CTA Case No. 208 (Decision)

llEPUBLIC OF THE PHILTPPINES OURT OF TAX AP.P&LS MANlL4 FLORE CIO SOL O, titioner, - v rsus - C. T� � CASE O. 208 THE COLLECTO OF I T AL REVENUE , espond nt . x- - .. - - .. - - - - - - -x This is an ppp al from a d cision of the r s - pond nt ollec tor of Internal Revenu as mbodied in the 1 tt r , Exhibit D (p. 14, xp dient ) dated ctober 1 , 1955 , of ' th Chi f , L gal Department, Bur au of Internal evenue , r it rating a demand from the p titioner FloT ncio olana of the amount of 629 . 53 as unpaid income tax for the y ar 1948 xclusiv of surcharges and inter st with thr ats to collect the sa by su ry r medies upon failure of th etition r to apy said obligation to t City Tr asur r of n a upon r c ipt th reof . It app ar~ from th record that ince t he afore- said 1 tt r-deci sion of Octob r 10, 1955 , was sent ind up to the pr s nt tim , the r spond nt has not carried out his thr at to co11 ct th obligation in question by s ary methods or court action. t is the petition r who c e to this Court on November 1 8 , 1955, by way of a petition for r view s eking to an u1 th ass ssment , Exhibit E (p . 10 BIR rec.) against him for 629 . 53 , exclusiv of surcharg s and int r sts , on the ground of pay nt a nd pr scrip- 622

DECISIO - C.T �� CASE t:O. 208 - 2- tioh and th3 lifting of the Warrant of Garnishment , Exhibi t c (p . 51 BIR Rec . ) i s sued by the respondent on August 24 , 1955, to pe tition r �s e ploy r , the San gu 1 Br wry , I nc ., gar ni shing t he accrued salar y of the p titioner to nfor ce the collection of the latter's incom tax liability for th Y ar 1948 in the amount above - mentioned . It appears that duri ng t h y ars 1948 o 1952 , t he petitio er was the Chi f , Curr nt ccount "' \ p rtm nt , of th Sa gu 1 Brew ry , Inc . from which h r ceived monthly s alari s, annual bonus and ric rations of substantial amounts . On F bruary 28 , 1949, the p tition r fil d his i nco e tax r turn , Exhi it A (pp . 9, 11 BIR rec . for t he year 1948 showing a net income of l2 , 188. 75 from --- - . t e San guel Br w r y , Inc. 10,732 .60 of which was receiv d in th form of salary , 1 , 500. 00 as bonus and 264 . 00 as rice ration . Aft r deducting he ex- mptions and deductions for tax s , inter s t s and cha- rity, the ptitioner declared an i ncome subject to tax in the amount of 8,688. 75 and incom tax du in the sum of 639. 53 . On March 31, 1949, the respond nt i ssued against the p tition r , Income rax Assess nt otic o. - 204- 99-48 , xhibit E (p . 16 BIR rec.) assessi ng the de clared sum of �629. 53 as th income tax due, and requesting payment thereof to the City Tr aa urer of nila on or befor y 15, 1949, or a j the option of th p titioner , in two installments as fol ows: (1) 314 . 77 payabl on or b for May 15, 1949, 623

'. DECISION - C. T. A. CASE NO. 208 - 3- and (2) J314 . 76 payable on or before August 15 , 1949. n Februar y 23 , 1950 , t he petitioner fi l ed his income tax return , (pp ~ 6 , 8 BIR rec . ) for the year 1949 , showing a net i ncome of 112 , 058 �.35 deritred fro m his employer in the fcrm of salaries and bonus ; � an inco e subjec t t o tax in the amount of 8 ,558. 35 and i nc o ;.e tax due i n the sum OC !1692. 58. On March r 24 , 1950 , the respondent issued against the pe ti- ~. tioner . Income ~ax As sess ent !totice No . 1 571-49 (p . 7 BI R rec . ) a ssessing the declared sum of 692 .58 as the income tax d~e and re uesting payment thereof to the Ci t y Tr easurer of IIIJ.anila on or before Hay 15 , 1950 or at t he option of the petitioner, in two in- ' stallments as follow s : (1) � 346 . 29 payable on or be- fore l>".ay 15 , 1950 , and (2) 346.29 payable on or be- fore August 15, 1950. On February 22 , 1951, the petitioner filed his inca e tax return (pp . 3 , 5 BIR rec . ) for the year 1950, showing a net incoae of �12 , 409. 35 d r ived f rom his employer in the form of salaries and bonus; and income s~ ect to t a in t he ount of �7 , 609 . 35 ; and income tax due in t he sum of 799 . 68. On t~ary 21 , 1951 , the respondent issued against t hJ petitioner Income Tax Assessment ~otice No . A-11686-50 (p . 4 BIR rae.) assess i ng t he de.clared sum of F79o . oa a s the income tax du , and r equesting payment thereof to the City Treasurer of Ha.nila on or b.. fore May 15, 1951 , or at the op tion of thepetitioner, in two install ments as follows: (1) �395 . 06 payable on or before &o rr

