Ungab vs. Cusi, Jr.

A State Prosecutor designated to assist provincial and city fiscals in National Internal Revenue Code prosecutions may conduct the preliminary investigation and file the informations when the City Fiscal, after being shown the designation, allows him to do so; and a pending protest against a tax assessment does not bar criminal prosecution for willful tax evasion because the crime is complete upon the knowing and willful filing of a fraudulent return with intent to evade tax.

Quirico P. Ungab was the taxpayer whose prosecution became the subject of the petition. State Prosecutor Jesus Acebes was designated under Administrative Order No. 116 dated December 5, 1974 to assist all Provincial and City Fiscals throughout the Philippines in the investigation and prosecution of violations of the National Internal Revenue Code, as amended, and other related laws. The Davao City charter placed the City Fiscal in charge of prosecuting all crimes committed within his jurisdiction. The dispute required the SC to resolve the interplay between that charter authority and the State Prosecutor’s designation.

Sometime in July 1974, BIR Examiner Ben Garcia examined the income tax returns filed by Quirico P. Ungab for the calendar year ending December 31, 1973. In the course of the examination, Garcia discovered that Ungab failed to report his income from sales of banana saplings. The BIR District Revenue Officer at Davao City then sent Ungab a “Notice of Taxpayer” informing him that P104,980.81 was due from him, representing income, business tax, and forest charges for 1973, and inviting him to an informal conference where, duly assisted by counsel, he could present objections to the BIR Examiner’s findings.

Upon receipt of the notice, Ungab wrote the BIR District Revenue Officer protesting the assessment. He claimed 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 that year, was accurately stated. BIR Examiner Ben Garcia, however, was fully convinced that Ungab had filed a fraudulent income tax return and submitted a “Fraud Referral Report” to the Tax Fraud Unit of the Bureau of Internal Revenue.

After examining the records, the Special Investigation Division of the Bureau of Internal Revenue found sufficient proof that Ungab was guilty of tax evasion for taxable year 1973 and recommended his prosecution: (a) for filing a false or fraudulent income tax return for 1973 with intent to evade his just taxes under Section 45 in relation to Section 72 of the National Internal Revenue Code; (b) 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; and (c) for failure to pay the 7% percentage tax, as a producer of banana poles or saplings, on total sales of P129,580.35 to the Davao Fruit Corporation, depriving the government of P15,872.59, inclusive of surcharge. In a second indorsement to the Chief of the Prosecution Division dated December 12, 1974, the Commissioner of Internal Revenue approved Ungab’s prosecution.

State Prosecutor Jesus Acebes 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, under Administrative Order No. 116 dated December 5, 1974. The case was assigned to him, and he conducted a preliminary investigation. Before starting the preliminary investigation, he first sought permission from the City Fiscal of Davao City; after being shown Administrative Order No. 116, the City Fiscal allowed him to conduct the investigation, which was in fact conducted in the City Fiscal’s office. Finding probable cause, State Prosecutor Acebes filed six informations against Ungab with the CFI of Davao City.

The six informations were docketed as Criminal Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965. Criminal Case No. 1960 charged violation of Section 45 in relation to Section 72 of the National Internal Revenue Code for filing a fraudulent income tax return for the calendar year ending December 31, 1973. Criminal Case No. 1961 charged violation of Section 182(a) in relation to Sections 178, 186, and 208 for engaging in business as producer of saplings from January 1973 to December 1973 without first paying the annual fixed or privilege tax. Criminal Case Nos. 1962, 1963, 1964, and 1965 charged violation of Section 183(a) in relation to Sections 186 and 209 for failure to render a true and complete return on gross quarterly sales, receipts, and earnings as producer of saplings and to pay the percentage tax due for the quarters ending December 31, 1973; March 31, 1973; June 30, 1973; and September 30, 1973, respectively.

On September 16, 1975, Ungab filed a motion to quash the informations on the grounds that they were null and void for want of authority on the part of the State Prosecutor to initiate and prosecute the cases, and that the CFI had no jurisdiction to take cognizance of them in view of his pending protest against the assessment made by the BIR Examiner. The CFI denied the motion on October 22, 1975. Ungab then filed the instant petition for certiorari and prohibition with preliminary injunction and restraining order; the SC issued a temporary restraining order enjoining the respondent Judge from further proceeding with the trial and hearing of the six cases.

