which contains a computation of the tax liability of PRDC is in effect an assessment
which can be the subject of a protest. This ruling was affirmed by the Court of Appeals.
Issues:
(1) Whether or not the criminal complaint for tax evasion can be construed as an assessment.
(2) Whether or not an assessment is necessary before criminal charges for tax evasion may be
instituted.
Held: No. An assessment contains not only a computation of tax liabilities, but also a demand
for payment within a prescribed period. It also signals the time when penalties and protests
begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies thereon,
due process requires that it must be served on and received by the taxpayer. Accordingly, an
affidavit, which was executed by revenue officers stating the tax liabilities of a taxpayer and
attached to a criminal complaint for tax evasion, cannot be deemed an assessment that can be
questioned before the CTA. Further, such affidavit was not issued to the taxpayer, it was
submitted as an attachment to the DOJ. It must also be noted that not every document coming
from the Bureau of Internal Revenue which provides a computation of the tax liability of a
taxpayer can be considered as an assessment. An assessment is deemed made only when the
CIR releases, mails or sends such notice to the taxpayer.
Anent the issue of the filing of the criminal complaint, Section 222 of the National Internal
Revenue Code specifically states that in cases where a false or fraudulent return is submitted or
in cases of failure to file a return such as this case, proceedings in court may be commenced
without an assessment. Furthermore, Section 205 of the NIRC clearly mandates that the civil
and criminal aspects of the case may be pursued simultaneously.
On September 16, 1975, the petitioner filed a motion to quash the informations upon the
grounds that: (1) the informations are null and void for want of authority on the part of the State
Prosecutor to initiate and prosecute the said cases; and (2) the trial court has no jurisdiction to
take cognizance of the above-entitled cases in view of his pending protest against the
assessment made by the BIR Examiner. 10 However, the trial court denied the motion on October
22, 1975. 11 Whereupon, the petitioner filed the instant recourse. As prayed for, a temporary
restraining order was issued by the Court, ordering the respondent Judge from further
proceeding with the trial and hearing of Criminal Case Nos. 1960, 1961, 1962, 1963, 1964, and
1965 of the Court of First Instance of Davao, all entitled: "People of the Philippines, plaintiff,
versus Quirico Ungab, accused."

ii. Ungab vs. Cusi G.R. Nos. L-41919-24,
May 30, 1980 97 SCRA 877
Facts: In July, 1974, BIR Examiner Ben Garcia examined the income tax returns filed by
the herein petitioner, Quirico P. Ungab, for the calendar year ending December 31, 1973.
In the course of his examination, he discovered that the petitioner failed to report his
income derived from sales of banana saplings. As a result, the BIR District Revenue
Officer at Davao City sent a "Notice of Taxpayer" to the petitioner informing him that there
is due from him (petitioner) the amount of P104,980.81, representing income, business tax
and forest charges for the year 1973 and inviting petitioner to an informal conference
where the petitioner, duly assisted by counsel, may present his objections to the findings
of the BIR Examiner.  1  Upon receipt of the notice, the petitioner wrote the BIR District
Revenue Officer protesting the assessment, claiming that he was only a dealer or agent
on commission basis in the banana sapling business and that his income, as reported in
his income tax returns for the said year, was accurately stated. BIR Examiner Ben Garcia,
however, was fully convinced that the petitioner had filed a fraudulent income tax return so
that he submitted a "Fraud Referral Report," to the Tax Fraud Unit of the Bureau of
Internal Revenue. After examining the records of the case, the Special Investigation
Division of the Bureau of Internal Revenue found sufficient proof that the herein petitioner
is guilty of tax evasion for the taxable year 1973 and recommended his prosecution:
(1) For having filed a false or fraudulent income tax return for 1973 with intent to evade his just
taxes due the government under Section 45 in relation to Section 72 of the National Internal
Revenue Code;
(2) For failure to pay a fixed annual tax of P50.00 a year in 1973 and 1974, or a total of unpaid
fixed taxes of P100.00 plus penalties of 175.00 or a total of P175.00, in accordance with Section
183 of the National Internal Revenue Code;
(3) For failure to pay the 7% percentage tax, as a producer of banana poles or saplings, on the
total sales of P129,580.35 to the Davao Fruit Corporation, depriving thereby the government of
its due revenue in the amount of P15,872.59, inclusive of surcharge. 
Issue: Whether or not the filing of the criminal complaints against the petitioner
were premature since the Commissioner of Internal Revenue has not yet resolved his
protests against the assessment of the Revenue District Officer; and that he was denied
recourse to the Court of Tax Appeals.
Held: The contention is without merit. What is involved here is not the collection of taxes where
the assessment of the Commissioner of Internal Revenue may be reviewed by the Court of Tax
Appeals, but a criminal prosecution for violations of the National Internal Revenue Code which is
within the cognizance of courts of first instance. While there can be no civil action to enforce
collection before the assessment procedures provided in the Code have been followed, there is
no requirement for the precise computation and assessment of the tax before there can be a
criminal prosecution under the Code. 
The contention is made, and is here rejected, that an assessment of the deficiency tax due is
necessary before the taxpayer can be prosecuted criminally for the charges preferred. The crime
is complete when the violator has, as in this case, knowingly and willfully filed fraudulent returns
with intent to evade and defeat a part or all of the tax. 14
An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to
defeat and evade the income tax. A crime is complete when the violator has knowingly and
willfuly filed a fraudulent return with intent to evade and defeat the tax. The perpetration of the
crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate
return, and the government's failure to discover the error and promptly to assess has no
connections with the commission of the crime. 15
Besides, it has been ruled that a petition for reconsideration of an assessment may affect the
suspension of the prescriptive period for the collection of taxes, but not the prescriptive period of
a criminal action for violation of law.16 Obviously, the protest of the petitioner against the
assessment of the District Revenue Officer cannot stop his prosecution for violation of the
National Internal Revenue Code. Accordingly, the respondent Judge did not abuse his discretion
in denying the motion to quash filed by the petitioner.

In a second indorsement to the Chief of the Prosecution Division, dated December 12, 1974, the
Commissioner of Internal Revenue approved the prosecution of the petitioner. 

Thereafter, State Prosecutor Jesus Acebes who had been designated to assist all Provincial and
City Fiscals throughout the Philippines in the investigation and prosecution, if the evidence
warrants, of all violations of the National Internal Revenue Code, as amended, and other related
laws, in Administrative Order No. 116 dated December 5, 1974, and to whom the case was
assigned, conducted a preliminary investigation of the case, and finding probable cause, filed six
(6) informations against the petitioner with the Court of First Instance of Davao City.

iii. CIR, et al. vs. CA et al., GR 119322 June
4, 1996
Facts: A task force was created on June 1, 1993 to investigate tax liabilities of manufacturers
engaged in tax evasion schemes. On July 1, 1993, the CIR issued Rev. Memo Circ. No. 37-93
which reclassified certain cigarette brands manufactured by private respondent Fortune Tobacco
Corp. (Fortune) as foreign brands subject to a higher tax rate. On August 3, 1993, Fortune
questioned the validity of said reclassification as being violative of the right to due process and
equal protection of laws. The CTA, on September 8, 1993 resolved that said reclassification was
of doubtful legality and enjoined its enforcement.
In the meantime, on August 3, 1993, Fortune was assessed deficiencyincome, ad valorem and
VAT for 1992 with payment due within 30 days from receipt. On September 12, 1993, private
respondent moved for reconsideration of said assessment. Meanwhile on September 7, 1993,
the Commissioner filed a complaint with the DOJ against private respondent Fortune, its
corporate officers and 9 other corporations and their respective corporate officers for alleged
fraudulent tax evasion for non-payment of the correct income, ad valorem and VAT for 1992.
The complaint was referred to the DOJ Task Force on revenue cases which found sufficient
basis to further investigate the charges against Fortune.
A subpoena was issued on September 8, 1993 directing private respondent to submit their
counter-affidavits. But it filed a verified motion to dismiss or alternatively, a motion to suspend
but was denied and thus treated as their counter-affidavit. All motions filed thereafter were
denied.
January 4, 1994, private respondents filed a petition for certiorari and prohibition with prayer for
preliminary injunction praying the CIR’s complaint and prosecutor’s orders be dismissed/set
aside or alternatively, that the preliminary investigation be suspended pending determination by
CIR of Fortune’s motion for reconsideration/reinvestigation of the August 13, 1993 assessment
of taxes due.
The trial court granted the petition for a writ of preliminary injunction to enjoin the preliminary
investigation on the complaint for tax evasionpending before the DOJ, ruling that the tax liability
of private respondents first be settled before any complaint for fraudulent tax evasion can be
initiated.
ISSUE: Whether the basis of private respondent’s tax liability first be settled before any
complaint for fraudulent tax evasion can be initiated.
HELD: Fraud cannot be presumed. If there was fraud on willful attempt to evade payment of ad
valorem taxes by private respondent through the manipulation of the registered wholesale price
of the cigarettes, it must have been with the connivance of cooperation of certain BIR officials
and employees who supervised and monitored Fortune’s production activities to see to it that the
correct taxes were paid. But there is no allegation, much less evidence, of BIR personnel’s
malfeasance at the very least, there is the presumption that BIR personnel performed their
duties in the regular course in ensuring that the correct taxes were paid by Fortune.
Before the tax liabilities of Fortune are finally determined, it cannot be correctly asserted that
private respondents have willfully attempted to evade or defeat any tax under Secs. 254 and
256, 1997 NIRC, the fact that a tax is due must first be proved.
iv. Adamson et al. v. CA and Chato, GR Nos.
120935 and 124557. May 21, 2009
Facts: On October 22, 1993, the Commissioner filed with the Department of Justice (DOJ) her
Affidavit of Complaint[2] against AMC, Lucas G. Adamson, Therese June D. Adamson and Sara
S. de los Reyes for violation of Sections 45 (a) and (d) [3], and 110[4], in relation to Section 100 [5],
as penalized under Section 255, [6] and for violation of Section 253[7], in relation to Section 252 (b)
and (d) of the National Internal Revenue Code (NIRC).[8]
 
AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed with the
DOJ a motion to suspend proceedings on the ground of prejudicial question, pendency of a civil
case with the Supreme Court, and pendency of their letter-request for re-investigation with the
Commissioner.  After the preliminary investigation, State Prosecutor Alfredo P. Agcaoili found
probable cause.  The Motion for Reconsideration against the findings of probable cause was
denied by the prosecutor.
 