.. ... D.,CISIO~ .. C. T� � C SE O. 208 - 4- y 15 , 1951 , and {2) 395. 00 payable on or before August 15 , 1951 . On Jun 28, 1953 , the petitioner fil d his income tax return (pp. 1 , 2 BIRr c . ) for the year 1952 , showing net inco e of 15 ,422 . 85 deriv d from his mployer in the form of sala i s� and bonus; an income subject bb tax in th a nlount of 10 ,022 . 85 and income tax due in th su of 1,225.48. th corresponding Inco e T x ssess ent otice was i s ued against the petiti ner requiring hi to pay the a ount of � 13 , 10 as inco ,t for the y ar 1953 aft r allow- ing him a tax credit of 1 , 211 . 90 . otwithsaanding his substantial nnual inco e ' wlich av raged five figures and the ount of inco e tax declared by hi m, which as relatively s all, the p tition~r f 11 d to pay all th inco e taxes decl red, assessed and due from him for the . e rs in question on the date of aturity .as r sul t of WILich the r s - pondent , on ~reb 20 , 19)4 (pp . 29, 30 BIR ec . ) re- f rred the att r to the City Fiscal of Manila for cri inal prosecution ofr violation of section 51 (d) of the ational Int tnal ev nue C e in r lat io to sect on 73 thereof . Faced ith the bleak prospect of going to jail for tax evasion and finding hims lf ith not other alt rnative to ward off th conte plated criminal a c tion against him but to pay , the p titioner on .t:~pril 30 , 1954 , pai d a l l the 1ncoa taxes ue fro m him fo the year s 1949 , 1950 a d 1952 in th total amount of 625

� D CI. 0 ' - c��� c N � 20 - 5- , 2 . 90 vid nc d by Inco e t c ipt 0� 56318, hi it (p . 15 xpedient � f i ding 1 g 1 loophol~ orth 11 exploit th resp ct to is tax l ia ility for the y r 8, th tit o r is d the qu s- to o pr c iption b fo th City isc 1' Of!ic � r ntly , t tition... on 1 point . In 1 t r 1 hibit (p. t, 5 c.) dated .Tu 9, ,\ 1954, ddr ss d to th r spondent y s 1 t� . t�City I isc 1 u ncio T. Bocobo , w o as si n d to handle a d pr e t' th ' ca~ th s1 offie 1 rend r n opinio to th rr ct t t cr n 1 ctio in t th p titio for t X vasion as unwr � nt and unt a 1 wit r_sp ct to his co t 11 bility for 1948, th action gain t hi i'in al- r a y sc i d. Th r spo d nt d d . ot u stio th opinio of t 1 c 1 nd th cas ... s 1 ft t th t ithout any cri ctio havin b i n fil d ain t h p t tion r. his PP 1 n rro do to h follow5.n 1 su : � (1~ ')}b th r or not th_ uneorro or t d testi ony ') 0 p tition r to th f ct th t 0 ti in 1 h � paid in t o install1 nts his inco etax 11 bility for th~ year 1 8 i orthy of i r�' and 2 . Should this Court d eid th irst u tio of cr 1 ility in th n tiv , wh h r or not th re t ca , till coll ct t pr s nt ith r by sum- ar y t hods or judie! 1 action h~ inco tax in qu stion. 626

