CTA Case No. 119 (Decision)

REPUBLIC OF THE PHILIPPIN�$ COURT OF TAX APPEALS MANILA ROBERTA FIDRES VDA. DE CODifm!RA, ll~NCESLAO CODINERA and PIO CODil'lERA, t he only heirs of RESTITUTO CODTIIIERA, Petitioners, - v e r sus - C. T.A. CASE NO. 119 HON. SILVERIO BIAQUERA, in his capacity as Collector of Internal Revenue, Re spondent. x- - - - - - - - - - - - - - - - - - -x DE C I S I ON This is an action brought by the petitioners asking this Honorable Court to restrain the respondent Collector of Inter- nal Revenue from collecting the amount of �2, 681.28 assessed against t he late Restitute Codinera as deficiency specific tax and to lift the warrant of distraint and levy which the respon- dent is sued on March 7, 1955, upon the real and personal pro- parties of t he deceased , Restitute Codinera, now ~held by peti- tioners. Except for the testimony of one 1.ritness the findings of facts are based on an agreed stipulation of facts presented by the parties, and which is substantially reproduced below: II X X X X (3) On December 22, 1947 at Guiwan, Sanar, Restitute Codinera�, then living, purchased thirty- eight (38) boxes playing cards (poker) of 144 packs to a box belonging to the Philippine Govern- ment, specifically belonging to the Surplus Pro- perty Commission, Guiuan Base , per invoice No. 0- 1144, paying 10% compensating tax therefore in the a mount of ~54 . 72; (4) That the amount of P2, 681. 28, as defi- ciency specific tax, plus a penalty of �50 . 00 , or a total of ~2 , 731 . 28, vrere assessed and demanded by Bibiano L. Eeer, the incumbent Collector of In- ternal Revenue , fro~ Re stitute Codinera on August 7, 1948, pursuant to t he applicable provisions of

DECISION - C. T. A. CASE NO . 119 - 2- the Internal Revenue Code . The said deficiency specific tax is computed as follows: 5, 472 packs of playing cards at �0. 50 per pack - - - - ?2, 736 . 00 Less: Tax paid under o. R. No . A- 251477 dated Jan- uary 6, 1948 - - - - - 54. 72 Amount still due & collectible - P2, 681 . 28 (5) On November 23 , 1948, the Collector of n1ternal Revenue sent to the City Treasurer of Cebu, a warrant of distraint and levy against the properties of the late Restituto Codifiera, for Collection of 2, 681. 28, as deficiency specific tax on the 38 boxes of playing cards (poker) of 144 packs to a box, belonging to the Philippine Government , specif ically belonging to t he Surplus Property Commission, Guiuan Base, Suiuan, Samar ; (6) On January 27 , 1949, the City Treasurer reported to the respondent, Collector of Internal Revenue , that the warrant of distraint and levy, dated November 26, 1948, for the collection of a deficiency tax of ~2681 . 28 against the properties of the late Restituto Codinera could not be ef- fected in view of the levy on attachment in Civil Case No . 4862 of the Court of First Instance of Hs.ni la, entitled Heraclio Abastado vs , 1-fontano Buaya and Restitute Codifiera; (7) No third party claim or proof of debt has been filed by the respondent with the Court of First Instance of Manila in said Civil Case No . 4862; (8) On the 7th day�of t.arch , 1955 at the City of Manil a , the respondent a cting Collector of In- ternal Revenue , issued a vmrrant of distraint and levy addressed to the City Treasurer of Cebu City commanding the latter to distrain the goods , chat- tels or effects, and other personal property of whatever character, and l P.vy upon the real property and interest in or rights to real property of the late Restitutm Codifiera, to satisfy the alleged deficiency specific tax on the amount of ?2, 681, 28; (9) The City 1reasurer of Cebu on April 22 , 1955 , pursuant to the said warrant of distraint and levy issued by the respondent on Hs.rch 7 , 1955, issued a notice of levy which was received by the herein petitioners on April 25 , 1955 , a certified copy of Yhich notice of levy is hereto attached; X X X X II

