4/2/2017 G.R.No.

L46893

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RepublicofthePhilippines
SUPREMECOURT
Manila

SECONDDIVISION

G.R.No.L46893November12,1985

REPUBLICOFTHEPHILIPPINES,plaintiffappellant,
vs.
FRANCISCORICARTE,defendantappellee.

MAKASIAR,C.J.:

TheformerCourtofAppeals,initsresolutiondatedAugust4,1977,certifiedthiscasetothisCourtontheground
thattheissuesinvolvedthereinarepurelyquestionsoflaw.

OnMarch2,1959,defendantappelleeFranciscoRicartefiledhisincometaxreturnfortheyear1958.OnApril6,
1959,theOfficeoftheCollectorofInternalRevenuemadethecorrespondingassessmentandfixedatP222.00
the defendant's income tax liability pursuant to the express provision of Section 51(a) of the National Internal
Revenue Code (Commonwealth Act No. 466), then in effect. Defendant paid his income tax in two equal
installmentsofP111.00eachthefirstonMay15,1959andthesecondonAugust17,1959.

On June 20, 1959, Republic Act No. 2343 took effect amending Commonwealth Act No. 466 including Section
51(a).Undertheamendatoryact,thetaxpayerassesseshimself,fileshisreturnandpaysthetaxasshowninhis
returnuponfilingthereof.

Intheyear1961,theBureauofInternalRevenue,afterinvestigation,foundthatthedefendanthadadeficiencyof
P 1,136.87 in his income tax for 1958. On January 19, 1961, assessment notice No. 17A70842458 for the
amount aforestated was issued and, together with the corresponding audit sheet and letter of demand, was
mailedtothedefendantonJanuary25,1961.

Forfailureofdefendanttopayhisdeficiencyincometaxliability,plaintiff,onJanuary14,1966,filedacomplaint
forcollectionofunpaidtaxesbeforetheCityCourtofCebu.

Aftertrialandhearing,thecourtaquorenderedadecisiondatedOctober29,1966dismissingthecaseonthe
ground of prescription of action. The trial court reasoned out that the assessment was made by the Bureau of
Internal Revenue on April 6, 1959, but the present case was filed only on January 14, 1966 or more than the
prescriptiveperiodoffiveyearsasprovidedforinSection332(c)oftheNationalInternalRevenueCode.

OnappealtotheformerCourtofFirstInstanceofCebu,thepartiesenteredintoastipulationoffacts:

1.Thattheplaintiffisapoliticalentitywithcapacitytosueandmaybeservedwithprocessesthruthe
RevenueRegionalDirector,BureauofInternalRevenue,RevenueRegionNo.13,CebuCitywhile
defendantFranciscoRicarteisoflegalage,withpostaladdressat278SouthExpressway(formerly
at451CTresdeAbrilStreet),CebuCity,wherehemaybeservedwithsummons.

2.ThatonoraboutMarch2,1959,defendant,anarrastrecontractor,filedhisincometaxreturnfor
the year 1958 showing on the face thereof a net income of P 12,271.26 copy of which is hereto
attachedasAnnex'A'andmadeanintegralparthereof.

3.ThattheamountofP222.00wasassessedonApril6,1959perAssessmentNo.17A70842458
bytheplaintiffasdefendant's1958incometaxliabilityperreturnfiledbythelatterwhichamountwas
dulystamped'Assessed'ondefendant's1958incometaxreturn.

4.ThattheaforesaidamountofP222.00waspaidbythedefendantintwoinstallmentsunderOfficial
ReceiptNo.1671571datedMay15,1959fortheamountofP111.00andunderOfficialReceiptNo.
2466278datedAugust17,1959forP111.00.
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5.That in the verification of defendant's 1958 income tax return by the plaintiff thru the Bureau of
InternalRevenueonJanuary19,1961,therewasfoundduefromhimtheamountofPl,136.87as
deficiencyincometaxforsaidyear,computedasfollows:

