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L17406

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RepublicofthePhilippines
SUPREMECOURT
Manila

ENBANC

G.R.No.L17406November29,1965

FINLEYJ.GIBBSandDIANEP.GIBBS,petitioners,
vs.
COMMISSIONEROFINTERNALREVENUEandCOURTOFTAXAPPEALS,respondents.

Ozaeta,Gibbs&Ozaetaforpetitioners.
OfficeoftheSolicitorGeneralforrespondents.

REGALA,J.:

ThisisapetitionforreviewoftworesolutionsoftheCourtofTaxAppealsdatedJune18,1960andAugust23,
1960 in CTA Case No. 584, dismissing for lack of jurisdiction the petitioners' claims for refund and tax credit
againsttherespondentCommissionerofInternalRevenue.

Thefactsuponwhichtherespondentcourtenteredtheaforementionedresolutionsare:

OnFebruary6,1965,therespondentCommissionerofInternalRevenueissuedagainstthepetitioners,"FinleyJ.
Gibbs and Diane P. Gibbs, c/o Francisco Collantes, Rm. 301, Cepoc Bldg., Dasmarias, Manila" Deficiency
Income Tax Assessment Notice No. AR541655/50 for P16,873.00 for the tax year 1950 with the demand that
the said amount should be paid on or before March 15, 1956. On March 14, 1956, Allison J. Gibbs, signing as
attorneyinfactforFinleyJ.Gibbs,hisbrother,acknowledgedreceiptoftheaboveassessmentnoticeandnotified
therespondentCommissionerthatFinleyJ.GibbswasthenlivinginAtherton,California,withofficeat200Bush
Street, San Francisco 4 and that the latter was notified by him of the said deficiency assessment. In the same
letter,AllisonJ.Gibbsquestionedthedisallowanceoftheitemswhichgaverisetothedeficiencyassessmentand
requestedforacorrectionofit.OnAugust26,1956,however,therespondentCommissionerdeniedtherequest.

As regards the tax liability of your brother, Mr. Finley J. Gibbs, in the sum of P16,873.00, exclusive of
surcharge and interest for the year 1951, please be informed that inasmuch as the facts obtaining in his
casearesimilarinallfourswiththatofyourcase,theargumentsaboveareapplicabletothecaseofyour
saidbrother.

Inviewoftheforegoing,youareherebyrequestedforthelasttimetopaythesaidamountofP12,284.00
exclusive of surcharge and interest, to the City Treasurer, Manila, within ten (10) days from your receipt
hereof in order that this case may be closed. You are further requested to urge your brother to pay the
abovementionedamountimmediatelyuponyourreceipthereofinorderthathiscasemayalsobeclosed.

HavingdeemedtheabovereplyofAugust28,1956,asthe"finaldecision"oftherespondentCommissioneron
thematter,AllisonJ.GibbswroteonOctober3,1956,thefollowingcorrespondencetothelatter:

I consider your final decision, dated August 28, 1956, to be contrary to law but to demonstrate my good
faithIherewithsendyoumyCheckNo.213082drawnontheCharteredBankofIndia,Australia&China
payable to you in the sum of P16,873.00 in full payment of your original deficiency assessment No. AR
54165550.Kindlyacknowledgereceipt.

Atthesametime,AllisonJ.Gibbs,demandedrefundoftheabovepayment:

Idemandtheimmediaterefundofthispaymentforthereasonsheretoforegivenyou.Unlessrefundedon
orbeforethefourthofOctoberIwillfileaPetitionforReviewwiththeCourtofTaxAppealsandchargeyou
withmydamagesofsixpercent(6%)interestperannumplusattorney'sfeesoftwentyfivepercent(25%)
oftheamountinvolved.(Emphasissupplied,LetterofOctober3,1956.)

OnOctober26,1956,therespondentCommissionerdeniedtheabovedemandforrefund.

