CASE DIGEST I. CIR v TMX Facts: 1. 2. 3. 4. 5. 6.

7.

TMX Sales filed its quarterly income tax return for the first quarter of 1981, declaring an income and consequently paying an income tax thereon on May 15, 1981 During the subsequent quarters, however, TMX Sales, Inc. suffered losses so that when it filed on April 15, 1982 its Annual Income Tax Return for the year 1981 On July 9, 1982, TMX Sales filed with the Appellate Division of the Bureau of Internal Revenue a claim for refund representing overpaid income tax not acted upon by the Commissioner of Internal Revenue TMX Sales, Inc. filed a petition for review before the CTA that CIR be ordered to refund to TMX Sales, Inc. overpaid income tax for the taxable year CIR: a. TMX is already barred from claiming the same considering that more than two (2) years had already elapsed between the payment and the filing of the claim b. period of prescription should be May 15, 1981, the date when the quarterly income tax was paid and not April 15, 1982, when the Final Adjustment Return for the year 1981 was filed. CTA: a. prescriptive period of two years should be counted from the date of the final payment or last installment b. the word "tax" or words "the tax" in statutory provisions comparable to section 306 of our Revenue Code have been uniformly held to refer to the entire tax and not a portion thereof

Issue: What is the reckoning point of the 2-year prescriptive period for filing a claim on refund? Ruling: Since the audit, as required by Section 321 (now Section 232) of the Tax Code is to be conducted yearly, then it is the Final Adjustment Return, where the figures of the gross receipts and deductions have been audited and adjusted, that is truly reflective of the results of the operations of a business enterprise . Thus, it is only when the Adjustment Return covering the whole year is filed that the taxpayer would know whether a tax is still due or a refund can be claimed based on the adjusted and audited figures. Consequently, the two-year prescriptive period provided in Section 292 (now Section 230) of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax.

II. CIR v Wyeth Facts: 1. By virtue of a Letter of Authority in 1974, issued by then Commissioner of Internal Revenue Misael P. Vera, Revenue Examiner Dante Kabigting conducted an investigation and examination of the books of accounts of Wyeth Suaco. 2. The report disclosed that Wyeth Suaco a. was paying royalties to its foreign licensors b. as well as remuneration for technical services to Wyeth International Laboratories of London c. declared cash dividends on 1973 d. and these were paid on 1973 e. failed to remit withholding tax at source for the fourth (4th) quarter of 1973 on accrued royalties, remuneration for technical services and cash dividends, resulting in a deficiency withholding tax at source f. deducted the cost of non-deductible raw materials, resulting in its alleged failure to pay the correct amount of advance sales tax 3. BIR assessed Wyeth Suaco on the aforesaid tax liabilities in two (2) notices dated December 16, 1974 and December 17, 1974. Received by Wyeth 4. January 17, 1975 and February 8, 1975, Wyeth sent 2 letters of protest on the ground that said assessments lacked factual or legal basis. 5. Wyeth: a. it was not liable to pay withholding tax at source on the accrued royalties and dividends because they have yet to be remitted or paid abroad. b. was not able to remit the balance of fifty percent (50%) of the accrued royalties to its foreign licensors because of Central Bank Circular No. 289 allowing remittance of royalties up to fifty percent c. On cash dividends declared in 1973, Wyeth Suaco alleged that the same was due its foreign stockholders because of the restriction of CB Circular No. 289 d. a withholding tax at source on royalties and dividends becomes due and payable only upon their actual payment or remittance. 6. In 1975, Commissioner of Internal Revenue asked Wyeth Suaco to avail itself of the compromise settlement under LOI 308 7. Wyeths answer a. conformed to a 10% compromise provided it be applied only to the basic sales tax, excluding surcharge and interest b. Not the deficiency withholding tax at source, on the ground that it involves purely a legal question and some of the amounts included in the assessment have already been paid. 8. CIR decision a. Deficiency sales tax the same b. W/holding tax reduced 9. Warrant of distraint of personal property and warrant of levy of real property again private respondent issued 10. Pet for review filed 11. CTA: a. CIR enjoined from collecting the deficiency withholding tax at source for the fourth quarter of 1973 as well as the deficiency sales tax assessed against Wyeth b. while the assessments for the deficiency taxes were made within the five-year period of limitation, the right of petitioner to collect the same has already prescribed c. an assessment of any internal revenue tax within the five-year period of limitation may be collected by distraint or levy or by a proceeding in court, but only if begun within five (5) years after the assessment of the tax. 12. CIR contends a. the running of prescriptive period is interrupted by the protest made by Wyeth

b.