Netincomeperreturn........................................P12,271.28

Add:Personallivingexpenses.................................7,800.00

Totalamountofincomeperauditreview.................20,071.28

Less:Personalandadditionalexemption...................7,800.00

Amountofincomesubjecttotax............................12,271.28

Amountoftaxdue.................................................1,265.00

Less:Amountoftaxalreadyassessedandpaid...........222.00

Deficiencyincometaxdue................................P1,043.00

Add:%monthlyinterestfrom62059to

122060(Sec.51TaxCode,R.A.2343&

implementedbyGen.Cir.No.V318)...................93.87

Totalamountoftaxdue&collective(Def'cy).............P1,136.87

6.ThatonJanuary19,1961,AssessmentNoticeNo.17A70842458fortheaforesaidamountofP
l,136.87 together with the letter of demand bearing same date and the audit sheet were issued by
theplaintiffthrutheBureauofInternalRevenueandofficiallymailedandreleasedtothedefendant
onJanuary25,1961,copiesofwhichcommunicationsareheretoattachedasAnnexes'B','C'and
'D',respectively,andmadeintegralpartshereof.

7.Thatinplaintiff'sletterdatedJanuaryl9,1961,Annex'C'hereof,anexplanationwasmadeasto
howtheaforesaiddeficiencyassessmentwasbroughtabout.

8. That a call up letter dated September 23, 1964 was sent by the plaintiff to the defendant
requesting settlement of his liability under Assessment Notice No. 17A70842458 mentioned in
paragraph6hereof,copyofwhichletterisheretoattachedasAnnex'E'andmadeanintegralpart
hereof, which letter was officially mailed and released by the plaintiff thru the Bureau of Internal
RevenueonOctober13,1964perRegistryReceiptNo.863.

9.That another letter dated November 15, 1965 calling for payments of the aforesaid amount was
againofficiallymailedandreleasedtothedefendant,perRegistryReceiptNo.1125,copyofwhich
letterisheretoattachedasAnnex'F'andmadeanintegralparthereof.

10.ThattheabovementionedassessmenthasnotbeencontestedbythedefendantbeforetheCourt
ofTaxAppeals.

11.Thatthesameassessmenthasnotbeenpaiduntildate.

12.That the instant case for collection was filed before the City Court of Cebu City on January 14,
1966"(pp.4650,ROAp.3,rec.).

OnSeptember29,1968,theformerCourtofFirstInstance,onthebasisofthestipulationoffacts,renderedits
decisiondismissinghereinappellant'scomplaint.ThesaidcourtstatedthatwhattheBureauofInternalRevenue
soughttocollectfromtheappelleewasbasedonanassessmentwhichtheBureaumadeundertheprovisionsof
anewlaw,R.A.No.2343,whichwasnotyetineffectatthetimeofthefilingofappellee'sincometaxreturnfor
1958andthattheactionagainsttheappelleehadalreadyprescribed.

OnOctober16,1968,appellantsoughtreconsiderationofthelowercourt'sdecision.Themotionwasdeniedon
December14,1968,hencethisappeal,appellantallegingthatthelowercourterredinholding:

...thatthedeficiencyassessmenthasnolegalstanding.

...thattheplaintiff'sactionhasprescribed.

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... that plaintiff failed to prove service upon defendant of the deficiency assessment dated January
19,1961(p.5,BriefforPlaintiffAppellantp.14,rec.).

The issues raised in this case may be synthesized as to whether the appellant can still collect the alleged
deficiencyincometaxliabilitythrujudicialproceeding.

InholdingthatthesubsequentassessmentmadebytheBureauofInternalRevenueonJanuary19,1961hasno
legalbasis,thelowercourtwasoftheimpressionthatthesamewasmadeundertheprovisionofanewlaw,R.A.
No.2343,whichwasnotyetineffectatthetimeofthefilingofthe1958incometaxreturninquestion.Saidcourt
observed that the unamended provision of Section 51(a) of the National Internal Revenue Code which was
enforciblewhentheappellantfiledhis1958incometaxreturnshouldapplytothiscaseandnotthatofSection
51(b)ofthesameCode,asamendedbyR.A.No.2343,whichwentintoeffectonlyonJune20,1959.

It may be pointed out that before the amendment of the tax code, Section 51(a) relating to payment and
assessmentofincometax,prescribed:

Sec.51.Assessmentandpaymentofincometax.(a)AnassessmentshallbemadebytheCollector
ofInternalRevenueandallpersonsandcorporationssubjecttotaxshallbenotifiedoftheamount
forwhichtheyarerespectivelyliableonorbeforethefirstdayofMayofeachsuccessiveyear.

butasamendedbyR.A.No.2343,effectiveonJune20,1959,itnowreads:

Sec. 51. Payment and assessment of income tax.(a) Payment of tax. (1) In general.The total
amountoftaximposedbythisTitleshallbepaidatthetimethereturnisfiledbutnotlaterthanthe
fifteenthdayofAprilfollowingthecloseofthecalendaryear,......