DECISION - C. T. A. CASE NO. 119 - 3- The petitioners in the instant case , neither question the correctness of the a mount nor the legality of the imposi- tion of deficiency specific tax assessnent made a gainst them. However, petitioners contend that (1) the respondent ' s action of enforcing the collection 6f the tax in question has been barred by the statute of limita tion more particularly under sections 331 and 332 of the National Internal Revenue Code , and (2) granting that the respondent Collector had a valid right to enforce the collection of taxes , the respondent had no right to levy on properties vlhich have never been used in connection vdth the business of the delinquent taxpayer. If the first contention of the petitioners is sustained, t hat the right of the government to collect the deficiency speci- fie tax has already been barred by the Statute of Li1nitation, then it bec omes unnecessary for us to decide the 2nd contention raised by the petitioners . On the other hand , respondent main- tains that the period of prescription has not expired in vie\-1 of the fact that the same vras suspended under section 333 of the National Internal Revenue Code . The main issue to be ansvtered, therefore , is: HAS THE RIGHT OF THE GOVERN~viENT TO COLIECT 'rHE DE i'JCIENCY SPECIFIC TAX IN THE PRESENT CASE BEEN BARRED BY THE STA'rUTE OF LDUTATION? That there is a clear and manifest intention of the law- making body to put a time limit beyond which the government may not sue to recover unpaid taxes is clearly indicated from sec- tions 331 and 332 of the National Internal Revenue Code which is quoted hereunder: 11Sec. 331. Period _of limitation upon asses~ ment and collection. Except as provided in the succeeding section, internal revenue taxes shall be assessed within five years after the return is filed, and no proceeding in coliTt wit hout assess- ment for the collection of such taxes shall be begun

f DECISION - C. T. A. CASE NO. 119 - 4- after the expiration of such periodi For t he pur- poses of t his section a return filed befor e the last day prescribed by law for t he filing t hereof shall be considered as filed on such last day: Pro- vided, that thi s limitation shall not apply to cases already investigated prior to t he approval of this code . 11 11Sec � .3.32. Exce_P.tion~_as to period of lim=i;,- tation of assessment and collection of taxes: x X X X X X (c) Where the assessment of any internal re- venue tax has been made ~..dt hin the period of li- mitation above prescribed such tax may be collected by distraint or levy or by a proceeding in court , but only if begt.ffi (1) ltrithin f:i:..VJL.X~Z:�. afj:.er _"th~ assessment of the tax, or (2) x x x x , 11 (underscoring supplied) The above quoted provisions linut the right of t he state to collect t he tax herein by the administrative remedies of dis- traint on levy or by judicial action, 11only if begun within five years after t he assessment of the tax, 11 Jn the ca se at bar , respondent Collector made an assess- ment and demand for payment from t he t hen living Re stitute Codifiera on August 7 , 1948. Only a feeble attempt to collect payment vias made on November 2.3, 1948, lvhen t he respondent Collector sent to the Treasurer of Cebu City a warrant of dis- t raint and levy against t he properties of Codinera. However, the distraint and levy could not be effected as t he properties of Codinera \.Jere t hen under attachment in Civil Case No. 4862 of the Court of First Instance of Manila. He note t hat t he respondent Collector took no positi ve step whatsoever to pro- teet the claims of t he government even after t he Treasurer of Cebu City notified t he former that the warrant of distraint and levy could not be effected. Respondent covld have made hi s intervention or filed his proof of debt with t he Court of First Instance of Ns.nila, in Civil Case No . 4862 in order to charge

DECISION - C. T. A. CASE NO. 119 - 5- said properties with a tax lien, but respondent did no such thing. It appears that the Collector chose to sleep on his rights . It was only on April 25 , 1955 that respondent t hought of serving on peti tioner the second order of warrant of distraint and levy. From August 7 , 1948 (date of assessnent and demand) to April 25, 1955 (date \men the second warrant of distraint and levy were received by petitioners) more t han six years and six months have elapsed. He agree with petitioners that this period of time was well beyond t he five- year l~itation pres- cribed by sections 331 and 332 of our Tax Code, within which the reppondent Collector must enforce the payment of the defi- ciency specific tax assessment. The respondent Collector adnits that standing by itself, the collection of the tax is barred by the provisions of sec- tions 331 and 332, National Internal Revenue Code . Hm.rever , the respondent cites as defense the exceptions contained in section 333 of the Tax Code that the right of the government to collect the deficiency tax due from the petitioners could still be enforced because of an alleged suspension of the run- ning of the period of prescri ption . To determine the validity of respondent ' s vievr we quote the rule below: of "Section 333. Suspension of running of statute . The running of the statute limitation provided in section 331 or 332 on the making of assessment and the beginning of distraint and levy or a proceeding in court for collection, in respect of any deficiency shall be suspended for t he period during which the Collector of Internal Bevenue is prohibited from the making of as sessment, or beginning distraint or levy or a proceeding in court, and for sixty days there- after. " According to this provision, in order t hat the period prescribed in section 332 to collect t he tax covered by an

