CTA Case No. 337

REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

MANILA

CARLOS MORAN SISON and

PRISCILA F. 51508 Petitioners, #- yersus - elses CASE WO, 337 REVENUE, \ Respondent,

DECISIOW

COLLECTOR OF INTERIAL \"

The respondent assessed against the spouses Carlos Moran Sison end Priscila F, Sison, petitioners herein, the sum of 75,535.02 as deficiency income tax for the yeer 1949, It appears that on feoruary 28, 1949,petie« tioners, together with three other persons, organized a corporation known as the Priscila Estate, Inc. with a capital stock of #1,000,000,W, divided into shares with @ par value of # 1,000.00 per share, In payment of the shares subscribed vy potteteness. they executed a deed of assignment in favor of the newly foxmed corporation conveying to the latter properties cone sisting of real estate, office supplies, furniture and fixtures, specifically deserived in the inventory marked Exhibit 6. The properties sad an aggregate assessed value of #1,069,717.00, By the teras of the deed of assignment, the corporation assumed “all the obligstions and liabilities of the Asstgnors in the totel amount of three hundred ninety seven thousand 37 PL PT ee Te ee ee

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DEC TS Tn ©

CeToAe CASE NO, 337 = 2« seven hundred seventeen (397,717.00) pesos . « »« as well os Assignors’ income tex liabf{lities for the calendar year 194° tc the extent only of # 28,000, 00," On April 18, 1950, within the pertod of exten- sion for the filing of their income tax return for 1949, petitioners filed their joint income tsx re- turn for said year showing an income tax lisbility of #555, 26, which was paid {tn two installments on Mey 13, 1950 and August 14, 1950, Subsequently, or on July 2, 1952, after an examinatton and investigae tion of the said tncome t2x return, respondent as- sessed agatnst petitioners a defictency tncome tax of #41,101.53, This deffclency tncome tax was computed after taking {nto account the alleged capital gain in the sum of 257,280.00 realized by petitioners from the transfer of their properties in 1949 to the Prise cila Estate, Inc, ‘*n exchange for 672 shares of the latter.

Upen request for recensideretion, and after se- verel tnvestigetions conducted by examiners of the Sureau of Internal Revenue, respondent, in his letter of October 13, 1956, received by counsel for petitfoners assessment from #41,101.53 to #5,535,02, The reduction of the assessment was due to the finding that instead of deriving 4 net capital gein of # 257,380.00 from the transfer of their properties to Priscila Estate, Ine., petitioners derived ord{nary and capital gains fn the sum of #31,879.97. (See Exh, D for petitioners; Exh, » 38 4 | —— a

DECTS ION -

CeT.A. CASE NO, 357 12 for respondent.) In his letter of Uctober 19, 1956, counsel for petitioners requested a reconstde- ration of the revised assessment and at the same time alleged that the right ef respondent to assess and Collect the said defictency tax had prescribed, Upon denial of the request for reconsideration, the case has been elevated tw this Court for review, The fol- lowing issues heve been raised by peti{tioeners, First, whether Fes gy. wane gh right to @seess and collect oe Sane et #5,535,02 as gy ory eieged det iclency tneome tax for 1949 has preserised;

Second, assuming that saic right is not barred by prescription, whether ean heave cealized any profit from of their puepent ios to the Prisetia | Estate, Ligey Third, was ove was such a profit, Sahin i mere peper pro- pba ead, therefore, Aa a “taxable income;

ourth, whether under the circun- amount & fees and the expenses of this Litige ria asice from costs.

Ras the right of the Governnent to #sse9¢ and collect the defietency income tax of $5,535,027 pres~ cribed? The law applicable ts Sectfton 331 of the Na- tional Internal] Revenue Code, which provides:

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VECTISION

4 the erepesse of this section a return filed before the last day prescribed by eh for pom Pe. thereof shall be cone ae That ‘this thts limttation® A ow to cases already investigated prior approval of this Code.