On April 29, 1994, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes
were charged before the Regional Trial Court (RTC) of Makati, Branch 150 in Criminal Case
Nos. 94-1842 to 94-1846.    They filed a Motion to Dismiss or Suspend the Proceedings.  They
invoked the grounds that there was yet no final assessment of their tax liability, and there were
still pending relevant Supreme Court and CTA cases.  Initially, the trial court denied the
motion.  A Motion for Reconsideration was however filed, this time assailing the trial court’s lack
of jurisdiction over the nature of the subject cases.  On August 8, 1994, the trial court granted
the Motion.  It ruled that the complaints for tax evasion filed by the Commissioner should be
regarded as a decision of the Commissioner regarding the tax liabilities of Lucas G. Adamson,
Therese June D. Adamson and Sara S. de los Reyes, and appealable to the CTA.  It further held
that the said cases cannot proceed independently of the assessment case pending before the
CTA, which has jurisdiction to determine the civil and criminal tax liability of the respondents
therein.
 
On October 10, 1994, the Commissioner filed a Petition for Review with the Court of Appeals
assailing the trial court’s dismissal of the criminal cases.  She averred that it was not a condition
prerequisite that a formal assessment should first be given to the private respondents before she
may file the aforesaid criminal complaints against them.  She argued that the criminal complaints
for tax evasion may proceed independently from the assessment cases pending before the CTA.
 
On March 21, 1995, the Court of Appeals reversed the trial court’s decision and reinstated the
criminal complaints.  The appellate court held that, in a criminal prosecution for tax evasion,
assessment of tax deficiency is not required because the offense of tax evasion is
complete or consummated when the offender has knowingly and willfully filed a
fraudulent return with intent to evade the tax. [9]  It ruled that private respondents filed
false and fraudulent returns with intent to evade taxes, and acting thereupon, petitioner
filed an Affidavit of Complaint with the Department of Justice, without an accompanying
assessment of the tax deficiency of private respondents, in order to commence criminal
action against the latter for tax evasion. [10]
In parallel circumstances, the following events preceded G.R. No. 124557:
On December 1, 1993, AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S.
de los Reyes filed a letter request for re-investigation with the Commissioner of the
“Examiner’s Findings” earlier issued by the Bureau of Internal Revenue (BIR), which
pointed out the tax deficiencies.
On March 15, 1994 before the Commissioner could act on their letter-request, AMC, Lucas
G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed a Petition for
Review with the CTA.  They assailed the Commissioner’s finding of tax evasion against
them. The Commissioner moved to dismiss the petition, on the ground that it was
premature, as she had not yet issued a formal assessment of the tax liability of therein
petitioners.  On September 19, 1994, the CTA denied the Motion to Dismiss.  It
considered the criminal complaint filed by the Commissioner with the DOJ as an implied
formal assessment, and the filing of the criminal informations with the RTC as a denial of
petitioners’ protest regarding the tax deficiency.
 
The Commissioner repaired to the Court of Appeals on the ground that the  CTA acted with
grave abuse of discretion.  She contended that, with regard to the protest provided under
Section 229 of the NIRC, there must first be a formal assessment issued by the
Commissioner, and it must be in accord with Section 6 of Revenue Regulation No. 12-
85.  She maintained that she had not yet issued a formal assessment of tax liability, and
the tax deficiency amounts mentioned in her criminal complaint with the DOJ were given
only to show the difference between the tax returns filed and the audit findings of the
revenue examiner.
 
The Court of Appeals sustained the CTA’s denial of the Commissioner’s Motion to
Dismiss. 
ISSUES:
1. Whether the Commissioner’s recommendation letter can be considered as a formal
assessment of private respondents’ tax liability.
2. Whether the filing of the criminal complaints against the private respondents by the
DOJ is premature for lack of a formal assessment.
HELD #1:
We rule that the recommendation letter of the Commissioner cannot be considered a
formal assessment.  Even a cursory perusal of the said letter would reveal three key points:
1.     It was not addressed to the taxpayers.
2.     There was no demand made on the taxpayers to pay the tax liability,
nor a period for payment set therein.
3.     The letter was never mailed or sent to the taxpayers by the Commissioner.
 
In fine, the said recommendation letter served merely as the prima facie basis for filing criminal
informations that the taxpayers had violated Section 45 (a) and (d), and 110, in relation to
Section 100, as penalized under Section 255, and for violation of Section 253, in relation to
Section 252 9(b) and (d)  of the Tax Code.
HELD #2:
Section 269 of the NIRC (now Section 222 of the Tax Reform Act of 1997) provides:
Sec. 269.  Exceptions as to period of limitation of assessment and collection of taxes.-
(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file
a return, the tax may be assessed, or a proceeding in court after 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: Provided, That in a fraud assessment which has
become final and executory, the fact of fraud shall be judicially taken cognizance of in
the civil or criminal action for collection thereof…
         The law is clear.  When fraudulent tax returns are involved as in the cases at bar, a
proceeding in court after the collection of such tax may be begun without
assessment.  Here, the private respondents had already filed the capital gains tax return and
the VAT returns, and paid the taxes they have declared due therefrom.  Upon investigation of
the examiners of the BIR, there was a preliminary finding of gross discrepancy in the
computation of the capital gains taxes due from the sale of two lots of AAI shares, first to APAC
and then to APAC Philippines, Limited.  The examiners also found that the VAT had not been
paid for VAT-liable sale of services for the third and fourth quarters of 1990.  Arguably, the gross
disparity in the taxes due and the amounts actually declared by the private respondents
constitutes badges of fraud. 
Thus, the applicability of Ungab v. Cusi[25] is evident to the cases at bar.  In this
seminal case, this Court ruled that there was no need for precise computation and formal
assessment in order for criminal complaints to be filed against him.  It quoted Merten’s Law of
Federal Income Taxation, Vol. 10, Sec. 55A.05, p. 21, thus:
An assessment of a deficiency is not necessary to a criminal prosecution for willful
attempt to defeat and evade the income tax.  A crime is complete when the violator
has knowingly and willfully filed a fraudulent return, with intent to evade and defeat the
tax.  The perpetration of the crime is grounded upon knowledge on the part of the
taxpayer that he has made an inaccurate return, and the government’s failure to
discover the error and promptly to assess has no connections with the commission of
the crime. 
This hoary principle still underlies Section 269 and related provisions of the present Tax Code.
2. Others
(1) Tax Lien
(a) Sec 219
SEC. 219. Nature and Extent of Tax Lien. - If any person, corporation,
partnership, joint-account (cuentas en participacion), association or
insurance company liable to pay an internal revenue tax, neglects or
refuses to pay the same after demand, the amount shall be a lien in favor
of the Government of the Philippines from the time when the assessment
was made by the Commissioner until paid, with interests, penalties, and
costs that may accrue in addition thereto upon all property and rights to
property belonging to the taxpayer: Provided, That this lien shall not be
valid against any mortgagee, purchaser or judgment creditor until notice of
such lien shall be filed by the Commissioner in the office of the Register of
Deeds of the province or city where the property of the taxpayer is situated
or located.