WithreferencetoyourlettersbothdatedOctober3,1956,requestingtherefundofthesumsofP12,284.00
andP16,873.00,asallegederroneouspaymentsofyourincometaxliabilityandthatofyourbrother,Finley
J.Gibbs,respectively,bothfortheyear1950,Iregrettohavetoinformyouthatforreasonsstatedinour
letterdatedAugust28,1956,thisOfficefindsnojustifiablebasistograntyoursaidrequest.

The above letter of October 26, 1956, denying the petitioners' claim for refund was admittedly received by the
officeofAllisonJ.GibbsonNovember14,1956.
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OnSeptember29,1958,AllisonJ.Gibbs,signingascounselforFinleyJ.Gibbs,wroteanotherletteraddressed
to the respondent Commissioner to "reiterate our client's demand for refund of the P16,873.00 he paid on
October 3, 1956 on the ground that your deficiency Assessment No. AR541655/50 was illegal ... ." This letter
alsoopinedthatthepreviousletterofOctober26,1956,oftherespondentCommissionerwasnot"arulingonour
client's claim for refund of P16,873.00." Finally, this letter likewise asserted certain claims for tax credits arising
allegedly from some previous overpayment made by the petitioner to the respondent Commissioner of Internal
Revenue. The correspondence closed with the notice that should the demand for refund be uneffected on or
beforeOctober1,1958,apetitionforthatpurposewouldbefiledwiththeCourtofTaxAppeals.Therespondent
CommissionerneverrepliedtothisletterofSeptember29,1958.

OnOctober1,1958,thepetitionersfiledwiththerespondentcourta"PetitionforReviewandRefundofIncome
TaxwithMotionforSuspensionofCollectionofAdditionalTaxes,"alleging,inthemain,itsclaimsforrefundand
taxcreditdiscussedabove.Tothispetition,therespondentCommissionerfiledanAnsweronNovember10,1956
toclaim,amongothers,thefollowingspecialandaffirmativedefenses:

A.ThatthisHonorableCourthasnojurisdictiontotakejudicialcognizanceofthepetitionforreviewonthe
groundthatthepetitionforreviewwasfiledbeyondthirty(30)daysfromthedateofreceiptofrespondent's
decision,datedOctober26,1956,denyingtheclaimforrefundasprescribedbySection11ofRepublicAct
No.1125

B. That this Honorable Court has no jurisdiction over the cause of action with respect to the credit of the
amountsstatedinthepetitionforreviewforthereasonthattherequestforcreditandthepetitionforreview
prayingforthecreditofsaidamountshavebeenfiledbeyondtwo(2)yearsfromthedatesofpaymentof
theamountssoughttobecreditedinthepetitionforreview.

ActingonamotiondatedNovember17,1958filedbytherespondentCommissionerforapreliminaryhearingon
the question of the lower court's jurisdiction as above contested, the respondent court, after due hearing and
receptionofevidence,sustainedtheaboveobjectiontoitsjurisdictionandupheldtherespondentCommissioner's
claim that the two causes of action asserted by the petitioner were barred by prescription. To this end, the
respondentcourtpromulgatedtwoorders:theResolutionofJune18,1960dismissingCTACaseNo.584forlack
of jurisdiction and the Resolution of August 23, 1960 dismissing for lack of merit the petitioners' motion for
reconsiderationfiledtherefor.Thesearethetwoorderssoughttobereviewedintheinstantpetitionforreview.

Thepetitionerscontendthattherespondentcourterredinrulingthattheirpetitionforreviewwasfiledoutsidethe
30dayperiodprescribedbySection8ofRepublicActNo.1125because(a)thereisneitherevidencenorrecord
thatthepetitionersreceivedacopyoftheletterofOctober26,1956denyingtheirclaimforrefund,and(b)the
aforesaidletterofOctober26,1956isnotadenialoftheirclaimforrefund.

AnenttheinsistenceofthepetitionersthattheyneverreceivedacopyoftheletterofOctober26,1956denying
theirclaimforrefund,sufficeittosaythatwhiletheythemselvespersonallymightnothavereceivedacopyofit,
AllisonJ.Gibbs,astheirattorneyinfactandactuallyastheircounsel,receivedacopyofthesame.