The records of this case show that the income tax return of petitioners for 1949 was filed on April 18, 1950. The defictency income tax of #5,535,02 was assessed on Gctober 17, 1956, the date respondent's letter of October 12, 1956 was recetved by petitioners, or more than six (6) years from the date the return was filed, The law requires that an assessment of an internal revenue tax must be made within 5 years fron the date the return was filed, ft is, therefore, clear that the rfght of the Government to assess the said deficiency tax has prescribed, and consequently the same may no longer be collected, It is argued, however, that “an original assesse- ment was fssued against petitioners in July, 1952, or wall within the Seyear pertod from April 18, 1980 when the return was fiied" and that the “subsequent assesse ment of October 13, 1956 was a mere amendwent te the first and {t could not be dented that the right te assess once exercised continues in force and the sube sequent amendment is a mere continuation of the exe ercise of such right." (Page 9, Memorandum for Res- pondent.) jhe cennot accept the soundness of this pro position. \V We have held that where an assessment is made within the five-year period but such assessment is set aside and modified by another, the five-year rT

DEC IS ION «

CeTeA. CASE NO, 337

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period within which to assess as provided In Section 331 of the Revenue Code is to be countec from the date of filing of the return to the cate the new assessment was méede, This rests on the theory thet 1 an assessment that has been | Set aside or censelled is no assesment at ail. | (Suyoe Consolidated Mining Co. Ve. Collector of Internal Revenue, C.T.A. No. 189, September 27, 1956; Gancayco v. Collector of Internal Revenue, C.T.Ae No, 287, November 14, 1957.) TE the theory of respondent is to be accepted, he could aule lify the provision of law limiting his power to éseess and collect internal revenue taxes by merely tmending his former assessment, It is also argued that “petiticners’ various requests for reconsideration , . . in effect suspended the running of the prescriptive pertod during the time when the reinvestigations were being conducted." (Fp. 9-10, Memorandum for Respondent.) We find no legal basis for this conclusion, The law provides for the suspension of the running of the statute of Limitations upen assessment and cellection of internal revenue taxes in general only in two instances, to wits

1. Where sefore the expiration of the time prescribed (for the assessment or cole ——. y he. the tax), both the Collector of Revenue and the taxpayer Soyeee tn pee oy my to its asse t llectfon aft such tine (Pars. iw wa and £1 . Rovenes Code);

2. Where the Collector ef Internal Ae venue is prohfvitea trom making the assess- prs Ra yo distraint or levy or ® pro- and for $ days the ree on Section 333, etwoge Boy ) 4s ee EEE eeeeree-””-rrrae—c— aaa. aa a

DEC TIS TON «

~6«- fa Nowhere does the law recognize that a simple request for reconsideration of an assessment, unaccompanied by any posttive indication that the taxpayer is waive ing his right to assert the defense of prescription, has the effect of suspending the running of the stae tute of limitations. This is especially se where, 4s in this case, the original assessment was found to be erroneous and the request for reconsideration was not without justification, We may also add that to cone sider a request for reconsideration as having the effect of suspending the running of the statute of limitattens would be to discourage such requests, which is contrary to the established policy of requiring the exhaustion of all adainistrative remedies befere ree sorting to the courts, ) The present practice in the Bureeu of Internal Revenue apparently supports this view.

"That a request for re-examination or reconsideration of an assessment does not suspend the running of the statute of limi- tations seems to se the prevailing opinion fin the Sureau of Internal Aevenue. This may be interred from the fact that General Circular No, VelO2 dated January 17, 1955 (providing that if a taxpayer wants his case rewexamined cr reinvestigeted, he aust sign a stateacnt thet he is waiving the periods of prescription involved in the assessment and collectton of the deffetency tax in question) had to be promulgated. x Xe "Ii a simple request for reinvestiga= tion or reeexemination of an assessment suse Bienes, es slieged oy necpendent, thexe 8 8 S$, 23 allege res ere is no necessity for the requirement thet a taxe ad oo must *sign 3 statement thet he fs walving the periods of prescription’ as a condit for the granting ef the request 42 44 DECTS IGN - .