(b) Preferences of liens
i. CIR vs. NLRC et al GR 74965 238 SCRA 42
FACTS: On January 12, 1984 the Commissioner of the Internal Revenue sent two letters3 of
demand to the respondent Maritime Company of the Philippines for deficiency common carrier's
tax, fixed tax, 6% Commercial Broker's tax, documentary stamp tax, income tax and withholding
taxes in the total amount of P17,284,882.45.
The assessment became final and executory as private respondent did not contest it. But as
private respondent did not pay its tax liability either, the Commissioner of Internal Revenue
issued warrants of distraint of personal property and levy of real property of private respondent.
Copies of the warrants, both dated January 23, 1985, were served on January 28, 1985 on Yoly
T. Petrache, private respondent's accountant.4
On April 16, 1985 a "Receipt for Goods, Articles, and Things Seized5 under Authority of the
National Internal Revenue Code" was executed, covering, among other things, six barges
identified as MCP-1,2,3,4,5 and 6. This receipt is required by § 303 (now § 206) of the NIRC as
proof of the constructive distraint of property. It is an undertaking by the taxpayer or person in
possession of the property covered that he will preserve the property and deliver it upon order of
the court or the Internal Revenue Commissioner.
The receipt was prepared by the BIR for the signature of a representative of respondent
Maritime Company of the Philippines, but it was not in fact signed. Petitioner later explained that
the individuals who had possession of the barges had refused to sign the receipt.
This circumstance has given rise to the question in this case as it appears that four of the barges
placed under constructive distraint were levied upon execution by respondent deputy sheriff of
Manila on July 20, 1985 to satisfy a judgment for unpaid wages and other benefits of employees
of respondent Maritime Company of the Philippines. More specifically, the question in this case
is the validity of the warrant of distraint served by the Revenue Seizure Officer against the writ of
execution subsequently levied upon the same property by the deputy sheriff of Manila to satisfy
the claims of employees in NLRC Case No. NCR-12-4233-84 (Domingo C. Niangar, et al. v.
Maritime Company of the Philippines) for P490,749.21.
The four barges were sold by respondent deputy sheriff at a public auction on August 12, 1985.
The highest bidder, Daniel C. Sabino, subsequently sold them to private respondents Fernando
S. Tuliao and Tulmar Trading Corporation.
On September 4, 1985, petitioner asked the Labor Arbiter to annul the sale and to enjoin the
sheriff from disposing of the proceeds of the sale or, in the alternative, to remit them to the
Bureau of Internal Revenue so that the amount could be applied to the payment of private
respondent Maritime Company's tax liabilities.
In an order dated September 30, 1985, Labor Arbiter Ceferina Diosana denied the motion on the
ground that petitioner Commissioner of Internal Revenue failed to show that the barges which
were levied upon in execution and sold at public auction had been validly placed under
constructive distraint.6 The Labor Arbiter likewise rejected petitioner's contention that the
government's claim for taxes was preferred under Art. 2247, in relation to Art. 2241(1) of the Civil
Code, on the ground that under this provisions only taxes and fees which are due on specific
movables enjoy preference, whereas the taxes claimed by petitioner were not due on the four
barges in question.
The order was appealed to the NLRC, which in resolution dated April 4, 1986, affirmed the
denial of the Internal Revenue Commissioner's motion. Hence this petition for certiorari.
For reasons to be presently stated, the petition is granted.
The National Internal Revenue Code provides for the collection of delinquent taxes by any of the
following remedies: (a) distraint of personal property or levy of real property of the delinquent
taxpayer and (b) civil or criminal action.
With respect to the four barges in question, petitioner resorted to constructive distraint pursuant
to § 303 (now § 206) of the NLRC. This provisions states:
Constructive distraint of the property of a taxpayer. — To safeguard the
interest of the Government, the Commissioner of Internal Revenue may
place under constructive distraint the property of a delinquent taxpayer or
any taxpayer who, in his opinion, is retiring from any business subject to tax,
or intends to leave the Philippines, or remove his property therefrom, or hide
or conceal his property, or perform any act tending to obstruct the
proceedings, for collecting the tax due or which may be due from him.
The constructive distraint of personal property shall be effected by requiring
the taxpayer or any person having possession or control of such property to
sign a receipt covering the property distrained and obligate himself to
preserve the same intact and unaltered and not to dispose of the same in
any manner whatever without the express authority of the Commissioner of
Internal Revenue.
In case the taxpayer or the person having the possession and control of the
property sought to be placed under constructive distraint refuses or fails to
sign the receipt herein referred to, the revenue officer effecting the
constructive distraint shall proceed to prepare a list of such property and in
the presence of two witnesses leave a copy thereof in the premises where
the property distrained is located, after which the said property shall be
deemed to have been placed under constructive distraint..
Although the warrant of distraint in this case had been issued earlier (January 23,1985) than the
levy on execution in the labor case on July 20, 1985, the Labor Arbiter nevertheless held that
there was no valid distraint of personal property on the ground that the receipt of property
distrained had not been signed by the taxpayer as required above. In her order, which the NLRC
affirmed in toto, the Labor Arbiter said:
It is claimed by the Commissioner of the Internal Revenue that on January 23, 1984, he issued a
warrant of distraint of personal property on respondent to satisfy the collection of the deficiency
taxes in the aggregate sum of P17,284,882.45 and a copy of said warrant was served upon
Maritime Company on January 28, 1985 and pursuant to the warrant, the Commissioner,
through Revenue Seizure Agent Roland L. Bombay, issued on April 16, 1985, to Maritime
Company a receipt for goods, articles and things seized pursuant to authority granted to him
under the National Internal Revenue Code. Such personal properties seized includes, among
others, "Six (6) units of barges MCI-6 . . . " However, his own receipts for goods attached to his
motions does not show that it was received by Maritime; neither does it show any signature of
any of Maritime's Officers.
Apart from the foregoing, in his affidavit of 11 September 1985, Sheriff Cachero stated that
before he sold the subject four barges at public auction, he conducted an investigation on the
ownership of the said four barges. In brief, he found out that the said four barges were
purchased by respondent through Makati Leasing and that the whole purchase price has been
paid by respondent. In fact, the corresponding deed of sale has already been signed. He did not
find any lien or encumbrance on any of the said four barges. Thus it cannot be true that the
Commissioner effected a valid warrant of distraint of personal property on the four barges in
question.7
well as the notice of their seizure were made by petitioner, through the Commissioner of the
Internal Revenue, long before the writ of the execution was issued by the Regional Trial Court of
Manila, Branch 31. There is no question then that at the time the writ of execution was issued,
the two (2) barges, MPC-1 and MCP-4, were no longer properties of the Maritime Company of
the Philippines. The power of the court in execution of judgments extends only to properties
unquestionably belonging to the judgment debtor. Execution sales affect the rights of the
judgment debtor only, and the purchaser in an auction sale acquires only such right as the
judgment debtor had at the time of sale. It is also well-settled that the sheriff is not authorized to
attach or levy on property not belonging to the judgment debtor.
Nor is there any merit in the contention of the NLRC that taxes are absolutely preferred claims
only with respect to movable or immovable properties on which they are due and that since the
taxes sought to be collected in this case are not due on the barges in question the government's
claim cannot prevail over the claims of employees of the Maritime Company of the Philippines
which, pursuant to Art. 110 of the Labor Code, "enjoy first preference."

However, this case arose out of the same facts involved in Republic v. Enriquez,8 in which we In Republic v. Peralta 12 this Court rejected a similar contention. Through Mr. Justice Feliciano
sustained the validity of the distraint of the six barges, which included the four involved in this we held:
case, against the levy on execution made by another deputy sheriff of Manila in another case
filed against Maritime Company. Two barges (MCP-1 and MCP-4) were the subject of a levy in
. . . [T]he claim of the Bureau of Internal Revenue for unpaid tobacco inspection fees constitutes
the case. There we found that the "Receipt for Goods, Articles and Things Seized under
a claim for unpaid internal revenue taxes which gives rise to a tax lien upon all the properties
Authority of the National Internal Revenue Code" covering the six barges had been duly
and assets, movable or immovable, of the insolvent as taxpayer. Clearly, under Articles 2241
executed, with the Headquarters, First Coast Guard District, Farola Compound Binondo, Manila
No. 1, 2242 No. 1, and 2246-2249 of the Civil Code, this tax claim must be given preference
acknowledging receipt of several barges, vehicles and two (2) bodegas of spare parts belonging
over any other claim of any other creditor, in respect of any and all properties of the insolvent.
to Maritime Company of the Philippines.

Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees
Apparently, what had been attached to the petitioner's motion filed by the government with the
for unpaid wages either upon all of the properties or upon any particular property owned by their
Labor Arbiter in this case was a copy, not the original one showing the rubber stamp of the
employer. Claims for unpaid wages do not therefore fall at all within the category of specially
Coast Guard and duly signed by its representative. A xerox copy of this signed receipt was
preferred claims established under Articles 2241 and 2242 of the Civil Code, except to the
submitted in the prior case.9 This could be due to the fact that, except for Solicitor Erlinda B.
extent that such claims for unpaid wages are already covered by Article 2241, number 6: "claims
Masakayan, the government lawyers who prepared the petition in the prior case were different
for laborer's wages, on the goods manufactured or the work done," or by Article 2242, number 3:
from those who filed the present petition. They admitted that the receipt of property distrained
"claims of laborers and other workers engaged in the construction, reconstruction or repair of
had not been signed by the taxpayer or person in possession of the taxpayer's property allegedly
buildings, canals and other works, upon said buildings, canals or other works." To the extent that
because they had refused to do so. What apparently they did not know is that the receipt had
claims for unpaid wages fall outside the scope of Article 2241, number 6 and 2242, number 3,
been acknowledged by the Coast Guard which obviously had the barges in its possession.
they would come with the ambit of the category of ordinary preferred credits under Article 2244.