Ofcourse,thepetitionersmaintainthatAllisonJ.Gibbs,atleastuntilSeptember30,1957,actedmerelyasagent
orattorneyinfactofthepetitionersandneverastheirlegalcounsel.Insupportofthis,itisarguedthatpriorto
October26,1956,AllisonJ.Gibbshadexplicitlyqualifiedhissignaturetoallhiscorrespondencesregardingthe
disputed assessment as "attorneyinfact." Furthermore, it is urged that as might be seen on the face of the
assessmentnoticeitself,thereallegalcounselofthepetitionersinthematterofthesaidassessmentwasAtty.
FranciscoCollantes.

ThatAllisonJ.Gibbswasnotmerelytheagentofthepetitionersinthematterunderlitigation,contrarytoallthat
isallegedabove,isdemonstrated,however,bythefollowingcircumstancesobtaininginthiscase:

1. Allison J. Gibbs acknowledged for the petitioners receipt of the deficiency income tax assessment, formally
protestedthesameinwriting,paidtheassessmentandlikewiseformallydemandedinwritingitsrefund.

2.Asfarbackas1952,AllisonJ.Gibbs'Lawofficehadbeenrepresentingthepetitionersasthelatter'scounsel.

3.Atty. Francisco Collantes, to whom the assessment notice was admittedly addressed, at the time of the said
assessment, was a staff lawyer in the firm of Gibbs and Chuidian, of which Allison J. Gibbs was a principal
partner.

WefindalltheaboveasampleevidenceofthelawyerclientrelationshipofthepetitionershereinandAllisonJ,
Gibbs.Besides,itshouldberecalledthatamongthechargeswhichAllisonJ.Gibbsclaimedhewouldcollectifhis
demandforrefundforthepetitionerswerenoteffectedbytherespondentCommissionerwas"attorney'sfeesof
twentyfivepercent(25%)oftheamountinvolved."(LetterofOctober3,1956.)How,then,maythisstatementbe
reconciledwiththepresentdenialthatAllisonwasindeedthepetitioners'counselwhenhewrotethesaidletterof
October3,1956?

There can be no question, therefore, that the receipt of the October 26, 1956 letterdecision of the respondent
Commissioner by Allison J. Gibbs was receipt of the same by the petitioners, the former being then the latter's
legalcounsel.Inthepremises,therespondentcourtcannotbeconsideredtohaveerred,therefore,incomputing
the30dayprescriptiveperiodinquestionfromthedatethesaidletterwasreceivedbyAllisonJ.Gibbs.

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On the other hand, the petitioners' claim that the letter of October 26, 1956 was not a denial of their claim for
refund is patently unmeritorious. The letter in question clearly stated that "for reasons stated in our letter dated
August28,1956,thisOfficefindsnojustifiablebasistograntyoursaidrequest."ConsideringthatevenAllisonJ.
GibbsdeemedtheAugust28,1956correspondenceastheCommissioner's"finaldecision"onthecontroversy,it
isdifficulttoseehowthepetitionerscannowarguethatthesaidletterofOctober26,1956,wasnotadenialof
theirclaimforrefund.

Parenthetically,itmaybeobserved,thatinviewofourfindingthattherespondentcourthadnojurisdictionover
the petition for review because it was filed beyond the 30day period, hence, there is no need for extensive
discussionofthesecondissue,namely:Whetherthewithholdingtaxcreditsamounttopaymentforthepurpose
ofdeterminingthetwoyearperiodasprovidedforbySection306oftheInternalRevenueCode.