CeTsA. CASE NO, 337

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for re auras s tion zene General © eer in in line with Gontien 332 rt venue Code which provides that the yt. of the taxpayer must pb sein tne tive nt os veo year Ser tod oe ttattat ton upon the right of the respondent to collect internal revenue taxes.“ (5 Consolidated Mining Co. v. Collector of Internal Ae- venue, supra.)

reeexeminat ion y, obviously Finally, respondent claims that the statute of limitations upon assessment end collection of in- ternal revenue taxes provided in Sections $31 and 332 of the Revenue Code does not apply to income tax, citing Collector of Internal Kevenue v. Avelino, Gi, No. Le92U02, November 19, 1956. In other words, rese pondent is of the opinion thet the right of the Govern- ment to coliect income tax through judiciai action is faprescriptible. (Page 9, Internal Revenue Gulletin, August, 1957.) Counsel for the Governaent have ex- panded this theory of respondent by asserting that it is not only the right to collect income tax by judicial action but also the right to assess said tax that is imprescriptivle. (Pp. lel, Memorandum for Respon- dent.) We have read with care the decision of the Supreme Court in the Aveline case, espectaliy the por- tion indicated ay counsel for respondent, but we have found nothing therein from which any {nference may be drawn that the right of the Government to assess and collect income tax by judictal action does aot pres- cribe, The sole question reised by the parties and de- cided by the Supreme Court in the Avelino case was the 43 —__s- - = ttt li tii i ee ni ee ee

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CeoTsA. CASE NO, 337 e656 «= validity of the warrant of dfistraint and levy tssued by the Collector of Internal Kevenue to enforce cole lection of income tax after three years from the date the return wes filed or was due, It was there held that Income tax may be validly collected by dise traint and levy within three years after the return was filed or was due, 2nd any attempt to collect said tax by that method ofter the three-year period ts illegal and votd, After the three-year period, the sole remedy for the collection of tncome tax 's bv judfetal action, The reason for this fs that since Sectfon 51(d) of the Revenue Code limits the right of the Government to cole lect {neome tax by ¢fistrafnt and levy, Sections 331 and 332 of the same Code which previde for dffferent periods for collectfon of internal revenue taxes fn genera) by the saic method do not apply to Income tax. Section 51(d) is 2 spectal provisfon specifically ap- plicable to tncome tax, while Sections 331 and 332 are previsions cpplicable ceneralliy to fnternal revenue taxes. ‘Seid the Supreme Court;

" . » » but there ts nothing provided in the new Goede from which ~ ane 30 inferred that the provisfons of said section S1(¢ were deemed repealed or modified oy the pro- visions of sectfons 231 and 332 thereof. Since xepeals by implication are not favored, unless the contgary clearly appeers, and it is @ well known rule that conflicting provisions should be héermonized and ‘reconciled so thet beth nay be given force and validity, it is our duty to hermonize and reconcile them if only te give effect to the clear intent of our legislative body.”

The only conflict between Section 51(d) on the one hand and Sections 331 and 332 on the other relates to . 42

DECTSION =

CeToAs CASE NO, 937

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the perfod of limftation upon the power to collect income tax by distraint and levy, and the Supreme Court rightly held thet Section 51(d) being @ special provision is the one epplicable, With respect to the right te assess and collect income tax by judicial action, there is absolutely no conflict between the said provisions of law, Section 51(d), the special provision, being silent on the subjeet, Section 33] and 332, the general provisions, must be held to apply. There is nothing in Sectfons 331 and 332 which excludes from thefr operation the right of the Collestor of Ine ternal Revanue to assess and collect income tax by ju- dicial action, And this Court has expressed this view in a long line of decisions. ‘%e summarized our views on this subject in Gancayco v. Collector of Internal Revenue, C.T.A. No, 287, November 14,1957, from which we quote:

"1. After three years from the filing of an_ income tex return, the Government cannot collect income tex dtstraint and but it may do so ag ey «4 action wi five Ne. » Sept. 27, 1956; Selanne ve Col- S, 1956; ye Me Sr % Collector o ate ev.» C.TeAe No, July i, 1957 Land Transp. » Ve Tht.

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Affirmed the Supreme Court in G, Aa, No. Lolonel, Feb, 28, 1958, OTe era

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DECISION «©

CeT.A. CASE NO, 337 = 10 « "2, Where the texpayer failed to file his ingome tax return, the Collector of Internal Revenue may assess the tax within ten years from the date of discovery of the omission, and collect the tax without assessment td j fal action within the same period, @ Evangelista v. Collector of Int. Rev, g Sree NO» W.. ~ 23, 1955, affirmed rt he Supreme Court fin Ge, No. L-9996, Oct.