D.t!iCISI N - C. T. A. C SE O. 208 - 6- The pe t itioner took th wi t ness stand and testified that he filed hi s 1 income tax r turn in ebru ry 1949; that he r c ived an assessment notice d anding the pay ent of t e a ount of 629. 53 based on the r t urn; at he paid the s ss ent in two nstall en s on LSY 15 and u - .--/:.---~ st 15, 1 9; that he c nnot e s onding / ,. receipts to support h s testi ony ecaus he ' ight h ve l ost them . t m1 ht h ve gotten lo t because I transferred mu r sid nc in 1950 nnd carried a bo containing all y per onal d c ents. t might hav been lost when we tra sferred on ~hat dayII ; and that he tried... to search for the receipts but could not find them. Judg .~ng by his manner c6f t s tifyin efore this Court , we can tot believe in the least and un- corroborated te ti uony of th petitioner to the ef- ~ect that someti e in 1949 , he paid in two install- ents is income tax liabll ty t he Govenn ent for the year 1948, in the ,ount of P629 . 53. J ch 1 s ca li v hi s uncor oborat te ti ny t at a lo s t th~ rae ipts covetlng such p y nts. s it, the Bur au of nt rnal � v.. nue u tti gly s p ... lied th~ petition r with 1 gal l~ophol (pr s - cription to evad pa ment of hl s inco t x lia- b lity for t y ar 1948, and i t lligent as e is , th petitioner xp cited it to full dv t g b fore the City iscal's ffic a s well as b for this 'ourt. 627 /

DECI IOI - o. 208 C. T. � C1 S -?- 1l petitioner r a iiy pre ented th receipt, ibit F (p . 15, ex ediente) evidencing ay ent of hi ~ i co e tax lia ility for the years 1 9 1950 and 1952 . Th ~ureau of Int rn 1 Rev nue has Lo r ecord w atso v r evidencing the alleg d paymsnt by p titian of his inco e ta li bility for the year 1948. If the petitioner had really paid his inco e t x 1 b 1�t f or the year 1948 as be claims , h could h ve e si1y obtained, h d he wanted to, a cer i ied .co y of the rec ipt or receipts fro m the 1 Cit Tre surer' Office her he c1ai s to have aid the a lliount. Th etitioner utt rly �f 11 d to obtain certifie co ies of th r c ipts to corro or t his clai that he aid the amount in question. One will note that in h s inco e ta return for the year 1 9, (filed on February 23, 1~50) the spac "If you p id inco �c tax for t he prec dingy ar, gi e receipt ntimberu was 1 ft in blu and un ccomplished by the petitioner thereby disproving his claim that h paid his incom tax liability for th. pr vious y ar. ~r over, upon b ing aslted by this ~ourt why he did not ke tim ly repr s~ntations with the Bur au of Internal t v nu that he paid the amount in question a h now clai s, we arrants of distr int, levy and arni ent were issued ag inst h ~the p titian w s t oss to give sa i ! ctory xpl notion. 11 h could ay w s "Because I did not ha t e r c i pts to prove that I pai � hat wa the u e of my goin there if th y were 62

DECISIOI' - C.T.A. CASE NO . 208 - 8- going to deny the s me ." (p . 8 , t . s-.n.) This much we can say of thepetitioner Flor~ncio uolano as regards his credibility as a witness , as a taxpayer and as a citizen. tre do not believe in the 1 astt his uncorroborated testimony to the eflect that he paid in two install~ents sometime in 1949 his ipco a �tax li~bility for the year 1948 and that he lost the receipts evidencing his payments . \-Je carnot consid r one s a reliable taxpayer nor a model citizen who , after declaring in his inco e tax returns for the years 1948 , 1949, 1950 and 1952 such substantial net income as 12,188.75, �12 ,058 . 35, 12,409. 35 and ~15,422 .85, respectively, chooses not to pay the declared income tax ue ther eon for th~ years 1949, 1950 and 1952 , within the period prescrib d by law, but instead de- fers payoent thereof until 1954 , only after his case was referred to the City Fiscal of !funila for ctiminal prosecution (pp. 29,30 , 42, 43 BIR rec.) . Obviously, the petitioner paid on April 30, 1954, all the ~ no~e ta es due fro... him for the years 1949, 1950 and 1952 , tot lling 2,206.90 as he himself had declared inhis ' returns, b .. caus~ that \�Tas the last recourse left to ward of.f the contemplated criminal action against him. nd, as her tofore stated, with respect to his income tax liabilit for the year 1948, the petitioner saw a good legal loophole to vade payment of said tax 1i - bility which he exploited to _gr9at advantage in his .favor befors the City Fiscal's Office a well as befor 629 �

,. DECISIO C�� A. ASE m. 208 ... 9 - this Court. Pe ask: Is it asking too much from the petitioner with a decl red tot 1 net 1nccme of �39 , 890 . 55 for 1949, 1950 and 1952 and a declared total taxable income of �26,190 .55 for the same years, to pay on time the corr s ponding inco e taxes due thereon amounting to only 2,206.90'? With such a ubstantial net and taxable inco e , must one have to wait that he ba prosecut d or threatened with crimi- nal prosecution for tax evasion b fore paying the I income taxes due tn7reon which the petitioner hi self admitted in his returns to be his legitimate liability to th 'overrunent? Coming now to thequestion of prescription~ ~~e note from the pleadings of both parties with respect to this second issue, that all their atten- tion has been focused on the provision of section 332 (c) of the ~atio al Internal Revenue Code regard- ing the five-year period of pr scription within which the Collector of Int~rnal Revenue ay exercise sum- mary methods of collection of taxes. Tb~ opposing counsel have overlooked the fact that this is a cas involving i ncome iax and t herefore what gov~rns c is the three-year prescriptive period for the collection 0f income taxes by summary ethod5 as fixed under sed- tion 51 (d) of the National Intornal Revenu- Code and not the five-year prescriptive period prescribed in section 332 (c) of the same Code, which is applicable to other taxes. Thus, when a taxpayer filed a fraudu- lent income tax return or refuses or n~glects to 630 �

.. DECISION - C. T. A. CASE � 208 - 10 - ak a return or as in the present case files a corr ect b turn but does not pay the income tax due as declared by him within the period prescr bed fry law, the Collector of Internal Revenue has only t hr e (3) years fro m the , date when the return was fil qr �� hould have been filed within which to exercise sum- mary ~ edies of collection (section 51- d , Na t ional Internal Revenu~~ Code; Collector of Internal Revenue vs . Espiridion Villega.s 56 Phil . 554- 561; Juan de la Vifia vs . GovernmeLL of the Philippines 65 Phil . 262- 266 ; Collector of Internal Revenue vs . Haygood 65 Phil . 520; hilippine Sugar state ~velopme nt Co . vs . Posadas 68 Phil . 216). However, �with res "ect to the collection of income taxes by an action in court, like all other ta es, the five year prescrip- tiv period fro. the date of assessment as pr escribed in section 332 (c) of the a ti onal Intern 1 avenue Code s 11 govern. And in case of a false or frau~ dulent ret urn with i ntent to evade tax or of a failure to file a return, the tax may be assessed, or a pro- c eding in court for t he collection of such tax may be begun without assessment, at any time within ~ years aft r the discovery of the falsity, fraud � or o ssion (section 332- a Naticaal Internal Revapue Cod . ) In the answer dlf the respondent as well 1as fro the evidence presented in his defense, thare is \ \ not the slight st insinuation that the petitionet\ 's inco c tax r turn for the year 1948 was false or ~au- 631 \ \ { b i/ �

DECISIO C.T . A. CASE NO . 208 - 11 - \ dulent and therefore the ten-year rescriptive per~od prescr bed in section 332 (a) o the ational Internal ev nue Co e cannot be applied . The case of peti- tioner, fro 11 appear nces, i� one involving a ta'x- y r who d cl red his tru inco e in his return but I .' I .si ply would not pay on time the income tax du as \ 1 decl4 r by hi � he OV""rnment has not, ithin five y ars fro iI' rch 31, 19 9 , the date of assess ent of petitlonejr~s l\ incom- tax 1iability for the y ar 194o, filed any 1 s uit in cour for th~ collection of s id liab 1ity. , Und r oec ion 332 (s) of the atlonal In .ir11al ~eve~Ue Cod , the court actioll' has pres crib ,d and it is no t oo late to i stitute o e for t e collection of said amount . ik wis_, it would be in violation of section 5'1 ( ) of th a t ional ntern 1 Reve.. ue Code as mll th establ_is rsiprudence on th0 ~atter if the res pond .~ w r to car v out at this stage the threat, as contained n his letter, Exhibit D (p. 14 expedient ) dated ctob r 10, 1955, to the petitioner that he would exerc~e ~u ry r m dies f co lection upon failu of �he petitioner to ett1e his incomr tax liability for the year 1~- � pplying action 51(d~ of the ational Internal .t evenue Code s el as the stablished jurisprude we on the matt r, we a1 o find t t the arr nt of Dis- train t n Levy , x~it 3 ( � 12 BIR rec . issued on August 6, 1953, against the per sonal properties of the petitioner as well as the Warr ants of Garnishment 63 .2