In addition to the receipt duly acknowledged by the Coast Guard, the record of the prior case
Applying Article 2241, number 6 to the instant case, the claims of the Unions for separation pay
also shows that on October 4, 1985, the Commissioner of the Internal Revenue issued a "Notice
of their members constitute liens attaching to the processed leaf tobacco, cigars and cigarettes
of Seizure of Personal Property" stating that the goods and chattels listed on its reverse side,
and other products produced or manufactured by the Insolvent, but not to other assets owned by
among which were the four barges (MCP-2, MCP-3, MCP-5, and MCP-6), had been distrained
the Insolvent. And even in respect of such tobacco and tobacco products produced by the
by the Commissioner of Internal Revenue. 10
Insolvent, the claims of the Unions may be given effect only after the Bureau of Internal
Revenue's claim for unpaid tobacco inspection fees shall have been satisfied out of the products
The "Notice of Seizure of Personal Property," a copy of which was received by Atty. Redentor R. so manufactured by the Insolvent.
Melo in behalf of Maritime Company of the Philippines, together with the receipt of the Coast
Guard, belies the claim of respondent deputy sheriff that when he levied upon the four barges
Article 2242, number 3, also creates a lien or encumbrance upon a building or other real
there was no indication that the barges had previously been placed under distraint by the
property of the Insolvent in favor of workmen who constructed or repaired such building or other
Commissioner of Internal Revenue.
real property. Article 2242, number 3, does not however appear relevant in the instant case,
since the members of the Unions to whom separation pay is due rendered services to the
Accordingly, what we said in the prior case 11 in upholding the validity of distraint of two of the six Insolvent not (so far as the record of this case would show) in the construction or repair of
barges (MCP Nos. 1 and 4), fully applies in this case: buildings or other real property, but rather, in the regular course of the manufacturing operations
of the Insolvent. The Unions' claims do not therefore constitute a lien or encumbrance upon any
immovable property owned by the insolvent, but rather, as already indicated, upon the
It is settled that the claim of the government predicated on a tax lien is superior to the claim of a
Insolvent's existing inventory (if any) of processed tobacco and tobacco products.
private litigant predicated on a judgment. The tax lien attaches not only from the service of the
warrant of distraint of personal property but from the time the tax became due and payable.
Besides, the distraint on the subject properties of the Maritime Company of the Philippines as
In addition, we have held 13 that Art. 110 of the Labor Code applies only in case of bankruptcy or
judicial liquidation of the employer. This is clear from the text of the law.
Art. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of
an employer's business, his workers shall enjoy first preference as regards wages due them for
services rendered during the period prior to the bankruptcy or liquidation, any provision of law to
the contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may
establish any claims to a share in the assets of the employer.
This case does not involve the liquidation of the employer's business.
(c) Other liens Sec 107(B), Sec 131(A)
SEC. 107. Value-Added Tax on Importation of Goods.
B)  Transfer of Goods by Tax-exempt Persons. - In the case of tax-free
importation of goods into the Philippines by persons, entities or agencies
exempt from tax where such goods are subsequently sold, transferred or
exchanged in the Philippines to non-exempt persons or entities, the
purchasers, transferees or recipients shall be considered the importers
thereof, who shall be liable for any internal revenue tax on such
importation. The tax due on such importation shall constitute a lien on the
goods superior to all charges or liens on the goods, irrespective of the
possessor thereof.
SEC. 131. Payment of Excise Taxes on Imported Articles. -
(A) Persons Liable. - Excise taxes on imported articles shall be paid by
the owner or importer to the Custom Officers, conformably with the
regulations of the Department of Finance and before the release of such
articles from the customs house, or by the person who is found in
possession of articles which are exempt from excise taxes other than those
legally entitled to exemption.
In the case of tax-free articles brought or imported into the Philippines by
persons, entities, or agencies exempt from tax which are subsequently
sold, transferred or exchanged in the Philippines to non-exempt persons or
entitles, the purchasers or recipients shall be considered the importers
thereof, and shall be liable for the duty and internal revenue tax due on
such importation.
The provision of any special or general law to the contrary notwithstanding,
the importation of cigars and cigarettes, distilled spirits, fermented liquors
and wines into the Philippines, even if destined for tax and duty free shops,
shall be subject to all applicable taxes, duties, charges, including excise
taxes due thereon. This shall apply to cigars and cigarettes, distilled spirits,
fermented liquors and wines brought directly into the duly chartered or
legislated freeports of the Subic Special Economic and Freeport Zone,
created under Republic Act No. 7227; the Cagayan Special Economic Zone
and Freeport, created under Republic Act No. 7922; and the Zamboanga
City Special Economic Zone, created under Republic Act No. 7903,and such
other freeports as may hereafter be established or created by law:
Provided, further, That nothwithstanding the provisions of Republic Act
Nos. 9400 and 9593, importations of cigars and cigarettes, distilled spirits,
fermented liquors and wines made directly by a government-owned and
operated duty-free shop, like the Duty-Free Philippines (DFP), shall be
exempted from all applicable duties only: Provided, still further, That such
articles directly imported by a government-owned and operated duty-free
shop like the Duty-Free Philippines, shall be labeled 'duty-free' and 'not
for resale': Provided, finally, That the removal and transfer of tax and
duty-free goods, products, machinery, equipment and other similar articles
other than cigars and cigarettes, distilled spirits, fermented liquors and
wines, from one freeport to another freeport, shall not be deemed an
introduction into the Philippine customs territory. [89]
Cigars and cigarettes, distilled spirits and wines within the premises of all
duty-free shops which are not labeled as herein above required, as well as
tax and duty-free articles obtained from a duty free shop and subsequently
found in a non duty-free shop to be offered for resale shall be confiscated,
and the perpetrator of such non-labeling or re-selling shall be punishable
under the applicable provisions of this Code.
Articles confiscated shall de destroyed using the most environmentally
friendly method available in accordance with the rules and regulations to
be promulgated by the Secretary of Finance, upon recommendation of the
Commissioners of Customs and Internal Revenue.
The tax due on any such goods, products, machinery, equipment or other
similar articles shall constitute a lien on the article itself, and such lien shall
be superior to all other charges or liens, irrespective of the possessor
thereof.
(2) Compromise Sec 204 (A)
SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or
Credit Taxes. - The Commissioner may
(A) Compromise the Payment of any Internal Revenue Tax, when:
(1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or(2)
The financial position of the taxpayer demonstrates a clear inability to pay the assessed
tax.
The compromise settlement of any tax liability shall be subject to the following minimum
amounts:
For cases of financial incapacity, a minimum compromise rate equivalent to ten percent
(10%) of the basic assessed tax; and

For other cases, a minimum compromise rate equivalent to forty percent (40%) of the
basic assessed tax.
Where the basic tax involved exceeds One million pesos (P1,000.000) or where the
settlement offered is less than the prescribed minimum rates, the compromise shall be
subject to the approval of the Evaluation Board which shall be composed of the
Commissioner and the four (4) Deputy Commissioners.
(a) RR 30-2002, RR 9-2013, RMC 34-2014
(b) Grounds to accept compromise
(c) Cases which may be compromised
(d) Case which may not be compromised
(e) Delegation of power to compromise Sec 7(c)
SEC. 7.Authority of the Commissioner to Delegate Power. - The
Commissioner may delegate the powers vested in him under the pertinent
provisions of this Code to any or such subordinate officials with the rank
equivalent to a division chief or higher, subject to such limitations and
restrictions as may be imposed under rules and regulations to be
promulgated by the Secretary of Finance, upon recommendation of the
Commissioner: Provided, however, That the following powers of the
Commissioner shall not be delegated:
(c) The power to compromise or abate, under Sec. 204 (A) and (B) of this
Code, any tax liability: Provided, however, That assessments issued by the
regional offices involving basic deficiency taxes of Five hundred thousand
pesos (P500,000) or less, and minor criminal violations, as may be
determined by rules and regulations to be promulgated by the Secretary of
finance, upon recommendation of the Commissioner, discovered by
regional and district officials, may be compromised by a regional
evaluation board which shall be composed of the Regional Director as
Chairman, the Assistant Regional Director, the heads of the Legal,
Assessment and Collection Divisions and the Revenue District Officer
having jurisdiction over the taxpayer, as members;
(f) Imposition of compromise penalty RR 12-99,
RMO 1-90
(3) Abatement Sec 204 (B)
(B) Abate or Cancel a Tax Liability, when:
(1) The tax or any portion thereof appears to be unjustly or excessively assessed; or(2)
The administration and collection costs involved do not justify the collection of the
amount due.
All criminal violations may be compromised except: (a) those already filed in court, or
(b) those involving fraud.
(a) Grounds to accept abate RR 13-2001
(4) Forfeiture Sec 224, Sec 225, Sec 226, Sec 230, Sec 231
SEC. 224. Remedy for Enforcement of Forfeitures. - The forfeiture of chattels and
removable fixtures of any sort shall be enforced by the seizure and sale, or destruction, of
the specific forfeited property.
The forfeiture of real property shall be enforced by a judgment of condemnation and sale
in a legal action or proceeding, civil or criminal, as the case may require.
SEC. 225. When Property to be Sold or Destroyed. - Sales of forfeited chattels and
removable fixtures shall be effected, so far as practicable, in the same manner and under
the same conditions as the public notice and the time and manner of sale as are
prescribed for sales of personal property distrained for the non-payment of taxes.
Distilled spirits, liquors, cigars, cigarettes, other manufactured products of tobacco, and
all apparatus used I or about the illicit production of such articles may, upon forfeiture,
be destroyed by order of the Commissioner, when the sale of the same for consumption
or use would be injurious to public health or prejudicial to the enforcement of the law.
All other articles subject to excise tax, which have been manufactured or removed in
violation of this Code, as well as dies for the printing or making of internal revenue
stamps and labels which are in imitation of or purport to be lawful stamps, or labels may,
upon forfeiture, be sold or destroyed in the discretion of the Commissioner.
Forfeited property shall not be destroyed until at least twenty (20) days after seizure.
SEC. 226. Disposition of funds Recovered in Legal Proceedings or Obtained from
Forfeitures. - all judgments and monies recovered and received for taxes, costs,
forfeitures, fines and penalties shall be paid to the Commissioner or his authorized
deputies as the taxes themselves are required to be paid, and except as specially
provided, shall be accounted for and dealt with the same way.
SEC. 230. Forfeiture of Cash Refund and of Tax Credit. -
(A) Forfeiture of Refund.- A refund check or warrant issued in accordance with the
pertinent provisions of this Code, which shall remain unclaimed or uncashed within five
(5) years from the date the said warrant or check was mailed or delivered, shall be
forfeited in favor of the Government and the amount thereof shall revert to the general
fund.
(B) Forfeiture of Tax Credit. - A tax credit certificate issued in accordance with the
pertinent provisions of this Code, which shall remain unutilized after five (5) years from
the date of issue, shall, unless revalidated, be considered invalid, and shall not be allowed
as payment for internal revenue tax liabilities of the taxpayer, and the amount covered
by the certificate shall revert to the general fund.
(C) Transitory Provision. - For purposes of the preceding Subsection, a tax credit
certificate issued by the Commissioner or his duly authorized representative prior to
January 1, 1998, which remains unutilized or has a creditable balance as of said date,
shall be presented for revalidation with the Commissioner or his duly authorized
representative or on before June 30, 1998.
SEC. 231. Action to Contest Forfeiture of Chattel. - In case of the seizure of personal
property under claim of forfeiture, the owner desiring to contest the validity of the
forfeiture may, at any time before sale or destruction of the property, bring an action
against the person seizing the property or having possession thereof to recover the same,
and upon giving proper bond, may enjoin the sale; or after the sale and within six (6)
months, he may bring an action to recover the net proceeds realized at the sale.
(a) Forfeiture vs. seizure
(b) Still subject to criminal action
(5) Suspension of business operation of VAT taxpayer Sec
115
SEC. 115. Power of the Commissioner to Suspend the Business
Operations of a Taxpayer. - The Commissioner or his authorized
representative is hereby empowered to suspend the business operations
and temporarily close the business establishment of any person for any of
the following violations:
(a) In the case of a VAT-registered Person. –
(1) Failure to issue receipts or invoices;
(2) Failure to file a value-added tax return as required under Section 114;
or
(3) Understatement of taxable sales or receipts by thirty percent (30%) or
more of his correct taxable sales or receipts for the taxable quarter.
(b) Failure of any Person to Register as Required under Section 236.
The temporary closure of the establishment shall be for the duration of not
less than five (5) days and shall be lifted only upon compliance with
whatever requirements prescribed by the Commissioner in the closure
order.
(6) Enforcement of Civil Penalties
(a) RR 12-99
(b) Sec 248 – 249
SEC. 248. Civil Penalties. -
(A) There shall be imposed, in addition to the tax required to be paid, a
penalty equivalent to twenty-five percent (25%) of the amount due, in the
following cases:
(1)  Failure to file any return and pay the tax due thereon as
required under the provisions of this Code or rules and regulations
on the date prescribed; or
(2)  Unless otherwise authorized by the Commissioner, filing a
return with an internal revenue officer other than those with whom
the return is required to be filed; or
(3)  Failure to pay the deficiency tax within the time prescribed for
its payment in the notice of assessment; or
(4)  Failure to pay the full or part of the amount of tax shown on
any return required to be filed under the provisions of this Code or
rules and regulations, or the full amount of tax due for which no
return is required to be filed, on or before the date prescribed for
its payment.
(B) In case of willful neglect to file the return within the period prescribed
by this Code or by rules and regulations, or in case a false or fraudulent
return is willfully made, the penalty to be imposed shall be fifty percent
(50%) of the tax or of the deficiency tax, in case, any payment has been
made on the basis of such return before the discovery of the falsity or
fraud: Provided, That a substantial under-declaration of taxable sales,
receipts or income, or a substantial overstatement of deductions, as
determined by the Commissioner pursuant to the rules and regulations to
be promulgated by the Secretary of Finance, shall constitute prima facie
evidence of a false or fraudulent return: Provided, further, That failure to
report sales, receipts or income in an amount exceeding thirty percent
(30%) of that declared per return, and a claim of deductions in an amount
exceeding (30%) of actual deductions, shall render the taxpayer liable for
substantial under-declaration of sales, receipts or income or for
overstatement of deductions, as mentioned herein.
SEC. 249. Interest. -
(A) In General. - There shall be assessed and collected on any unpaid
amount of tax, interest at the rate of twenty percent (20%) per annum, or
such higher rate as may be prescribed by rules and regulations, from the
date prescribed for payment until the amount is fully paid.
(B) Deficiency Interest. - Any deficiency in the tax due, as the term is
defined in this Code, shall be subject to the interest prescribed in
Subsection (A) hereof, which interest shall be assessed and collected from
the date prescribed for its payment until the full payment thereof.
(C) Delinquency Interest. - In case of failure to pay:
(1)  The amount of the tax due on any return to be filed, or
(2)  The amount of the tax due for which no return is required, or
(3)  A deficiency tax, or any surcharge or interest thereon on the due date
appearing in the notice and demand of the Commissioner, there shall be
assessed and collected on the unpaid amount, interest at the rate
prescribed in Subsection (A) hereof until the amount is fully paid, which
interest shall form part of the tax. 2
(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a
return, the tax may be assessed, or a proceeding in court for the collection of such tax
may be filed without assessment, at any time within ten (10) years after the discovery of
the falsity, fraud or omission: Provided, That in a fraud assessment which has become
final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof.