protest letters sent by SGV & Co. in behalf of Wyeth in 1975, requesting for withdrawal and cancellation of the assessments were actually requests for reinvestigation or reconsideration that tolls the period

Issue: W/N protest letters were motion for recon or reinves W/N prescriptive period was interrupted by protest letters sent by SGV W/N withholding tax at source should only be remitted to BIR once the incomes subject to withholding tax at source have actually been paid Ruling: Settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment. 1. Yes, they were motion for reconsideration: Although the protest letters prepared by SGV & Co. in behalf of private respondent did not categorically state or use th words "reinvestigation" and "reconsideration," the same are to be treated as letters of reinvestigation and reconsideration. a. After carefully examining the records of the case, we find that Wyeth Suaco admitted that it was seeking reconsideration of the tax assessments as shown in a letter of James A. Gump, its President and General Manager b. When Wyeth Suaco thru its tax consultant SGV & Co. sent the letters protesting the assessments, the Bureau of Internal Revenue, Manufacturing Audit Division, conducted a review and reinvestigation of the assessments 2. Yes, these letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to collect the deficiency taxes. a. after having reviewed the record of Wyeth Suaco, BIR rendered a final assessment b. It was only upon receipt by Wyeth Suaco of this final assessment that the five-year prescriptive period started to run again. 3. No. a. Revenue Regulation No. 6-85 requires the filing of monthly return and payment of taxes withheld at source within (10) days after the end of each month. b. Wyeth Suaco adopted the accrual method of accounting wherein the effect of transactions and other events on assets and liabilities are recognized and reported in the time periods to which they relate rather than only when cash is received or paid. c. All presumptions are in favor of the correctness of tax assessments. In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed.

III. ABS-CBN v CTA Facts: 1. Pet dutifully withheld and turned over to the Bureau of Internal Revenue the amount of 30% of one-half of the film rentals paid by it to foreign corporations not engaged in trade or business within the Philippines, pursuant to Tax Code and Gen Circular V334 2. The last year that petitioner withheld taxes pursuant to the foregoing Circular was in 1968. 3. Republic Act No. 5431 amended Section 24 (b) of the Tax Code increasing the tax rate from 30 % to 35 % and revising the tax basis from "such amount" referring to rents, etc. to "gross income" (1968) 4. The CIR, in 1971, has come to the conclusion that the tax prescribed should be based on gross income without t deduction whatever. Consequently, the ruling in General Circular No. V-334, dated April 12, 1961, allowing the deduction of the proportionate cost of production or exhibition of motion picture films from the rental income of non- resident foreign corporations, is erroneous for lack of legal basis. 5. On the basis of this new Circular, respondent Commissioner of Internal Revenue issued against petitioner a letter of assessment and demand dated April 15, 1971, but allegedly released by it and received by petitioner on April 12, 1971 a. requiring them to pay deficiency withholding income tax on the remitted film rentals for the years 1965 through 1968 b. and film royalty as of the end of 1968 6. On May 5, 1971, petitioner requested for a reconsideration and withdrawal of the assessment. Hg 7. without acting thereon, respondent, on April 6, 1976, issued a warrant of distraint and levy over petitioner's personal as well as real properties. 8. CTA: Assessment in accordance with law Issues: 1. W/N General Circular No. 4-71 retroactively and issue a deficiency assessment against petitioner in the amount of P 525,897.06 as deficiency withholding income tax for the years 1965, 1966, 1967 and 1968 2. W/N the right of the Commissioner of Internal Revenue to assess the deficiency withholding income tax for the year 1965 has prescribed Ruling: 1. No. a. b. c. CIR Circulars/Rulings shall not be given retroactive application if the relocation, modification, or reversal will be prejudicial to the taxpayers The prejudice to petitioner of the retroactive application of Memorandum Circular No. 4-71 is beyond question. The assessment and demand to pay deficiency withholding income tax was also made three years after 1968 for a period of time commencing in 1965. Petitioner was no longer in a position to withhold taxes due from foreign corporations because it had already remitted all film rentals and no longer had any control over them when the new Circular was issued. The principle of legislative approval of administrative interpretation by re-enactment clearly obtains in this case. It provides that "the re-enactment of a statute substantially unchanged is persuasive indication of the adoption by Congress of a prior executive construction. Tax Appeals ruling requiring petitioner to pay interest and surcharge is much less called for because the petitioner relied in good faith and religiously complied with no less than a Circular issued "to all internal revenue officials" by the highest official of the Bureau of Internal Revenue

d.

e.