-. In case of fraud, income tex a ey Be ted without ssescenent jua within ten from yor na dise iss the be er within five 7 seseemanet £ aan a (Reyes v. Collector e ions CeT.A, No. 42, jen. 8 8,1955 HF le in GR. No, Lo8685 $57 « Jan, 31, 1 ij Z Ve liam Li Yao v. Collector of Int. Rev., C.I.A.

same Me Meet ek en ashe 24, 1957.7)" We find no justification for this Court to depart from the opinions expressed in the foregoing cecisions. Ape parently, the Supreme Court entertains the seme view when, in a case elevated to it on cortiorari, it directed this Court to “determine the fncome tax liabilities of Matias H, Aznar that have not prescribed under the terms and perfod fixed by Sections 331 and 332 of the National Internal Aevenue Code," (Collector ef Int. Rev. v. Asnar, G. R. No, L-10370, Jan, 31, 1958.)

Having found that the right ef respondent to assess the income tax in question from petitioners has prese cribed, we deem it uaknecessary to pass upon the second and third issues relating to the correctness of the said * cited in Opinion No, 182 of the Secretary of stice, Aug. 1, 1957, XXII Lawyers Jour. 6.

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DECISION «

CeTeA. CASE NO, 337 @ il - assessment.

Tne fourth issue refers te the clain of petie- tioners fer “compensatory, exemplary end moral damages, plus a reesonable amount for attorney's fees and the expenses of this litigation, aside from costs." To justify their claim for damages, petitioners alleges *on dane 23 S ont tinal the anount of # pat tor ks rett ime ale leged eefic at tenats con fer 1949 based on a wpe undec Lares ared paper profit of P27,< 380.00 whic peg Aw purportedl ee from the ya: an of thefr properties to a corporee tion they assoluteldy control.

“In arriving at the said profit of #257, however, the Sureau tock into account preperties where gre eye ape ae te ge, made some ge: Bag disregarded re eee properties where they suffered 5.

“But that fs not all. When the factual and oy of the assessment were quese t and, 4 Stine tn ane f the case was ree investigated eeauh that, instead of realizing a it, eTitionas: sustained a loss from transfer, one would think that the case would be dropped, ected, great a on™ vensanyee to a series ed aactprentinntion for anied of nese then four (4) be tear ceean? Q erent teams of examiners at that until on Geteber 13, 1956, the ower ny | — s re vised and reduced to only #5,535 this time on an alleged profit of e 731,679.97 “PETITIONERS twice requested HES PUDENT to explein how his Office arrived at such ree duced profit of #31,879.97, But he merely stated in his letter of November i956, An- nex °B*, that the said profit wes based upon alleged tot Sees re a —>

DECISION «

C.TA. CASE NO, 337 - 12 « "Under these circumstances, it is trite to say thet PETITION:NS were deprived of thefr right to question the correctness and legality of the deficiency assessment against them, In effect, they were being deprived ef their property without due process of law, xXKRRe "This unvarying and persistent practice ef the Gupeau of Internal Revenue <= of being dictatorial and averse to making explanations ef its assessments, of investigating and ree investigating again and again @ case fer years y to the point of harassment and by different teams of examiners at thet, and of constantly revising its assessments «- a practice which had been censured time and again oy this Hon- oreble Court of Tax Appeals, smacks of perse- cution." (Pp. 13-16, etition for Review, ) These allegations ere dented in the answer of respon- dent, who claims thet he "exercised due diligence and good faith tn order that petitioners’ {ncome tax lia- bility for 1949 mey be correctly ascertained and that petitioner wes never deprived of Ais property without ‘Gue process of law nor denied equal protection of the laws."

No evidence was presented oy petitioners during the hearing of this case in support of their allegation that they suffered damages as a result of alleged acts of harassment and persecution committed by respondent, and no proof was adduced as regards the specific amount of damages thet they actually sustained. Nothing of record appears which may indicate that respondent dee prived, or attempted to deprive, petitioners of any of their property without due process of law. In fact, we believe that the actuations of the officers of the Bureau of Internal Revenue who handled this case ope- rated to the advantage of petitioners. The fatlure of

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_—- -——- — GeTeAs CASE NO, 337 «13 « respondent to assess the deficiency tex in question within the pertod prescribed by law, made it possible for petitioners to set up the defense of preseription. The claim for damages must perforce be dismissed as untenable, FOR THE FOREGOING CONSIDERATIONS, and pursuant to Section 14 of Republic Act No, 1125, the decision appealed from is hereby reversed, No costs,

AC _GeLlenat__

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