Castro vs. David

A case involving a disputed assessment of internal revenue taxes pending before a Court of First Instance upon the effectivity of Republic Act No. 1125 shall be certified and remanded to the Court of Tax Appeals, and the pendency of a complaint-in-intervention asserting third-party ownership of properties levied upon does not divest the Tax Court of its exclusive jurisdiction; the question of ownership may be resolved by the Tax Court as an incident to the main action.

Maria B. Castro was assessed a substantial sum for war profits tax and surcharges under Republic Act No. 55 (the War Profits Tax Law). The Collector of Internal Revenue levied upon and distrained several of her properties and, after a public auction at which no bid was received, declared the properties forfeited to the Government. Castro filed a complaint in the Court of First Instance of Manila to nullify the levy and forfeiture, asserting that the tax law was unconstitutional and that no valid tax could be assessed under it. While the case was pending, Republic Act No. 1125, which created the Court of Tax Appeals, took effect. The Solicitor General, representing the Collector, moved to transfer the case to the new court. The trial court granted the motion despite the intervention of E. Awad & Co., Inc., which claimed ownership of some of the forfeited properties.

• Nature of the Main Action: Maria B. Castro filed a complaint in the Court of First Instance of Manila against Collector Saturnino David, averring that despite dismissal of a criminal information for evasion of payment of war profits tax, the Collector assessed war profits tax and surcharges totalling ₱3,593,950.78, levied upon and distrained several of her properties, and declared them forfeited to the Government when no one bid at the public auction. Castro sought to nullify the levy and forfeiture on the ground that Republic Act No. 55 (War Profits Tax Law) was unconstitutional, rendering the assessment invalid.

• Answer of the Collector: Defendant Collector denied that the criminal dismissal amounted to acquittal, asserted that the levy, distraint, and forfeiture complied with legal procedure, maintained the constitutionality of Republic Act No. 55, and invoked the rule in David vs. Ramos, 90 Phil. 251, that tax collection cannot be restrained.

• Intervention of E. Awad & Co., Inc.: On 18 March 1954, E. Awad & Co., Inc. moved for leave to intervene, attaching a complaint-in-intervention. Intervenor alleged that Blocks Nos. 7, 8, 10, 12, 14 and 16 of the levied and forfeited properties belonged to it and not to plaintiff Castro, and prayed for their recovery. Leave to intervene was granted. Plaintiff Castro answered, admitting that one-half of the claimed properties belonged to intervenor but asserting that Block No. 12 was her exclusive property.

• Enactment of Republic Act No. 1125 and Motion to Certify: Republic Act No. 1125, which created the Court of Tax Appeals, took effect on 16 June 1954. On 17 September 1954, the Solicitor General filed a motion to certify and remand the case to the Court of Tax Appeals under Section 22, in connection with Section 7(1), of the Act. Plaintiff Castro and intervenor E. Awad & Co. opposed the motion.

• Order of Certification: On 25 September 1954, the Court of First Instance granted the motion and ordered the case certified and remanded to the Court of Tax Appeals. Intervenor appealed.

• Retention of Jurisdiction by the Court of First Instance: Intervenor maintained that the Court of First Instance retained jurisdiction because its complaint-in-intervention raised a pure question of ownership over specific properties that were allegedly erroneously levied and forfeited, a matter distinct from the disputed tax assessment and one that the Court of Tax Appeals was not competent to adjudicate.

• Effect of Intervention on the Nature of the Action: Intervenor argued that the filing of its complaint-in-intervention altered the character of the action, transforming it into a controversy that included non-tax issues, thereby vesting the regular court with authority to hear and decide the entire case.

• Exclusive Jurisdiction of the Court of Tax Appeals: The Solicitor General, on behalf of the Collector, argued that the main suit involved a disputed assessment of war profits tax under Republic Act No. 55, an internal revenue tax law; that Republic Act No. 1125 conferred exclusive jurisdiction upon the Court of Tax Appeals over cases involving disputed assessments, refunds, penalties, and other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue; and that Section 22 of the same Act mandated certification of all such pending cases from the Courts of First Instance. The pendency of the complaint-in-intervention did not change the fundamental character of the action.

• Jurisdiction and Effect of Intervention: Whether the Court of First Instance correctly ordered the certification and remand of the entire case to the Court of Tax Appeals under Section 22 of Republic Act No. 1125, considering that a complaint-in-intervention asserting ownership of the levied properties was pending at the time.