• Authority of State Prosecutor: Petitioner argued that although the State Prosecutor may initiate investigation and prosecute violations of penal laws when duly authorized, the requisites laid down in Estrella vs. Orendain must be observed before that authority may be exercised; otherwise the Davao City charter’s provisions on the City Fiscal’s functions and powers would be meaningless because the City Fiscal has charge of prosecuting all crimes committed within his jurisdiction. He maintained that appropriate circumstances did not exist to warrant the State Prosecution’s intervention to initiate the investigation, sign the informations, and prosecute the cases, so the informations were null and void.
• Prematurity and Pending Protest: Petitioner argued that the filing of the informations was precipitate and premature because the Commissioner of Internal Revenue had 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.

• Authority of State Prosecutor: Whether the informations are null and void because the State Prosecutor lacked authority to initiate and prosecute the cases, considering the City Fiscal’s charter authority and the requisites in Estrella vs. Orendain.
• Prematurity of Criminal Prosecution: Whether the filing of the informations was premature because the Commissioner of Internal Revenue had not resolved petitioner’s protest against the tax assessment and petitioner was allegedly denied recourse to the Court of Tax Appeals.

• Authority of State Prosecutor: No. The State Prosecutor did not violate Estrella vs. Orendain because he first sought and obtained the City Fiscal’s permission before the preliminary investigation, and the City Fiscal allowed him to act after being shown Administrative Order No. 116; the investigation was conducted in the City Fiscal’s office.
• Prematurity of Criminal Prosecution: No. A pending protest against a tax assessment does not bar criminal prosecution for violations of the National Internal Revenue Code; the crime is complete upon the knowing and willful filing of a fraudulent return with intent to evade tax, and no prior assessment is required.

• Authority of State Prosecutor: The SC rejected the claim that the informations were void for want of authority. The rule in Estrella vs. Orendain, as quoted by the SC, provides that under Sections 1679 and 1686 of the Revised Administrative Code, where a provincial or city fiscal fails, refuses, or is unable to investigate or prosecute and the Secretary of Justice considers it advisable in the public interest to take a different course, the Secretary may appoint an acting fiscal or a lawyer to assist, with complete authority, subject to the requirement of hearing the fiscal concerned and the limitation on filing after the fiscal has already filed an information without his conformity, except when the fiscal is patently shown to be prejudicing the interests of justice. The SC found that this rule was not violated: the State Prosecutor, although believing he could proceed independently of the City Fiscal, first sought permission from the City Fiscal of Davao City before starting the preliminary investigation; after being shown Administrative Order No. 116 dated December 5, 1974, designating him to assist all Provincial and City Fiscals in the investigation and prosecution of all violations of the National Internal Revenue Code and related laws, the City Fiscal allowed him to conduct the investigation, which was in fact conducted in the City Fiscal’s office. The SC thus held that the respondent Judge did not abuse his discretion in denying the motion to quash on this ground.
• Prematurity of Criminal Prosecution: The SC held that the pending protest did not make the informations premature. What was involved was not the collection of taxes, where the Commissioner’s assessment 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 the CFI. While no civil action to enforce collection may be brought before the assessment procedures in the Code are followed, there is no requirement for the precise computation and assessment of the tax before a criminal prosecution under the Code. The crime is complete when the violator has knowingly and willfully filed fraudulent returns with intent to evade and defeat part or all of the tax. An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade income tax; the perpetration of the crime is grounded on the taxpayer’s knowledge that he made an inaccurate return, and the government’s failure to discover the error and promptly assess has no connection with the commission of the crime. A petition for reconsideration of an assessment may suspend the prescriptive period for collection of taxes, but not the prescriptive period of a criminal action for violation of law. The protest therefore could not stop the prosecution, and the respondent Judge did not abuse his discretion in denying the motion to quash.