IV. Lim v CA Facts: 1. Spouses Lim filed income tax returns for the years 1958 and 1959. 2. In a raid conducted by the NBI, business and accounting records which served as bases for an investigation undertaken by the BIR were seized from the Lim couple 3. On 1964 Senior Revenue Examiner Raphael S. Daet submitted a memorandum with the findings that the income tax returns filed by petitioners for the years 1958 and 1959 were false or fraudulent. 4. Acting BIR Comm informed pet of deficiency income taxes for 1958 and 1959, giving them until May 7, 1965 to pay the amount. 5. They req for reinvestigation 6. The BIR expressed willingness to grant such request but on condition that within ten days from notice a. Lim would accomplish a waiver of defense of prescription under the Statute of Limitations and b. that one half of the deficiency income tax would be deposited with the BIR and the other half secured by a surety bond. c. If within the ten-day period the BIR did not hear from petitioners, then it would be presumed that the request for reinvestigation had been abandoned. 7. Petitioner Emilio E. Lim, Sr. refused to comply with the above conditions and reiterated his request for another investigation. 8. BIR Commissioner informed petitioners that their deficiency income tax liabilities for 1958 and 1959 had been assessed at P934,000.54 including interest and compromise penalty for late payment. Until March 1967 to pay 9. On March 15, 1967, petitioners wrote the BIR to protest the latest assessment and repeated their request for a reinvestigation. 10. The final notice and demand for payment was served on petitioners through their daughter-in-law on July 3, 1968. 11. On June 23, 1970, four (4) separate criminal informations were filed against petitioners in the then Court of First Instance of Manila, Branch VI for violation of Sections 45 and 51 in relation to Section 73 of the National Internal Revenue Code. 12. In the criminal cases, they were found guilty of a violation of Section 51 penalized under Section 73 of the National Internal Revenue Code and each is hereby sentenced in each case to pay a fine of P2,000.00 and to pay deficiency income taxes; guilty of a violation of Section 45 in relation to Section 332 of the National Internal Revenue Code as amended, penalized under Section 73 of the same Code and hereby sentences each to pay a fine of P4,000.00 in each case and the costs of the proceedings. 13. Appealled to CA, affirmed CTA. Emilio died Issue: 1. 2. 3.

4.

W/N the offenses charged in Criminal Case Nos. 1790 and 1791 prescribed in ten (10) years, instead of five (5) years W/N that the prescriptive period in Criminal Cases Nos. 1788 and 1789 commenced to run only from July 3, 1968, the date of the final assessment W/N Section 316 of the Tax Code as amended by Presidential Decree No. 69 that judgment in the criminal case shall not only impose the penalty but shall order payment of the taxes subject of the criminal case, was applicable to the case at bar W/N the civil obligation of petitioner Emilio E. Lim, Sr. arising from the crimes charged was not extinguished by his death.

Ruling: 1. As Section 354 stands in the statute book, tax cases, such as the present ones, are practically imprescriptible for as long as the period from the discovery and institution of judicial proceedings for its investigation and punishment, up to the filing of the information in court does not exceed five (5) years. 2. In criminal cases, statutes of limitations are acts of grace, a surrendering by the sovereign of its right to prosecute. They receive a strict construction in favor of the Government and limitations in such cases will not be presumed in the absence of clear legislation. The five-year period of limitation under Section 354 should be counted from July 3, 1968 when the final notice and demand was served on petitioners' daughter-in-law. This is so because prior to the receipt of the letter-assessment, no violation has yet been committed by the taxpayers. 3. The lower court erred in applying Presidential Decree No. 69 because that decree took effect only on January 1, 1973 whereas the criminal cases subject of this appeal were instituted on June 23, 1970. The criminal conviction for a violation of any penal provision in the Tax Code does not amount at the same time to a decision for the payment of the unpaid taxes inasmuch as there is no specific provision in the Tax Code to that effect. 4. The fine imposed in the four (4) aforementioned criminal cases is hereby affirmed in the case of petitioner Antonia Sun Lim in accordance with the provision of Section 73 of the Tax Code. The fine is deemed extinguished in the ease of the deceased petitioner Emilio E. Lim, Sr. pursuant to Section 89 of the Revised Penal Code.