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(b)Assessmentandpaymentofdeficiencytax.AfterthereturnisfiledtheCommissionerofInternal
Revenueshallexamineitandassessthecorrectamountofthetax.Thetaxordeficiencyintaxso
discoveredshallbepaiduponnoticeanddemandfromtheCommissionerofInternalRevenue.

Clearly,beforetheamendment,thetaxpayerfileshisincometaxreturnandtheCollector(nowCommissioner)of
Internal Revenue assesses the tax due and notifies the taxpayer thereof. On the other hand, under the
amendatory act, the taxpayer assesses himself, files his return and is required to pay the tax as shown in his
return upon filing thereof. This procedure is commonly known as the "payasyoufile" system. In other words,
under the old law, the Collector of Internal Revenue was required to assess the tax due, while under R.A. No.
2343thetaxpayerhimselfcomputesthetaxonthebasisofthefiguresappearinginhisincometaxreturn.

WE do not agree with the former Court of First Instance of Cebu that the subsequent assessment made on
January19,1961wasbasedontheamendatoryact.

Appellee filed his income tax return for the year 1958 on March 2, 1959 and the same was assessed by the
Bureau of Internal Revenue on April 6, 1959. The tax was paid in two installments. The Bureau of Internal
Revenue reviewed the said return and found out a deficiency in the assessment it previously made and the
income tax paid by the appellee. A notice of assessment was sent to the appellee on January 19, 1961. Such
subsequent assessment undertaken by the Bureau of Internal Revenue was based merely on the income tax
returnfiledbytheappelleewherenoassessmenthasbeenmadebyhim.Ashasbeensaid,theamountoftax
due was previously computed by the Bureau of Internal Revenue. Finding that it made an error, the Bureau
reassessedtheincometaxreturnoftheappelleebutsuchreassessmentwasmadepursuanttotheoldlawand
notundertheamendatoryact.

However,Weagreewiththelowercourtthatthepresentactionwasfiledaftertheprescriptiveperiodoffive(5)
yearsprovidedforinSection332(c)oftheNationalInternalRevenueCodewhichreads:

(c)Wheretheassessmentofanyinternalrevenuetaxhasbeenmadewithintheperiodoflimitation
abovedescribedsuchtaxmaybecollectedbydistraintorlevyorbyaproceedingincourt,butonlyif
begun(1)withinfiveyearsaftertheassessmentofthetax,

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Appellantasseveratesthatthepresentactionwasfiledwithinthefiveyearprescriptiveperiodprovidedforunder
the abovequoted provision of the tax code that the subsequent notice of assessment was made and appellee
notified thereof on January 19, 1961 that from January 19, 1961 up to the date this case was filed in court on
January14,1966,onlyfouryears,elevenmonthsandtwentyfivedayshadelapsed.

Although a subsequent notice of assessment was allegedly made and sent to appellee on January 19, 1961, it
was the finding both of the former City Court of Cebu and the defunct Court of First Instance of Cebu that no
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evidence has been presented by the appellant that the appellee actually received a copy of that assessment
notice regarding the alleged deficiency tax. Such finding, being one of fact, can no longer be reviewed by this
Court. Even in the stipulation of facts entered into between the parties, there is no stipulation showing that the
appellant actually received the subsequent notice of assessment. Thus, the prescriptive period provided for in
Section 332(c) of the tax code should be counted from April 6, 1959, the date when the Bureau of Internal
Revenueassessedtheincometaxreturnoftheappellant.FromsaiddateuntilthefilingofthiscaseonJanuary
14,1966,sixyearsandninemonthshadelapsed.Verily,theactionhadalreadyprescribed.

WHEREFORETHEAPPEALEDDECISIONDATEDSEPTEMBER29,1968,ISHEREBYAFFIRMED.NOCOSTS.

SOORDERED.

AbadSantos,Escolin,CuevasandAlampay,JJ.,concur.

Aquino(Chairman),J.,tooknopart.

ConcepcionJr.,isonleave.

TheLawphilProjectArellanoLawFoundation

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