DECISION - C. T. A. CASE NO . 119 - 6- assessment shall be suspended, the Collector of Internal Re- venue must be prohibited from exercising two alternatives , namely, (1) the beginning of distraint or levy, or (2) the beginning of a proceeding in court for t he collection thereof . Respondent argues that when the properties subject matter ar the warrant of distraint and levy issued on November 23, 1948, were about to be levied upon, the said properties were already in custodia legi� because they were under a prior attachment in Civil Ca se No. 4862 of the Court of First Ins- tance of f'.8.nila. Under such circumstance , it is cont ended that it was a situation contemplated by section 333 of our Tax Code, uherein the Collector of Internal Revenue vTas "legally prohibited from t he nnking of assessment or t he beginning of distraint or levy or a proceeding in court for collection. 11 According to t he respondent therefor, the period of lj~tation lrciS suspended and did not begin to run again until sixty days after t he said attachment \vas dissolved, or to be exact on D3cember 3, 1951. So t hat as he r easons, respondent has within five years there- after or December 3, 1956, l-Tithin uhich to bring an action for t he collection of the deficiency specific tax. There is no issu~ t hat t he re spondent was prohi bited from making the assess- nent , hence the deficiency specific tax assessment of August 8, 1948 uas .properly made . The only issue therefore is , was the r espondent prohibited from 11beginning the distraint or levy or a proceeding in court for the collection" of the tax?" In order that the running of the statute of limitation shall be suspended in so far as it affects a party (respondent Collector) he must be legally prohibited to exercise t he remedy or remedies a gainst t he other (the taxpayer) .

DECISION - C. T.A. CASE NO . 119 - 7- 11 It is well settled that the running of the statute of linutation a gainst a course of action is interrupted by t he commencement of a suit in that course of action, and it is frequently held, sometimes by virtue of express statutory provi- sions, that during the period of the restraint incident to the legal proceedi ngs which are of such character that the laH forbids the parties to exercise a legal remedy against another, the running of t he statute of limitation is postponed, or, if it has comr1enced to run, is suspended. The broad principle t hat the time during which s person is prevented from exercising his legal remeqy ~J some paramount authority is not to be counted against him in determining whether his right is barred by the statute of limitation is applicable . 11 (34 .!'un. Jur . sec . 237 p. 194) "'Where one is prevented from suing by some paramount authority, li~itations are tolled and the time during w'1ich he is thus precluded from exercising his legal remedy is not to be counted a gainst him in determining whether limitations have barred his rightsn . (54 C. J . S. 285) nHowever, the contention that one was pre- vented from suing by some paramount authority so as to toll or interrupt the running of limitations will not be sustained where the courts rew~ined opened to him and under such circu mstances he may not successfully claim that limitations were tolled. " (Verslius v . Totm of Haskell, c. c. -. OKL. l!)'J Fed . 2d 935 as cited in 54 C. J . S. 285) From the above- cited authorities, we can readily see that the suspension of the running of the statute of limitations due to a legal prohibition on the part of one of the parties to ex- ercise a legal remedy against another must have t he following concurring qualifications:- first , that there must be some paramount authority precluding him from t he exercise of his legal remedy; and second, that no other remedy .is opened for him to pursue his course of action legally. Under section 316 of the National InternRl Revenue Code , the Collector of Internal Revenue has two civil remedies for the collection of internal revenue taxes, namely (1) by the ~dministrttive remegy of dist~int of goods, chattels or other

