Nava vs. Commissioner of Internal Revenue

A deficiency income tax assessment is not validly made, for purposes of the prescriptive period, unless the Commissioner proves by substantial evidence that the assessment notice was actually released, mailed, or sent to the taxpayer; mere notations in internal BIR records do not suffice.

Gonzalo P. Nava was an income taxpayer assessed by the Commissioner of Internal Revenue for the year 1950. The dispute implicated the periods under the Tax Code for assessment and collection of income tax, including the five-year period for assessment and the five-year period for collection by distraint, levy, or judicial action. It also implicated the presumption under the Rules of Court that a letter duly directed and mailed was received in the regular course of mail. The Commissioner's authority to assess and collect the deficiency depended on whether the notice of assessment had been validly issued or sent within the prescriptive period.

Gonzalo P. Nava filed his income tax return for the year 1950 on May 15, 1951. On the same date, the Commissioner of Internal Revenue assessed him P4,952.00 based solely on that return. Nava paid one-half of the tax due, leaving an unpaid balance of P2,491.00. He later offered his backpay certificate to pay the balance, but the Commissioner refused the offer. On July 28, 1953, Nava requested that collection of the balance be held in abeyance until the question of whether he could pay it out of his backpay was decided; the Commissioner rejected the request in a reply letter dated January 5, 1954. Two more letters or notices demanding payment of the balance followed, the last dated February 22, 1955.

On March 30, 1955, after investigating Nava's 1950 return, the Commissioner issued a deficiency income tax assessment notice (Exhibit "4") requiring payment not later than April 30, 1955 of P9,124.50, which included the unpaid balance of P2,491.00 plus a 50% surcharge. Several notices of this revised assessment were allegedly issued, but Nava claimed that he learned of it for the first time on December 19, 1956, more than five years after the original return was filed, and he testified to that effect. In a letter dated January 10, 1957, Nava called attention to the fact that more than six years had elapsed, protested the assessment, and contended that it was a closed issue. The Director insisted on payment in a registered letter dated March 25, 1957 (Exhibit "5"). Nava asked for reconsideration; on June 16, 1958, he was informed that reinvestigation would be granted provided he waived the statute of limitations (Exhibit "7"), a condition he rejected (Exhibit "8"). The reconsideration was denied by the Collector's letter of July 22, 1958 (Exhibit "9"), and on August 8, 1958 Nava filed a petition for review with the Court of Tax Appeals.

The Court of Tax Appeals reduced the deficiency to P3,052.00 and cancelled the 50% surcharge. It ruled that enforcement of the assessment had not prescribed. In so ruling, it relied mainly on the duplicate copy of the deficiency income tax notice found in the Bureau of Internal Revenue file (Exhibit "4"), on which the date of issue was typed "3/30/55"; on call-up letters recorded in Exhibit "3" as having been sent on April 10, 1956, July 3, 1956, and September 25, 1956; on personal interviews and a BIR agent's memorandum dated December 10, 1956; and on Nava's note (Exhibit "E") acknowledging receipt of a "second final notice" delivered by Mrs. Canlas. The CTA discredited Nava's claim that he learned of the assessment only on December 19, 1956, inferring that he had received the notices but ignored them because he believed the Government's right to collect had prescribed in view of the Avelino case. It assumed that the March 30, 1955 notice was received in due course of mail not later than April 10, 1955, making the assessment within five years from May 15, 1951, and that collection could be made by distraint, levy, or judicial action within five years from April 10, 1955, or not later than April 10, 1960, and that the judicial action in CFI Manila Civil Case No. 32796 and the CTA petition on August 8, 1958 were both within that period.

The Supreme Court found that the Commissioner's evidence did not support the CTA's factual premise. Nava denied receiving the original copy of the assessment notice. The Commissioner presented Pablo Sangil, a BIR clerk, who attempted to establish that the original was issued or sent on March 30, 1955, but Sangil disclaimed personal knowledge of its issuance or release on that date because he had been assigned to the income tax section only in October 1956. Sangil also stated that there was no notation in the file copy (Exhibit "4"), nor any slip attached to the records, showing that the original was ever actually issued or sent to Nava, and he admitted having no hand in preparing or sending notices or demand letters. The Commissioner also presented Eliseo B. Fernandez, a record clerk in the Records Control Section since 1957, whose duties were to send mail and keep a record book of mailed letters. Fernandez testified only that his record book (Exhibit "10") contained a note that a letter dated March 15, 1957 was mailed by special delivery with return card to Nava; he admitted that he did not prepare the entry, the nature of the letter did not appear, and the letter was mailed beyond the five-year limitation period. The lower court also relied on supposed notices noted in ink in Exhibit "3" and on the BIR agent's memorandum, but no witness testified to the issuance or sending of those demand letters or notices, and no duplicate or simple copy of them was found in Nava's BIR file. Sangil's testimony on the meaning of the dates in Exhibit "3" was not credible because the supposed notices were sent on or before August 25, 1956, while he was assigned to the income tax section only in October 1956. The Supreme Court thus found that the Commissioner failed to prove by substantial evidence that the assessment notice dated March 30, 1955 and the subsequent demand letters or notices were actually issued or sent to Nava; that the presumption of receipt in the regular course of mail did not apply because there was no proof that the notice was properly addressed with postage prepaid and actually mailed; and that Nava's acknowledgment of a personally delivered second final notice did not prove receipt of the first notice by mail. The original assessment was made on May 15, 1951, and no valid and effective reassessment notice was made after that date; the notice of deficiency tax was effectively made on December 19, 1956 at the earliest, and the return was not found false or fraudulent.