(D) Interest on Extended Payment. - If any person required to pay the
tax is qualified and elects to pay the tax on installment under the
provisions of this Code, but fails to pay the tax or any installment hereof, or
any part of such amount or installment on or before the date prescribed for
its payment, or where the Commissioner has authorized an extension of
time within which to pay a tax or a deficiency tax or any part thereof, there
shall be assessed and collected interest at the rate hereinabove prescribed
on the tax or deficiency tax or any part thereof unpaid from the date of
notice and demand until it is paid.
(b) If before the expiration of the time prescribed in Section 203 for the assessment of
the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment
after such time, the tax may be assessed within the period agreed upon.
The period so agreed upon may be extended by subsequent written agreement made
before the expiration of the period previously agreed upon.
(c) Any internal revenue tax which has been assessed within the period of limitation as
prescribed in paragraph (a) hereof may be collected by distraint or levy or by a
proceeding in court within five (5) years following the assessment of the tax.

(d) Any internal revenue tax, which has been assessed within the period agreed upon as
VIII. STATUTE OF LIMITATIONS provided in paragraph (b) hereinabove, may be collected by distraint or levy or by a
proceeding in court within the period agreed upon in writing before the expiration of the
five (5) -year period.
A. Prescription of Right to Assess
The period so agreed upon may be extended by subsequent written agreements made
1. General Rule Sec 203 before the expiration of the period previously agreed upon.

SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as provided (e) Provided, however, That nothing in the immediately preceding and paragraph (a)
in Section 222, internal revenue taxes shall be assessed within three (3) years after the hereof shall be construed to authorize the examination and investigation or inquiry into
last day prescribed by law for the filing of the return, and no proceeding in court without any tax return filed in accordance with the provisions of any tax amnesty law or decree.
assessment for the collection of such taxes shall be begun after the expiration of such
period: Provided, That in a case where a return is filed beyond the period prescribed by
law, the three (3)-year period shall be counted from the day the return was filed.

For purposes of this Section, a return filed before the last day prescribed by law for the
filing thereof shall be considered as filed on such last day.

