Siao Tiao Hong v.

CIR (1992) Doctrine: In order to avail of the benefits of section 331 [now section 203], one must file a return for the lending investors fixed tax; otherwise, an assessment made within the period provided for in Section 332 (a) [now section 222 (a)] which provides for exceptions as to period of limitation of assessment and collection of taxes.

Facts: [dates are important ] The petitioner is a real estate developer whose principal income is derived from rentals. He had several deposits and extended loans to his friends supposedly on accommodation and not for profit. He declared an income of P9,582 from rents and royalties and P5,540 as interest income from bonds, bank deposits, etc. in his ITR for the year 1958. On May 25, 1960, the BIR ordered an examination of his books in connection with the 1958 return. A month after, June 21, 1060, the Revenue Examiner recommended that the petitioner be assessed for: 1) a deficiency income tax of P1,068.79, and 2) fixed taxes as a lending investor at P300 each year for the years 1955-1959. The petitioner protested the accuracy of the assessment and requested a reexamination, which was thereafter granted. On November 3, 1961, after reexamination, the revenue examiner reported that there was no discrepancy on the said return. Despite such finding, the Regional Office of the BIR still sent him a letter, on June 2, 1961, demanding payment of P2,400 as lending investors fixed tax for the years 1953-1960. Almost a year after, May 30, 1962, the BIR brought a collection suit for the P2,400 fixed tax against the petitioner. The City Court dismissed the suit for being premature since no assessment was received by the petitioner. Hence, the case was not one of undisputed assessment within the jurisdiction of the court. The petitioner filed a formal protest to the assessment in August 1965 but was denied by the BIR Regional Office on March 1966. Such denial prompted him to file a petition for review with the CTA, which affirmed his liability for the lending investors fixed taxed. Now, the petitioner argues that such loans were only accommodations for his friends and not extended for profit. He also argues that, assuming he was liable for the fixed tax, the right to collect the same had already prescribed since no assessment for lending investors tax was made within the 5 year period from the filing of the petitioners income tax returns for the years 1953-1959. Issue: 1. Whether the petitioner is liable for lending investors tax 2. Whether the BIRs right to collect the same had prescribed

Held: 1. Yes. The bank deposits were not considered as loans in the sense that such would constitute the conduct of a lending business, on which the fixed tax is imposed. On the other hand, the loans he extended to several individuals are subject to lending investors tax. Evidence shows that these were not mere isolated transactions to his friends; his contention is belied by the fact that he collected interest from the borrowers and that such interests were reflected in his income tax return. 2. No. The period provided in Section 331 [now Section 203 I think] is inapplicable here since fixed taxes are not included in an income tax return and neither is it paid together with the income tax. The Code provides a different date for payment of fixed taxes, for which a separate return must be filed. The Court ruled that for prescription to have set in, he must have filed a return for the lending investors fixed tax; otherwise, an assessment may be made within the period provided for in Sec. 332 (a) [now section 222] which provides for exceptions as to the period of limitation of assessment and collection of taxes: (a) In case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without an assessment, at any time within 10 years after the discovery of the falsity, fraud, or omission. His omission to file a return was discovered on June 21, 1960, when the initial examination of books was conducted. The assessment for lending investors tax was made on June 2, 1961 (well within the 5 year period). The collection must be made within the 5-year period from the assessment. The running of the period was suspended on May 27,1963 when the complaint for collection was filed against the petitioner. The period ran again upon dismissal by the city court on July 14, 1965 and was stopped on October 27, 1966 when the CIR filed his answer to the petition for review brought by the petitioner before the CTA. All in all, a total of 3 years, 3 months and 8 days had elapsed. Therefore, the right of the CIR to assess and collect the lending investors fixed tax had not yet prescribed.