• Estrella vs. Orendain requisites for State Prosecutor intervention — Under Sections 1679 and 1686 of the Revised Administrative Code, where a provincial or city fiscal fails, refuses, or is unable for any reason to investigate or prosecute a case and the Secretary of Justice considers it advisable in the public interest to take a different course, the Secretary may appoint an acting provincial or city fiscal to handle the investigation or prosecution exclusively of such case, or appoint a lawyer in the government service temporarily to assist the fiscal, with complete authority to act independently of and for the fiscal. No such appointment may be made without first hearing the fiscal concerned, and never after the corresponding information has already been filed by the fiscal without the latter’s conformity, except when it is patently shown to the court that the fiscal is intent on prejudicing the interests of justice. In this case, the SC found no violation because the State Prosecutor first sought the City Fiscal’s permission, and the City Fiscal allowed him to investigate after being shown Administrative Order No. 116; the investigation was conducted in the City Fiscal’s office.
• Assessment not prerequisite to criminal prosecution for tax evasion — A criminal prosecution for willful attempt to defeat or evade income tax does not require a prior assessment of the deficiency. The crime is complete when the violator knowingly and willfully files a fraudulent return with intent to evade and defeat part or all of the tax. The taxpayer’s knowledge that he made an inaccurate return grounds the offense, and the government’s failure to discover the error and promptly assess is irrelevant to the commission of the crime.
• Pending protest does not bar criminal prosecution — A protest or petition for reconsideration of a tax assessment may suspend the prescriptive period for collection of taxes, but it does not suspend the prescriptive period for a criminal action for violation of the tax law. The protest cannot stop the taxpayer’s prosecution for violation of the National Internal Revenue Code.
• Civil collection distinguished from criminal prosecution — The assessment procedures and Court of Tax Appeals review govern civil collection of taxes; criminal prosecution for violations of the National Internal Revenue Code is within the cognizance of the CFI and does not require precise computation and assessment of the tax before it can proceed.

• “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.” — The SC held that a tax assessment is not a prerequisite to criminal prosecution for willful tax evasion; the offense is consummated upon the fraudulent filing.
• “An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax.” — The SC rejected the argument that the pending assessment/protest barred the criminal cases.
• “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 SC distinguished civil tax collection from criminal prosecution for NIRC violations.
• “The respondent State Prosecutor, although believing that he can proceed independently of the City Fiscal in the investigation and prosecution of these cases, first sought permission from the City Fiscal of Davao City before he started the preliminary investigation of these cases, and the City Fiscal, after being shown Administrative Order No. 116, dated December 5, 1974, designating the said State Prosecutor to assist all Provincial and City fiscals throughout the Philippines in the investigation and prosecution of all violations of the National Internal Revenue Code, as amended, and other related laws, graciously allowed the respondent State Prosecutor to conduct the investigation of said cases, and in fact, said investigation was conducted in the office of the City Fiscal.” — The SC found no violation of Estrella vs. Orendain because the City Fiscal allowed the State Prosecutor to act.

• Estrella vs. Orendain, G.R. No. L-19611, February 27, 1971; 37 SCRA 640 — The rule invoked by petitioner on the State Prosecutor’s authority; the SC applied it and found it was not violated because the City Fiscal allowed the State Prosecutor to investigate and prosecute.
• Guzik vs. U.S., 54 F2d 618 — Supporting authority for the rule that the crime of willful tax evasion is complete upon the filing of a fraudulent return and that a deficiency assessment is not necessary for criminal prosecution.
• People vs. Ching Lak alias Ang You Chu, L-10609, May 23, 1958 — Supporting authority for the distinction that a petition for reconsideration of an assessment may suspend the prescriptive period for collection but not the prescriptive period for a criminal action for violation of law.

• Sections 1679 and 1686, Revised Administrative Code — The SC quoted the Estrella vs. Orendain rule based on these provisions governing the Secretary of Justice’s authority over provincial and city fiscals; the SC found no violation because the City Fiscal allowed the State Prosecutor to act.
• Administrative Order No. 116 dated December 5, 1974 — Designated State Prosecutor Jesus Acebes to assist all Provincial and City Fiscals in the investigation and prosecution of violations of the National Internal Revenue Code and related laws; the City Fiscal allowed him to conduct the investigation after being shown this order.
• Sections 45 and 72, National Internal Revenue Code — The provision under which Criminal Case No. 1960 charged Ungab for filing a fraudulent income tax return for 1973; the SC held that the crime is complete upon the knowing and willful filing of a fraudulent return with intent to evade tax, without need of prior assessment.