DECISION - C. T. A. CASE NO. 119 - 8- personal property, and by ~upon real property ; and (2) by judicial or court action. It is further provided t hat "either of t hese r emedies or both simult aneously may be pursued in the discretion of the authorities charged with t he collection" of t he unpaid taxes. Since the Collector is empouer e d to exercise t hese remedies jointly or in the alternative , in order t hat he shall be deemed to have been prohi b ited from exer cising t he same, so as to toll t he statute of limitations, it is necessary to shou t hat he is barred from exercising ALL remedies avai l able to him, and not only one vThich he chooses to avail of. 11 In order tha t t he pendency of other proceedi ngs shall have the effect of toll ing the statute of l~i tations on a cause of action, however, t he proceedings must be such as to prevent enforcement of remedy by action. But where one has a choi ee � of remedies . t he �~that he sele9ts one r emedy does not toll ~ta tions as against an ~E-Ction.....12.as..�lJLon another reme~. u (54 C. J . S. sec . 279- 280, underlining supplied) In t he case at bar, we find t hat the respondent was not prohi bited to exercise all the r emedies to enforce collecti on of t he tax so as to suspend t he stat ute of l imitation. \fuile it is true t hat an order of attachment pl aces t he pr operty at- t ached in custodia legi s , yet respondent loses sight of t he fact t r.l8.t under Rule 59, of t he Rules of C01.1.rt, tre purpose of putting sa i d properties in t he custody of the law is min order t hat t he defendant may not dispose of the pr oper ties so attached to t he prejudice of' his creditors . 11 (Cal o et al. , v . Roladan, 76 Phil . 445) . It is not the purpose of at tachment to preclude preferred creditors from exerci sing t heir le gal remedies in order to charge sa i d attached properties >-lith t heir preferred liens . Besides , in the ca se at bar, the attachment, issued in said Civil Case No. 4862, Court of First Instance of i�a nila , was merely a preliminary attachment, a ~~ process , liable to

DECISION - C.T . A. CASE NO. 119 - 9- be dissolved at any time and t he judgment upon which w~y or may not affect t he property seized. In t his connection, it is v!Oll to note that t he tax lien is superior to all other charges on property and i n fact , respondent himself cited section 315 of the National Internal Revenue Code to bolster his vie1o1. :i-"lore- over, our lavJS rellitive to preference of credits give priority to the satisfaction of a tax liability over the payment of other credits (see Arts . 2241 and 2242 , Civil Code of t he Philippines) . The tax, being a preferred claim, we believe t hat t here \vas no prohibition upon t he respondent, then, from enforcing t he col- lection of t he unpaid taxes by establishing such preferential right . ( Ho\vever, granting arguendo t hat the attachment in Civil Ca se No. 4862 of t he ~~nila , Court of First Instance was of "paramount authority11 as to preclude r espondent from exerc i sing the a dministrative remedy, by a distraint and levy upon the pe- t i tioners 1 properties to enforce the collection of the unpaid taxes , yet that was not t he only remedy open to him. '!'he law (sections 316 and 333 , National Internal Revenue Code) clearly gives t he r espondent a choice of remedies either to 11begin dis- traint or levy" or a 11proceeding in court for the collection of the unpaid taxes" . Hence , although as respondent argues t hat t he attachment prevented him from carrying into effect the warrant of distraint and levy, yet he Has not precluded from beginning a proceeding in court for the collection of' the unpaid taxes from the petiti oners.) In conclusion, we find and so hold , t hat the respondent could not claim the benefit of the suspension of the running of the statute of liTidtat ions under section 333 , National Internal

.; DECISION- C. T. A. CASE NO. 119 - 10- Revenue Code, as the circumstances did not meet the test of paramount legal authority which precluded a party from exer- cising both his administrative and/or judicial remedies . We further find that the Collector of Internal Revenue has no longer any legal basis in collecting the unpaid specific taxes, the same having been barred by the statute of limitations, pres- cribed in sections 331 and 332 of t he National Internal Revenue Code. FOR AI,L THE FOREGOING, we are of t he opinion and so hold that t he government is barred by the statute of limitations from collecting from petitioners the alleged deficiency specific tax in the amount of �'2,681.28, and pursuant to section 14, Republic Act 1125, let the same be considered that there is no deficiency and the corresponding tax assessment revoked. Furthermore, the warrant of distraint and levy of lifa.rch 7, 1955 , issued by t he respondent Collector upon the properties of t he petitioners , should be as it is hereby ordered lifted and withdrawn. SO ORDERED. ~~nila , lhilippines, August 20, 1955. ~~ Presiding Judge I concur: ROMA.N H. ill1ALI Associate Judge Did not take part in the proceedings.