2. Counting the prescriptive period

a. Counting of the three years RMC 48-90
b. Date of filing tax returns/amended returns/wrong return
c. Failure to file return
d. When law does not prescribe filing of return
3. Exception Sec 222
SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of
Taxes. -
 a. Exception Sec 222
SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of
Taxes. -
(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a
return, the tax may be assessed, or a proceeding in court for the collection of such tax
may be filed without assessment, at any time within ten (10) years after the discovery of
the falsity, fraud or omission: Provided, That in a fraud assessment which has become
final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof.
(b) If before the expiration of the time prescribed in Section 203 for the assessment of
the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment
after such time, the tax may be assessed within the period agreed upon.
The period so agreed upon may be extended by subsequent written agreement made
before the expiration of the period previously agreed upon.
(c) Any internal revenue tax which has been assessed within the period of limitation as
prescribed in paragraph (a) hereof may be collected by distraint or levy or by a
proceeding in court within five (5) years following the assessment of the tax.
(d) Any internal revenue tax, which has been assessed within the period agreed upon as
provided in paragraph (b) hereinabove, may be collected by distraint or levy or by a
proceeding in court within the period agreed upon in writing before the expiration of the
five (5) -year period.
The period so agreed upon may be extended by subsequent written agreements made
before the expiration of the period previously agreed upon.
(e) Provided, however, That nothing in the immediately preceding and paragraph (a)
hereof shall be construed to authorize the examination and investigation or inquiry into
any tax return filed in accordance with the provisions of any tax amnesty law or decree.
4. Waiver of Prescription
5. Cases:
a. CIR vs. Western Pacific Corp L-188804 May 27,
1965
Facts: Respondent was assessed for P3,731.00, as deficiency income tax for the year
1953 which was brought about by the disallowance of P8,265.82, listed in
respondent's return for 1953, as expense items, and P10,387.50, as written off "bad
debts." The assessment was received by respondent on the same date (March 2,
1959). On March 5, 1959, the CIR wrote a letter of demand for the payment of the
amount, including a breakdown of said assessment. Under date of June 29, 1959,
respondent requested for non-assessment, claiming that there has been prescription
in making the assessment, that the expense items and bad debts were allowable
deduction. The Commissioner on July 30, 1959 denied the same, and demanded for
payment within 30 days from receipt of said demand. On September 19, 1959,
respondent requested that it be permitted until September 25, 1959, to submit formal
objections to the assessment. The formal objections appearing in the letter of
September 22, 1959, were identical to those of the June 29, 1959 communication.
The last letter of the Commissioner, dated October 28, 1959, among others,
requested payment of the assessment within 10 days from receipt.
Respondent appealed to the CTA, which absolved respondent but not based on
prescription.
Issue: Whether or not the action has prescribed
Held: YES. The Court that the assessment made by the Commissioner should be
maintained, for the simple reason that when the petition for review was brought to the
CTA who no longer had jurisdiction to entertain the same. The assessment had long
become final. A petition for review should be presented, within the reglementary
period, which is 30 days from receipt of the assessment. The 30 day period is
jurisdictional. The assessment was received on March 2, 1959. It was only on June
29, 1959, when said corporation formally assailed the assessment, on the grounds of
prescription in making the assessment and the impropriety of the disallowance of the
listed deductions. From March 3 to June 29, 1959, manifestly more than the 30 days
had lapsed and the assessment became final, executory and demandable. Failure to
comply with the 30 day statutory period would bar appeal and deprive the CTA of its
jurisdiction. The decision of the CTA is set aside for having been rendered without
jurisdiction, the assessment in question having been already final, executory and
demandable before the petition for review was presented.
b. CIR vs. Phoenix Assurance Co., Ltd L-19127 May
20, 1965
Facts: Phoenix Assurance Co., Ltd., a foreign insurance corporation organized under
the laws of Great Britain, is licensed to do business in the Philippines with head office
in London. Through its head office, it entered in London into worldwide reinsurance
treaties with various foreign insurance companies. It agree to cede a portion of
premiums received on original insurances underwritten by its head office,
subsidiaries, and branch offices throughout the world, in consideration for assumption
by the foreign insurance companies of an equivalent portion of the liability from such
original insurances.
On August 1, 1958 the Bureau of Internal Revenue deficiency assessment on income
tax for the years 1952 and 1954 against Phoenix Assurance Co, Ltd. The assessment
resulted from the disallowance of a portion of the deduction claimed by Phoenix
Assurance Co., Ltd. as head office expenses allocable to its business in the
Philippines fixed by the Commissioner at 5% of the net Philippine income instead of
5% of the gross Philippine income as claimed in the returns.
Phoenix Assurance Co., Ltd. protested against the aforesaid assessments for
withholding tax and deficiency income tax. However, the Commissioner of Internal
Revenue denied such protest. Subsequently, Phoenix Assurance Co., Ltd. appealed
to the Court of Tax Appeals. In a decision dated February 14, 1962, the Court of Tax
Appeals allowed in full the decision claimed by Phoenix Assurance Co., Ltd. for 1950
as net addition to marine insurance reserve; determined the allowable head office
expenses allocable to Philippine business to be 5% of the net income in the
Philippines; declared the right of the Commissioner of Internal Revenue to assess
deficiency income tax for 1952 to have prescribed; absolved Phoenix Assurance Co.,
Ltd. from payment of the statutory penalties for non-filing of withholding tax return.
Issues:
(1) Whether or not reinsurance premiums ceded to foreign reinsurers not doing
business in the Philippines pursuant to reinsurance contracts executed abroad are
subject to withholding tax;
(2) Whether or not the right of the Commissioner of Internal Revenue to assess
deficiency income tax for the year 1952 against Phoenix Assurance Co., Ltd. has
prescribed;
Held:
The question of whether or not reinsurance premiums ceded to foreign reinsurers not
doing business in the Philippines pursuant to contracts executed abroad are income
from sources within the Philippines subject to withholding tax under Sections 53 and
54 of the Tax Code has already been resolved in the affirmative in British Traders’
Insurance Co., Ltd. v. Commissioner of Internal Revenue, L-20501, April 30, 1965.1
Notes:
The question is: Should the running of the prescriptive period commence from the
filing of the original or amended return?
‘xxx the deficiency income tax in question could not possibly be determined, or
assessed, on the basis of the original return filed on April 1, 1953, for considering that
the declared loss amounted to P199,583.93, the mere disallowance of part of the
head office expenses could not possibly result in said loss being completely wiped out
and Phoenix being liable to deficiency tax. Not until the amended return was filed on
August 30, 1955 could the Commissioner assess the deficiency income tax in
question.”
Accordingly, he would wish to press for the counting of the prescriptive period from
the filing of the amended return.
Considering that the deficiency assessment was based on the amended return which,
as aforestated, is substantially different from the original return, the period of limitation
of the right to issue the same should be counted from the filing of the amended
income tax return. From August 30, 1955, when the amended return was filed, to July
24, 1958, when the deficiency assessment was issued, less than five years elapsed.
The right of the Commissioner to assess the deficiency tax on such amended return
has not prescribed.
c. Butuan Sawmill, Inc. vs. CTA L-20601 Feb 28, 1966
Facts: During the period from January 31, 1951 to June 8, 1953, it sold logs to
Japanese firms at prices FOB Vessel Magallanes, Agusan (in some cases FOB
Vessel, Nasipit, also in Agusan); that the FOB prices included costs of loading,
wharfage stevedoring and other costs in the Philippines; that the quality, quantity and
measurement specifications of the logs were certified fry the Bureau of Forestry that
the freight was paid by the Japanese buyers; and the payments of the logs were
effected by means of irrevocable letters of credit in favor of petitioner and payable
through the Philippine National Bank or any other bank named by it.
Upon investigation by the Bureau of Internal Revenue, it was ascertained that no
sales tax return was filed by the petitioner and neither did it pay the corresponding tax
on the sales. . On the basis of agent Antonio Mole’s report dated September 17,
1957, respondent, on August 27, 1958, determined against petitioner the sum of
P40,004.01 representing sales tax, surcharge and compromise penalty on its sales
[tax, surcharge and compromise penalty on its sales] of logs from January 1951 to
June 1953 pursuant to Sections 183, 186 and 209 of the National Internal Revenue
Code . And in consequence of a reinvestigation, respondent, on November 6, 1958,
amended the amount of the previous assessment to P38,917.74. Subsequent
requests for reconsideration of the amended assessment having been denied,
petitioner filed the instant petition for review on November 7, 1960.
Issues:
(1) Whether or not petitioner herein is liable to pay the 5% sales tax as then
prescribed by Section 186 of the Tax Code on its sales of logs to the
Japanese buyers; and
(2) Whether or not the assessment thereof was made within the prescriptive
period provided by law therefor.
Held:
(1) Upon the foregoing facts and authority of Bislig (Bay) Lumber Co., Inc. vs.
Collector of Internal Revenue, G.R. No. L-13186 (January 28, 1961),
Misamis Lumber Co., Inc. vs. Collector of Internal Revenue (56 Off. Gaz.
517) and Western Mindanao Lumber Development Co., Inc. vs. Court of Tax
Appeals, et al. (G.R. No. L-11710, June 30, 1958), it is clear that said export
sales had been consummated in the Philippines and were, accordingly,
subject to sales tax therein.” (Taligaman Lumber Co., Inc. vs. Collector of
Internal Revenue, G.R. No. L-15716, March 31, 1962).
With respect to petitioner’s contention that there are proofs to rebut the
prima facie finding and circumstances that the disputed sales were
consummated here in the Philippines, we find that the allegation is not borne
out by the law or the evidence.
(2) An income tax return cannot be considered as a return for compensating tax
for purposes of computing the period of prescription under Section 331 of
the Tax Code, and that the taxpayer must file a return for the particular tax
required by law in order to avail himself of the benefits of Section 331 of the
Tax Code; otherwise, if he does not file a return, an assessment may be
made within tho time stated in Section 332 (a) of the same Code (Bisaya
Land Transportation Co., Inc. vs. Collector of Internal Revenue & Collector of
Internal Revenue vs. Bisaya Land Transportation Co., Inc., G.R. Nos. L-
12100 & L-11812, May 29, 1959). The principle enunciated in this last cited
case is applicable by analogy to the case at bar.
It being undisputed that petitioner failed to file a return for the disputed sales
corresponding to the years 1951, 1952 and 1953, and this omission was
discovered only on September 17, 1957, and that under Section 332 (a) of
the Tax Code assessment thereof may be made within ten (10) years from
and after the discovery of the omission to file the return, it is evident that the
lower court correctly held that the assessment and collection of the sales tax
in question has not yet prescribed.
d. Bisaya Land Transportation Co, Inc. vs CIR 105
Phil 1338 [Unrep]
FACTS: Between June 1945 and January 15, 1957, petitioner Bisaya Land
Transportation Co. acquired equipment from the United States Commercial Co. which
it used in the operation of its buses, without paying the corresponding compensating
and specific taxes. On investigation of its books by revenue agents, it was discovered
that its gross receipts of the transportation business from 1946 to 1951 were not
declared for taxation. It was also found that from 1945 to 1952, the petitioner issued
freight receipts but the corresponding documentary stamps were not affixed thereto.
A deficiency additional residence tax was also determined.
After a series of exchange of communications between the petitioner and the
respondent Collector of Internal Revenue, the latter assessed the petitioner and
demanded the total amount of P4,949.91, consisting of (1) compensating tax; (2)
common carrier's percentage tax; (3) documentary stamp tax; and (4) additional
residence tax.
On January 11, 1955, the present petition for review was filed with the Court of Tax
Appeals, which rendered a decision upholding the assessment, as to the deficiency
common carrier's percentage tax for 1946 and the first quarter of 1947 and the
additional residence tax for 1947, the collection of which was held to be barred by the
statute of limitations.
ISSUE: In its brief, the petitioner company alleged that the Court of Tax Appeals erred
(1) in not holding that the claim for compensating tax and residence tax has already
prescribed and
(2) that the Compensating tax, documentary stamp tax and common carrier's
percentage tax are not chargeable. The Government has also appealed.