DECISION - C. T�� CASi NO . 208 - 12 ... (pp . 33, 34, 35, 51 BIR rec. ) issued on Harch 24 , 1954 and August 24, 1955 , to p~tition r ' ~ employe , the San Nigel Brewer y , Inc . , garni<>hing the accrued salar� of the petitioner to enforc :;the collection of his inco e tax liability fo the }ear 194~ , as f:ill having been issued be~ ond the t~1:L'ee - year pres - criptive period counting f rom February 28 , 1949, when . lit the incoLe tax rEJ turn for the year 1 ~?48 as filed . ' We hav repeatedly held, following th ruling of the Supreme Court in a long line of decision:,, that trith respec t to income iaxes, the Collector of Interne.l Revenue has on y three years from the date when the i ncome tax return was �iled or should have been filed within which to exercise sumr1ary methods of collection. We hold, therefore, t at the \varrants in question, whe - ther erved pro erly or not, are all illegal and of no binding force and effect, they having been is ued beyond the three-year prescriptne period fixed under section 5l(d) of the National Internal Revenue Code. As we see it, the only possible circumstance under section 332 (c) of the 1ational Internal Revenue Code wlich could still render tenable at th pr sent time the collection c� the tax now in ue ti n by a proceeding in court, is a written agrser�JEmt ntered into by and between the petitioner and the respondent , tend� the five-year statutory period of li i t ation. Hc...,e..,er , the respondent has not presented such a written agr eement and the records of the Bureau of Internal ., Revenue relative to this case which we hav on hand 633 I / /

DECISION- C. T. A. CASE NO . 208 - 13 - i nto. It is qui t-e unfortunate ind ed for the overn- ment, that notwithstanding all the prerogatives given to the Collector of Internal Rev ~nue b~� the ational Int Jrnal Revenue Code for the surrunary as well a ju- dicial collection of taxes and with all th8 resources at his comr~nd , the taxp yer h rei~ , go t scot ree from the pay ent of' his inca e tax liability fo r the year 1948 which he hims 2lf declared in his returns to be ~is legitimate obligation to the Govern ent . Our tax collection agency has slept on its rights and the tazpayer has taken full _advantag of it by i I\ \ :tnvoking tle defense of prescription. Judging by / t ' l his substantial incor.1a , thepetitioner could have I easily bean ade to pay such ia.x liability amountin t o only P629. 53 ad the Bureau of Internal Revenue exercised all the prerogatives at its com ~and within � r the statutory period . In the first place, why "" s thh Writ of Garni sh nt, Exhi bi , C (p . 51 BIR r9c.) issued after a per .od of more th n five year s from the date� of assess ent when from the very income tax 1eturns of the petitioner fcc the years 1948 , 1949, 1950 and 1 ',-52 , it could readily be seen that his only St urea of inca e is U.s salary and b nus from the 8 n Higue1 J.irewery, Inc. In the second place , why was the Solicitor General not requested to file the correspon- ding court acti on against the petitioner within th statutory period of five years after th petitioner had re.,to~ atedly f iled to pay th inca e tax due f rom 6311

� DECISI ON ... C. T. A. C SE ~0 208 - 14 - him as decla~ed ~n his returns for the years 1 8, 1949, 1950 and 1952? bcall as the anount may em, the Governoent has lost such needed r venue from a taxpayer who was in a financial position to pay , f or f ilur on the part of the Bur au of Intvrnal Hevenue to ex rcise all the p rerogativ~s conf~rr d u on it by the .tTational I t_rnal It v,.,nue Cod~ within t e statu- tory p;..,riod. t 1-lE''-{ .�FOR , rinding ourselve with no ther alt-rnativ~ but to apply section 51 (d) and 332 (d ) of the a tiO! al Internal I ev nue Code, tt. arr nt of Distr int and L.,vy ssued by the r s on�~nt on ugust 6 , 1953, s well as t ,.. :arrant of Garnish.noat i s ued on ' august , 1955 are h reby d ~clar _ ull and void and of no legal ... orce and ff ct on the .round of prescri tton, end th_ r-s 0 dent �s. har3bJ ord ed to desist from tai: .g any r'urbher ac Lio to collect fro the petitioner t l!'OU h sumr ary .ethods th� incone tnx asse s d against hL in the ano�mt of ii629 . 53 for the year l~b . L_t a copy of this d cision b~ sc t to th Cashier of San l1iguel Br wery, Inc. for his infer a - tion and guidance . . nil , 1�hi11ppinos October 5, 1956 . WE COI ~ (f..GD . AUt!U3T LUCIANO saociat Judg 'I \ 635

� DECISI ON C. T. A. CASE NO . 208 - 15- (SGD.) ~� IAl10 .:ABLE Pr e siding Judge ( � ) ) u!>!J 1i a~ UAAL csociate Judge "I J '\ I \ 636 \ \ I I \\ / \ '\(, ,3\,,, \ I