Thepetitionersmaintainthattherespondentcourterredinrulingthattheirclaimfortaxcredithadalreadyexpired
sinceitpertainedtotaxpaymentsmadein1951andtheprotestandclaimfordemandthereforwasmadeonlyin
1958.Thepetitionersinsistthattheycouldnotbedeemedtohavepaidtheir1951taxobligationuntilFebruary
19, 1957, because they merely contributed to the withholding tax system in 1951 and claimed certain refunds
againsttheircontributionattheendofthesaidtaxyearandtheyreceivednoticeoftheresolutionontheirclaim
forsuchrefundonlyonFebruary19,1957.Inotherwords,thepetitioners'thesisistotheeffectthatincometax
assessmentsagainstwhichclaimsforrefundhavebeenlodgedandwhicharecoveredbytaxeswithheldatthe
sourceshallbeconsideredpaid,notatthetimesuchtaxobligationsfalldue,but,onlywhentheclaimsforrefund
against the assessments are finally resolved by the authorities. By the petitioners' own formulation of their
argument

PetitionersalsorespectfullycontendthatthestatuteoflimitationoftwoyearsprescribedinSection306of
theNIRCdoesnotstarttorununtilrespondentCommissionerhasactedontheclaimforrefundorcreditby
the nonresident taxpayer and so notified the taxpayer because until then the withholding tax cannot be
treated as a payment by the alienresident taxpayer until then it is a mere deposit held by respondent
Commissionerfortheaccountofthenonresidentalientaxpayer.

ThisCourtcannotsubscribetothepetitioners'view.

Payment is a mode of extinguishing obligations (Art. 1231, Civil Code) and it means not only the delivery of
money but also the performance, in any other manner, of an obligation (id., Art. 1231). A taxpayer, resident or
nonresident, who contributes to the withholding tax system, does so not really to deposit an amount to the
Commissioner of Internal Revenue, but, in truth, to perform and extinguish his tax obligation for the year
concerned.Inotherwords,heispayinghistaxliabilitiesforthatyear.Consequently,ataxpayerwhoseincomeis
withheldatthesourcewillbedeemedtohavepaidhistaxliabilitywhenthesamefallsdueattheendofthetax
year.Itisfromthislatterdatethen,orwhenthetaxliabilityfallsdue,thatthetwoyearprescriptiveperiodunder
Section 306 of the Revenue Code starts to run with respect to payments effected through the withholding tax
system. It is of no consequence whatever that a claim for refund or credit against the amount withheld at the
source may have been presented and may have remained unresolved since, as this Court has previously
explainedinthecaseofGibbsvs.CollectorofInternalRevenue,G.R.No.L13453,February29,1960

... Section 306 of the National Internal Revenue Code should be construed together with Section 11 of
RepublicActNo.1125.Infine,ataxpayerwhohaspaidthetax,whetherunderprotestornot,andwhois
claiming a refund of the same, must comply with the requirement of both sections, that is, he must file a
claimforrefundwiththeCollectorofInternalRevenuewithin2yearsfromthedateofhispaymentofthe
tax, as required by Section 306 of the National Internal Revenue Code, and appeal to the Court of Tax
Appeals within 30 days from receipt of the Collector's decision or ruling denying his claim for refund, as
requiredbySection11ofRepublicActNo.1125.If,however,theCollectortakestimeindecidingtheclaim,
and the period of two years is about to end, the suit or proceeding must be started in the Court of Tax
Appeals before the end of the twoyear period without awaiting the decision of the Collector. This is so
becauseofthepositiverequirementofSection306andthedoctrinethatdelayoftheCollectorinrendering
decisiondoesnotextendtheperemptoryperiodfixedbythestatute.(U.S.v.Michel282U.S.656,51S.Ct.
284P.J.Kiener&Co.,Ltd.,v.David,L5163,April22,1953CollegeofOralandDentalSurgeryvs.CTA,
G.R.No.L10446,Jan.28,1958.Emphasissupplied).

WHEREFORE,theinstantpetitionforreviewisherebydismissed,withcostsagainstthepetitioners.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., and Zaldivar, JJ.,
concur.
Barrera,J.,isonleave.

TheLawphilProjectArellanoLawFoundation

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