HELD: Petitioner's pretense that the period of prescription, in relation to the first
assignment of error, should be computed from the filing of its income tax returns, is
without merit. To begin with, said income tax returns have
not been introduced in evidence and therefore, there was no means to determine
what data were included in said return to apprise the Bureau of Internal Revenue that
the company should pay the compensating tax.
Secondly, income tax returns contain a statement of the taxpayer's income for a given
year. The taxpayer is not supposed to declare in said returns that he has purchased
or received "from without the Philippines", commodities or merchandise that are
subject to the compensating tax. Generally, such purchases are not "income," and,
hence,
have no place in income tax returns.
(2) Under its second assignment of error, the company maintains that the equipment
and materials it purchased from agencies of the U. S. Government are not subject to
compensating tax because they were acquired, not for business purposes but "in
furtherance of the war efforts". Suffice it to note that the acquisition of said effects
took place between June, 1945 and January, 1947 while the hostilities in Japan and
Europe ended in 1945.
Notwithstanding the immunity of the Government from taxes, the principle is also well
recognized that the Government may tax itself. There is no constitutional limitation on
the power of the Congress to tax the Armed
Forces of the Philippines if it wishes to do so.
e. Tupaz vs. Hon Ulep and Peo of the Phils GR 127777
Oct 1, 1999
FACTS: June 8, 1990, an information against accused Petronila C. Tupaz and her
late husband Jose J. Tupaz, Jr., as corporate officers of El Oro Engravers Corp., was
field for non-payment of deficiency corporate in come tax for the year 1979 in violation
of Sec. 51(b) in relation to Sec. 73 of the 1977 Tax Code. The information was
dismissed for the lack of jurisdiction by the MeTC of Q.C.
January 10, 1991, 2 information were filed before the RTC of Q.C. against spouses
for the same alleged non-payment of deficiency corporate income tax for the year
1979.
Prior to this, petitioner was charged with nonpayment of deficiencycorporate income
tax for the year 1979, which tax return was filed in April 1980. On July 16, 1984, the
BIR issued a notice of assessment. Petitioner contends that the July 16, 1984
assessment was made out of time.
Petitioner avers that while Sec. 318 and 319 of the 1977 NIRC provide a 5-year
period of limitation for the assessment and collection of internal revenue taxes,
BP700, enacted on February 22, 1984, amended the 2 sections and reduced the
period to 3 years to assess the tax liability, counted from the last day of filing the
return or from the date the return is filed, whichever comes later. Since the tax return
was filed in April 1980, the assessment made on July 16, 1984 was beyond the 3-
year prescriptive period.
ISSUE: Whether the government’s right to assess has prescribed.
Held: The shortened period of 3 years prescribed under BP700 is not applicable to
petitioner. BP700, effective April 5, 1984, specifically states that the shortened period
of 3 years shall apply to assessments and collections of internal revenue taxes
beginning taxable year 1984.Assessments made on or after April 5, 1984 are
governed by the 5-year period if the taxes assessed cover taxable years prior to
January 1, 1984. The deficiency income tax under consideration is for taxable year
1979. Thus, the period of assessment is still 5 years, under the old law. The income
tax return was filed in April 1980. Hence, the July 16, 1984 tax assessment was
issued within the prescribed period of 5 years, from the last day of filing the return, or
from the date the return is filed, whichever comes later.
At the outset, it must be stressed that “internal revenue taxes are self-assessing and
no further assessment by the government is required to create the tax liability. An
assessment, however, is not altogether inconsequential; it is relevant in the proper
pursuit of judicial and extrajudicial remedies to enforce taxpayer liabilities and certain
matters that relate to it, such as the imposition of surcharges and interest, and in
the application of statute of limitations and in the establishment with tax liens.”
f. Aznar vs. CIR 58 SCRA 519
FACTS: The late Matias H. Aznar who died on May 18, 1958, predecessor in interest
of herein petitioner, during his lifetime as a resident of Cebu City, filed his income tax
returns on the cash and disbursement basis from1945 TO 1951. The Commissioner
of Internal Revenue having his doubts on the veracity of the reported income of one
obviously wealthy,caused B.I.R. Examiner Honorio Guerrero to ascertain the
taxpayer's true income for said years by using the net worth and expenditures method
of tax investigation. The assets and liabilities of the taxpayer during the above-
mentioned years were ascertained and it was discovered that from 1946 to 1951, his
net worth had increased every year, which increases in net worth was very much
more than the income reported during said years.
Based on the above findings the BIR notified the taxpayer (Matias H. Aznar) of the
assessed tax delinquency. The taxpayer requested a reinvestigation which was
granted for the purpose of verifying the merits of the various objections of the
taxpayer to the deficiency income tax assessment of November 28, 1952.
The notice of final and last assessment was receive by the petitioner on March 2,
1955. Petitioner contends that 8 years had elapsed and the five year period provided
by law.
ISSUE: Whether or not the right of the Commissioner of Internal Revenue to assess
deficiency income taxes of the late Matias H. Aznar for the years 1946, 1947, and
1948 had already prescribed at the time the assessment was made on November 28,
1952.
HELD: The CIR is not barred. The ordinary period of prescription of 5 years within
which to assess tax liabilities under Sec. 331 of the NIRC should be applicable to
normal circumstances, but whenever the government is placed at a disadvantage so
as to prevent its lawful agents from proper assessment of tax liabilities due to false
returns, fraudulent return intended to evade payment of tax or failure to file returns,
the period of ten years provided for in Sec. 332 (a) NIRC, from the time of the
discovery of the falsity, fraud or omission even seems to be inadequate and should
be the one enforced.
There being undoubtedly false tax returns in this case, the Court affirm the conclusion
of the respondent Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply
and that the period of ten years within which to assess petitioner's tax liability had not
expired at the time said assessment was made.
g. Republic vs. Lim de Yu L-17438 April 30, 1964 10
SCRA 738
FACTS: Appellee Rita Lim de Yu filed her yearly income tax returns from 1948
through 1953. The Bureau of Internal Revenue assessed the taxes due on each
return, and appellee paid them accordingly. On July 17, 1956 the Bureau issued to
appellee deficiency income tax assessments for the years 1945 to 1953 in the total
amount of P22,450.50. She protested the assessments and requested a
reinvestigation. On August 30, 1956 she signed a "waiver" of the statute of limitations
under the Tax Code as a condition to the reinvestigation requested. Thereafter, or on
July 18, 1958, the Bureau issued to her income tax assessment notices for the years
1948 to 1953, totalling P35,379.63. This last assessment, like the one issued in 1956,
covered not only the basic deficiency income taxes, but also 50% thereof as
surcharge. Upon appellee's failure to pay, an action for collection was filed against
her in the Court of First Instance of Cotabato on May 11, 1959. After trial the suit was
dismissed, and the Government appealed to the Court of Appeals, which forwarded
the case to thi3 Court, the issues involved being purely legal.
Appellant claims that the lower court erred (1) in ruling that the deficiency income
taxes due from appellee for the years 1948, 1949 and 1950 were not assessed on
time; and (2) in dismissing the case on the ground that the right of appellant to collect
the deficiency income tax assessments had already prescribed.
Sections 331 and 332 of the Tax Code provide:
"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 710 proceeding in court without assessment for the
collection of such taxes shall be begun after the expiration of such period. For the
purposes of this section a return filed before the last day prescribed by law for the
filing thereof shall be considered as filed on such last day: Provided, That this
limitation shall not apply to cases already investigated prior to the approval of this
Code.
"Sec. 332. Exceptions as to period of limitation of assessment and collection of
taxes. (a) In the ease of a false or fraudulent 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,.
(b) Where before the expiration of the time prescribed in the preceding section for the
assessment of the tax, both the Commissioner of Internal Revenue and the taxpayer
have consented in writing to its assessment after such time, the tax may ba assessed
at any time prior to the expiration of the period agreed upon. The period so agreed
upon may be extended by subsequent agreements in writing made before the
expiration of the period previously agreed upon.
(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."
ISSUE: Whether or not the returns filed by appellee for the years 1948 to 1953 are
false and fraudulent.
Appellant maintains they are because the yearly net incomes reported in her returns
are much less than as computed by the Bureau, and consequently, under par (a).
Section 332 of the Tax Code, it has ten years from the date of the discovery of the
fraud or falsity, i.e., May 25, 1955, within which to assess the taxes or to file a suit for
collection without assessment. And since, it is further contended, appellee can no
longer question the correctness of the assessment in view of her failure to ask the
Court of Tax Appeals to review the same, she should be ordered to pay the amounts
being collected.
HELD: But while fraud is alleged in the complaint, the same has not been
established. It is one thing to say that the correctness of the last assessment made by
appellant, on July 18, 1958, may no longer be challenged on the technical ground just
stated and quite another thing to say that appellee committed a deliberate fraud in
declaring smaller incomes for the years in which she filed her returns. Indeed the
Bureau itself appears none too sure as to the real amounts of her net incomes for
those years. On three different occasions it arrived at three highly different
computation. First, it accepted appellee's yearly statements of income from 1945 to
1953 and assessed her a total tax of P2,732.37, which she paid. Then in 1956 the
Bureau came up with a different set of figures for the same period, considerably
higher than those stated in the returns, and using such figures as a basis assessed
her deficiency taxes in the total amount of P22,450.50. Finally, in 1958 the Bureau
made another computation of appellee's net income for the years 1948 to 1953, and
assessed her deficiency taxes in the sum of P35,379.63. Note that the disparity
between the 1956 and the 1958 assessments is really much greater than what
appears at first glance, as the latter do not include the taxes corresponding to the
years 1945, 1946 and 1947. Attention may likewise be drawn to the fact that in
paragraph 3 of the complaint appellant seeks to collect from appellee the sum of
P28.53, plus a surcharge of 50%, as unpaid tax for the year 1948, notwithstanding
the fact admitted in the stipulation, that appellee filed her return for that year and duly
paid the said amount.
Fraud not having been proven, the period of limitation for assessment or collection
was five years from the filing of the return, according to Section 331 of the tax code.
The right to assess or collect the income taxes for the years 1948 to 1950 had
already prescribed, therefore, when the Bureau of Internal Revenue issued the
deficiency income tax assessments on July 17, 1956.
An assessment is not an action or proceeding for the collection of taxes. It is merely a
notice to the effect that the amount therein stated is duo as tax and a demand for the
payment thereof. It is a step preliminary, but essential to warrant distraint, if still
feasible, and, also, to establish a cause for judicial action as the phrase is used in
section 816 of the Tax Code * * *" (Alhambra Cigar and Cigarette Manufacturing
Company vs. The Collector of Internal Revenue, L-12026, May 29, 1959)
Section 331 gives the Government five years from filing of the return (which is not
false or fraudulent) within which to assess the tax due. Paragraph (b) of Section 332
allows the extension of this period by means of 3 written agreement between the
taxpayer and the Commissioner of Internal Revenue. On the other hand, paragraph
(c) of the same section is concerned with the collection of the tax after assessment,
regardless of whether the assessment was made during the original five-year period
or within an agreed period of extension. Collection then may be effected within five
years after assessment or within the "period for collection agreed upon in writing by
the Commissioner of Internal Revenue and the taxpayer before the expiration of such
five-year period." Thus, although under the waiver appellee consented to the
"assessment and collection" if made not later than December 31, 1958, such
expiration date must be deemed to refer only to the extension of the assessment
period. Insofar as collection is concerned, the period does not apply, for otherwise the
effect of the waiver would be to shorten, not extend, the legal period for that purpose.
Appellant therefore had five years from 1958 within which to file his action, which was
actually filed in 1959.
Wherefore, the appealed decision is modified by ordering appellee to pay appellant
the sum of P26,182.00 as deficiency income taxes for the years 1951, 1952 and
1953, plus 5% surcharge and 1% monthly interest thereon from July 31, 1958 until
payment of the full obligation, with costs.