• Jurisdiction and Effect of Intervention: The order of certification was affirmed. The main action — questioning the legality of a war profits tax assessment and the consequent levy, distraint, and forfeiture — involved a disputed assessment of internal revenue taxes. Under Republic Act No. 55, assessments of war profits tax are made by the Collector of Internal Revenue, and all general and special provisions on assessment, collection, and refund of internal revenue taxes are extended to the war profits tax. Consequently, the case fell within the exclusive jurisdiction of the Court of Tax Appeals pursuant to Section 7(1) of Republic Act No. 1125, and Section 22 of the same Act mandated its certification from the Court of First Instance.

The pendency of a complaint-in-intervention asserting ownership of some of the levied properties did not vest the Court of First Instance with jurisdiction over a matter exclusively conferred upon the Tax Court. The intervenor’s claim of ownership was an incidental question that the Court of Tax Appeals was competent to determine in order to decide whether the properties belonged to the delinquent taxpayer or to the intervenor. The intervention did not alter the nature of the original action or the issues joined by the principal parties. The intervenor retained the option to move for dismissal of its complaint-in-intervention and bring an independent action in the proper court for recovery of the properties, or to pursue its remedy before the Tax Court, where the issue of ownership could be resolved as an incident to the tax dispute.

• Exclusive Jurisdiction of the Court of Tax Appeals over Pending Tax Cases: Section 22 of Republic Act No. 1125 mandates that all cases involving disputed assessments of internal revenue taxes or customs duties pending before the Court of First Instance shall be certified and remanded to the Court of Tax Appeals for final disposition. Applied here, a complaint seeking to nullify the levy, distraint, and forfeiture of properties for war profits tax is a case involving a disputed assessment of internal revenue taxes and must be transferred to the Tax Court upon effectivity of the Act.

• Incidental Determination of Ownership by the Court of Tax Appeals: When a third party claims ownership of properties levied and forfeited for unpaid internal revenue taxes, the Court of Tax Appeals may resolve the question of ownership as an incident to the main action for disputed assessment, to ascertain whether the properties belong to the delinquent taxpayer or the claimant. This avoids fragmentation of jurisdiction.

• Intervention Does Not Alter the Nature of the Action or Confer Jurisdiction: Intervention cannot change the character of the original suit or the issues framed by the principal parties. Jurisdiction is determined by the allegations of the complaint; an intervenor’s claim does not enlarge or confer jurisdiction upon a court that lacks it under the law.

• “The fact that there is a complaint-in-intervention filed in the Court of First Instance, while the case was there pending before the passage of Republic Act No. 1125, where the intervenor seeks to recover its properties registered in the name of the Plaintiff alleged to have been erroneously levied upon and distrained by the Defendant Collector of Internal Revenue and later on forfeited to the Government, does not vest in the Court of First Instance jurisdiction to hear and decide the case the cognizance of which is exclusively conferred upon the Court of Tax Appeals.” — This encapsulates the ratio that a pending intervention does not obstruct the mandatory certification of the case to the Tax Court.

• “An intervention cannot alter the nature of the action and the issues joined by the original parties thereto.” — This principle reinforces that jurisdiction is tested by the original complaint, not by the claims added through intervention.

• David vs. Ramos, 90 Phil. 251 — Invoked by the defendant Collector in his answer to support the argument that tax collection could not be restrained. The case was not cited or relied upon by the Court in resolving the jurisdictional issue on appeal.

• Republic Act No. 1125, Section 22: “All cases involving disputed assessment of Internal Revenue taxes or customs duties pending determination before the Court of First Instance shall be certified and remanded by the respective clerk of court to the Court of Tax Appeals for final disposition thereof.” — Applied as the procedural mechanism mandating transfer of the case.

• Republic Act No. 1125, Section 7(1): Confers exclusive appellate jurisdiction upon the Court of Tax Appeals to review decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds, fees, penalties, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue. — Applied to confirm that the subject matter fell within the exclusive jurisdiction of the Tax Court.

• Republic Act No. 55, Section 5 (War Profits Tax Law): All assessments of war profits tax shall be made by the Collector of Internal Revenue. — Referred to in establishing that the disputed tax came under the authority of the Bureau of Internal Revenue.

• Republic Act No. 55, Section 9: Extends all administrative, special, and general provisions on assessment, remission, collection, and refund of national internal revenue taxes to the war profits tax. — Cited to demonstrate that the Tax Court’s jurisdiction over internal revenue disputes included war profits tax assessments.

Paras, C.J., Bengzon, Montemayor, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Endencia, and Felix, JJ., concurred.