• Prescription: Petitioner maintained that more than six years had elapsed since the filing of his 1950 return and that the deficiency assessment was a closed issue; he protested the March 30, 1955 assessment and rejected the condition requiring waiver of the statute of limitations.
• Non-Receipt of Assessment: Petitioner denied having received the original copy of the deficiency income tax assessment notice and claimed he first learned of it on December 19, 1956, more than five years after the original return was filed.

• Prescription of Assessment: Whether the Government's right to assess deficiency income tax for 1950 had prescribed under Section 331 of the Tax Code.
• Prescription of Collection: Whether the Government's action to collect the deficiency income tax had prescribed under Section 332(c) of the Tax Code.
• Proof of Issuance/Mailing: Whether the Commissioner proved by substantial evidence that the deficiency assessment notice and demand letters were actually issued or sent to the taxpayer.
• Presumption of Receipt: Whether the presumption that a letter duly directed and mailed was received in the regular course of mail could be applied.

• Prescription of Assessment: Yes. The period to make a reassessment expired on May 15, 1956, because no valid and effective notice of reassessment was made after the original assessment on May 15, 1951.
• Prescription of Collection: Yes. Judicial action to collect the deficiency tax prescribed under Section 332(c) of the Tax Code, the notice of deficiency tax having been effectively made only on December 19, 1956 at the earliest and the return not being false or fraudulent.
• Proof of Issuance/Mailing: No. The Commissioner failed to prove by substantial evidence that the assessment notice dated March 30, 1955 and subsequent demand letters were actually issued or sent; mere notations in BIR records did not suffice.
• Presumption of Receipt: No. The presumption of receipt in the regular course of mail did not arise because there was no proof that the notice was properly addressed with postage prepaid and actually mailed.

• Prescription of Assessment: Section 331 of the Tax Code required assessment within five years from the filing of the return. Nava filed his 1950 return on May 15, 1951, and the original assessment was made on the same date. No valid and effective notice of reassessment was made after that date. The CTA relied on the duplicate copy of the assessment notice with the typed date "3/30/55" and on internal notations, but Sangil had no personal knowledge of the original's issuance or release because he was assigned to the income tax section only in October 1956, and there was no notation or slip in the file copy showing that the original was sent. Fernandez's testimony concerned a letter dated March 15, 1957, which was beyond the five-year period, and he did not prepare the entry. No witness testified to the supposed demand letters, and no duplicate or simple copy of them was found in Nava's BIR file. Thus, there was no valid and effective issuance or release of the assessment notice and subsequent demand letters. Nava's acknowledgment in Exhibit "E" of a personally delivered second final notice did not prove that he received the first notice by mail. The period to reassess therefore expired on May 15, 1956.

• Prescription of Collection: Because no valid reassessment notice was made after May 15, 1951, the notice of deficiency tax was effectively made on December 19, 1956 at the earliest. The judicial action to collect the deficiency tax had already prescribed under Section 332(c) of the Tax Code. The return was not false or fraudulent, so the ten-year fraud period did not apply. The CTA's computation from April 10, 1955 failed because the premise of a valid mailing was not proved. The rule in Coll. of Int. Rev. vs. Bautista, that an assessment is made when sent within the prescribed period even if received after its expiration, did not aid the Commissioner because the release, mailing, or sending of the notice must be clearly and satisfactorily proved. Mere notations made without the taxpayer's intervention, notice, or control, without adequate supporting evidence, cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices.

• Proof of Issuance/Mailing: The Commissioner had the burden to prove by substantial evidence the actual issuance or sending of the assessment notice and demand letters. The evidence consisted of the duplicate copy, call-up letters, the BIR agent's memorandum, and Exhibit "E." No witness testified to the issuance or sending of the supposed demand letters or notices; no duplicate or simple copy was found in Nava's BIR file; and Sangil's testimony on the meaning of the dates in Exhibit "3" was not credible because the supposed notices were sent on or before August 25, 1956, while he was assigned to the income tax section only in October 1956. The Commissioner therefore failed to prove by substantial evidence that the assessment notice dated March 30, 1955 and the subsequent demand letters or notices were actually issued or sent. Those dates cannot be reckoned with in computing the period of prescription within which a court action to collect may be brought.