The tax years 1948 to 1950 cannot be deemed included in the "waiver of the statute
of limitations under the National Internal Revenue Code" executed by appellee on
August 30, 1956. The five-year period for assessment, counted from the date the
return is filed, may be extended upon agreement of the Commissioner and the
taxpayer, but such agreement must be made before, not after, the expiration of the
original period (Section 332 [b], Tax Code). The clear import of the provision is that it
does not authorize extension once prescription has attached.

The waiver validly covers only the tax years 1951 and 1952, with respect to which the
five-year period had not yet elapsed when the said waiver was executed. With respect
to the tax year 1953, as to which the return was filed by appellee on March 1, 19B4,
the waiver was not necessary for the effectivity of the assessment made on July 18,
1958, since such assessment was well within the original five-year period provided by
law. After the assessment on July 18, 1958, appellant had five years within which to
file suit for collection pursuant to Section 332 (c) of the tax code. Appellee's theory
that collection could be made only up to the end of the period of extension stated in
the waiver, namely, December 31, 1958, is without merit. Assessment and collection h. Basilan Estates, Inc. vs CIR GR L22492 September
are two different processes. 5, 1967
Doctrine: The income tax law does not authorize the depreciation of an asset beyond
its acquisition cost. Hence, a deduction over and above such cost cannot be claimed
and allowed. The reason is that deductions from gross income are privileges, not
matters of right. They are not created by implication but upon clear expression in the
law.
FACTS: A Philippine corporation engaged in the coconut industry, Basilan Estates,
Inc., with principal offices in Basilan City, filed on March 24, 1954 its income tax
returns for 1953 and paid an income tax of P8,028. On February 26, 1959, the
Commissioner of Internal Revenue, per examiners' report of February 19, 1959,
assessed Basilan Estates, Inc., a deficiency income tax of P3,912 for 1953 and
P86,876.85 as 25% surtax on unreasonably accumulated profits as of 1953 pursuant
to Section 25 of the Tax Code. On non-payment of the assessed amount, a warrant of
distraint and levy was issued but the same was not executed because Basilan
Estates, Inc. succeeded in getting the Deputy Commissioner of Internal Revenue to
order the Director of the district in Zamboanga City to hold execution and maintain
constructive embargo instead. Because of its refusal to waive the period of
prescription, the corporation's request for reinvestigation was not given due course,
and on December 2, 1960, notice was served the corporation that the warrant of
distraint and levy would be executed.
On December 20, 1960, Basilan Estates, Inc. filed before the Court of Tax Appeals a
petition for review of the Commissioner's assessment, alleging prescription of the
period for assessment and collection; error in disallowing claimed depreciations,
travelling and miscellaneous expenses; and error in finding the existence of
unreasonably accumulated profits and the imposition of 25% surtax thereon. On
October 31, 1963, the Court of Tax Appeals found that there was no prescription and
affirmed the deficiency assessment in toto.
ISSUE: Whether or not the Commissioner's right to collect deficiency income tax
prescribed?
HELD: There is no dispute that the assessment of the deficiency tax was made on
February 26, 1959; but the petitioner claims that it never received notice of such
assessment or if it did, it received the notice beyond the five-year prescriptive period.
To show prescription, the annotation on the notice (Exhibit 10, No. 52, ACR, p. 54-A
of the BIR records) "No accompanying letter 11/25/" is advanced as indicative of the
fact that receipt of the notice was after March 24, 1959, the last date of the five-year
period within which to assess deficiency tax, since the original returns were filed on
March 24, 1954.
Although the evidence is not clear on this point, we cannot accept this interpretation
of the petitioner, considering the presence of circumstances that lead Us to presume
regularity in the performance of official functions. The notice of assessment shows the
assessment to have been made on February 26, 1959, well within the five-year
period.
On the right side of the notice is also stamped "Feb. 26, 1959" — denoting the date of
release, according to Bureau of Internal Revenue practice. The Commissioner himself
in his letter (Exh. H, p. 84 of BIR records) answering petitioner's request to lift, the
warrant of distraint and levy, asserts that notice had been sent to petitioner. In the
letter of the Regional Director forwarding the case to the Chief of the Investigation
Division which the latter received on March 10, 1959 (p. 71 of the BIR records), notice
of assessment was said to have been sent to petitioner. Subsequently, the Chief of
the Investigation Division indorsed on March 18, 1959 (p. 24 of the BIR records) the
case to the Chief of the Law Division. There it was alleged that notice was already
sent to petitioner on February 26, 1959.
These circumstances pointing to official performance of duty must necessarily prevail
over petitioner's contrary interpretation. Besides, even granting that notice had been
received by the petitioner late, as alleged, under Section 331 of the Tax Code
requiring five years within which to assess deficiency taxes, the assessment is
deemed made when notice to this effect is released, mailed or sent by the Collector to
the taxpayer and it is not required that the notice be received by the taxpayer within
the aforementioned five-year period.1
i. Arches vs. Belosillo 20 SCRA 32
FACTS: Petitioner-appellant Jose Arches filed on February 27, 1954 his income tax
return for 1953. Within five years thereafter, or on February 26, 1959, deficiency
income tax and residence tax assessments were issued against him.
Said assessments not having been disputed, the Republic represented by the Bureau
of Internal Revenue Regional, Director, filed suit on December 29, 1960, in the
municipal court of Roxas City, to recover from petitioner-appellant the sum of
P4,441.25 as deficiency income tax and additional residence tax for 1953. Arches
then moved to dismiss the complaint on the ground that it did not expressly show the
approval of the Revenue Commissioner, as required by Section 308 of the Tax Code,
and on the further ground of prescription of the action. 1äwphï1.ñët
The municipal court denied the motion. Petitioner-appellant, his motion to reconsider
having been denied also, resorted to the Court of First Instance of Capiz on a petition
for certiorari and prohibition assailing the order denying his motion to dismiss. The
trial court dismissed the petition. Hence, this appeal.
ISSUE: Whether or not there was prescription.
HELD: None. This is not jurisdictional. The proper prescriptive period for bringing civil
actions is five years from the date of the assessment, under Section 332 of the Tax
Code. The three-year period urged by petitioner-appellant under Section 51 (d) refers
only to the summary remedies of distraint and levy. Here, the action was commenced
one year, ten months and three days after the assessments were made; hence, well
within the period.
j. Sy Chuico vs. Collector 107 Phil 428
FACTS: Petitioner was the owner and operator of the La Loma Cabaret located at La
Loma, Quezon City from 1926 to January, 1956. The customers who patronized the
cabaret were charged P0.30 per dance, P0.10 to be paid before entering the dance
hall and the remaining P0.20 to be paid to the "bailarinas" after the dance. The
customers were informed of the fees to be paid per dance by means of posters found
in conspicuous places of the cabaret
During the period from January, 1947 to August, 1950, petitioner declared in his
return only the following gross receipts: receipts from gate admissions at P0.10 each,
P59,160.40; receipts from restaurant sales, P5,339.90; receipts from bar sales,
P47,459.10, and paid thereon a 10 per cent amusement tax in the amount of P11,
197.40. Having failed to declare for tax purposes the P0.20 dance fee payable to the
"bailarinas" which petitioner collected as part of his business, respondent assessed
against him a deficiency amusement tax, including 50 per cent surcharge, in the
amount of P17,616.05. Respondent also assessed against petitioner the further sum
of P300.00 as penalty in settlement of his violation of Section 260 of the Tax Code
and the Bookkeeping Regulations.
From the above assessment, petitioner took the case on appeal to the Court of Tax
Appeals where, after due hearing, said court rendered decision affirming the
contention of respondent insofar as he holds petitioner liable to pay the sum of
P17,616.05 as deficiency amusement tax and surcharge for the period from January,
1947 to August, 1950. However, the Court of Tax Appeals rejected the imposition of
the penalty in the sum of P300.00 alleging lack of power or authority to order the
payment of such penalty. In due time, petitioner filed the present petition for review.
The law under which the deficiency amusement tax was collected from petitioner
for his alleged gross receipts from January, 1947 to August, 1950 is Section 260 of
the Tax Code, the pertinent portion of which reads:
"In the case of cockpits, cabarets, and night clubs, there shall be collected from the
proprietors, lessees, or operators a tax equivalent to ten per centum * * * of the gross
receipts, irrespective of whether or not any amount is charged or paid for admission. *
* *. For the purpose of amusement tax, the term 'gross receipts' embraces all the
receipts of the proprietor, lessee, or operator of the amusement place."
It would appear that the owner or operator of a cabaret is required to pay an
amusement tax equivalent to 10 per cent of the gross receipts of his business
"irrespective of whether or not any amount is charged or paid for admission. The law
HELD #2:
This question was not raised as an issue in the petition for review filed by petitioner in the Court of Tax Appeals. It was not even touched by him in the memorandum he submitted.
There is, therefore, enough reason to believe that petitioner has waived this defense and so it cannot now be entertained. To hold otherwise would be to deprive respondent of his
right to show the contrary, this matter being evidentiary in nature.
further adds that, for the purposes of amusement tax, the term "gross receipts"
embraces all the receipts of the proprietor or operator of the business. The question
that now arises is: What should be considered as gross receipts of the La Loma
Cabaret operated by petitioner? Does this term include only what it collects from its
customers as admission fee to the cabaret, or it should also include the dance fee
that is charged by the cabaret as compensation for its "bailarinas" ?
Petitioner contends that it should only include what he collects as admission fee,
and not those representing the dance fee because they do not go to the operator, but
to the "bailarinas". In other words, petitioner contends that because those dance fees
go to the "bailarinas", they could not be considered as part of the gross receipts of the
cabaret.
ISSUES:
1. Whether or not the dance fees cannot be considered as part of the gross
receipts of the cabaret because they belong to the “bailarinas".
2. Whether or not the collection of the tax in question has already prescribed.
HELD#1:  Cabaret is a place of amusement where customers go because of their
desire to dance and where the "bailarinas" are the main attraction. Dancing is the
main business and customers patronize the place attracted by the "bailarinas". As a
matter of fact, "bailarinas" are the indispensable factor in the operation of the
business. Whatever is paid to them should, therefore, be considered as paid on
account of the business, and as such it should be considered as part of petitioner's
gross receipts.
HELD #2:
This question was not raised as an issue in the petition for review filed by petitioner in
the Court of Tax Appeals. It was not even touched by him in the memorandum he
submitted. There is, therefore, enough reason to believe that petitioner has waived
this defense and so it cannot now be entertained. To hold otherwise would be to
deprive respondent of his right to show the contrary, this matter being evidentiary in
nature.