• Presumption of Receipt: Under Section 5(v), Rule 131 of the Revised Rules of Court, the presumption that a letter duly directed and mailed was received in the regular course of mail requires proof of two facts: (a) that the letter was properly addressed with postage prepaid, and (b) that it was mailed. Once these facts are proved, the presumption is that the letter was received by the addressee as soon as it could have been transmitted to him in the ordinary course of the mail. If one of these facts fails to appear, the presumption does not lie. None of these requirements was shown. Nava's acknowledgment in Exhibit "E" of a second final notice personally delivered to him was no proof that he received the first notice by mail; there is a difference between receiving a second final notice and receiving a final notice for the second time.

• Prescription of Tax Assessment and Collection — Under the Tax Code, assessment must be made within five years from the filing of the return, unless the return is false or fraudulent. Collection by distraint, levy, or judicial action must be made within five years from assessment. Here, no valid assessment notice was made after the original assessment on May 15, 1951, so the period to reassess expired on May 15, 1956. The notice of deficiency tax was effectively made on December 19, 1956 at the earliest, and the judicial action to collect prescribed under Section 332(c) of the Tax Code.

• Substantial Evidence in Tax Assessments — The Commissioner must prove by substantial evidence that the assessment notice was actually released, mailed, or sent to the taxpayer. Mere notations in BIR records, unsupported by testimony or copies, do not suffice. The Court applied this doctrine in finding that the Commissioner failed to prove the actual issuance or sending of the March 30, 1955 assessment notice and the subsequent demand letters.

• Presumption of Receipt of Mail — Under Section 5(v), Rule 131 of the Revised Rules of Court, the presumption that a letter duly directed and mailed was received in the regular course of mail requires proof that the letter was properly addressed with postage prepaid and that it was mailed. If either fact is not proved, the presumption does not arise. The Court held that the presumption could not be applied because there was no proof of proper addressing, postage, or mailing of the assessment notice.

• Assessment Made When Sent — An assessment is made when sent within the prescribed period, even if received by the taxpayer after its expiration. However, this rule makes it more imperative that the release, mailing, or sending of the notice be clearly and satisfactorily proved. Mere notations made without the taxpayer's intervention, notice, or control, without adequate supporting evidence, cannot suffice.

• "The facts to be proved to raise this presumption are (a) that the letter was properly addressed with postage prepaid, and (b) that it was mailed. Once these facts are proved, the presumption is that the letter was received by the addressee as soon as it could have been transmitted to him in the ordinary course of the mail. But if one of the said facts fails to appear, the presumption does not lie." — This passage states the requisites for the presumption of receipt of mail under Rule 131, which the Court found inapplicable because the Commissioner failed to prove proper addressing and mailing.

• "Since none of these requirements have been shown, there has been no valid and effective issuance or release of said deficiency income tax assessment notice dated March 30, 1955 and of the other demand letters or notices subsequent thereto, the latest of which was purportedly sent on August 25, 1956, and these dates cannot be reckoned with in computing the period of prescription within which a court action to collect the same may be brought." — This is the ratio decidendi on the absence of a valid assessment, which prevented the Government from using the purported notice dates to toll the prescriptive period.

• "While we have held that an assessment is made when sent within the prescribed period, even if received by the taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259, May 27, 1959), this ruling makes it the more imperative that the release, mailing, or sending of the notice be clearly and satisfactorily proved. Mere notations made without the taxpayer's intervention, notice, or control, without adequate supporting evidence, cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense." — This passage qualifies the rule that assessment is made when sent and emphasizes the need for clear proof of mailing or release.

• "The fact that in Exhibit "E" Nava acknowledged receipt of the second final notice personally delivered to him is no proof that he received the first notice by mail. There is a difference between receiving a second final notice and receiving a final notice for the second time." — This passage rejects the CTA's inference that receipt of a later personally delivered notice proved receipt of the earlier mailed assessment notice.

• Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259, May 27, 1959 — Cited for the rule that an assessment is made when sent within the prescribed period even if received by the taxpayer after its expiration; the Court qualified this ruling by requiring clear and satisfactory proof of release, mailing, or sending.
• Enriquez vs. Sun Life Assurance of Canada, 41 Phil. 269 — Cited in support of the requisites for the presumption that a letter duly directed and mailed was received in the regular course of mail.

• Section 331, Tax Code — The period for assessment; the re-assessment period expired on May 15, 1956, five years after the original return and assessment on May 15, 1951, because no valid notice of reassessment was made after that date.
• Section 332(c), Tax Code — The period for collection by judicial action; the action prescribed because the notice of deficiency tax was effectively made only on December 19, 1956 at the earliest, after the assessment period, and the return was not false or fraudulent.
• Section 5(v), Rule 131, Revised Rules of Court — The presumption that a letter duly directed and mailed was received in the regular course of mail; the presumption was not applied because there was no proof that the notice was properly addressed with postage prepaid and actually mailed.

Bengzon, C.J.; Concepcion; Barrera; Paredes; Dizon; Regala; Makalintal; Bengzon, J.P.; and Zaldivar, JJ., concur. Bautista Angelo, J., took no part.