G.R. No.

104171 February 24, 1999 ISSUES:

COMMISSIONER OF INTERNAL REVENUE, petitioner, (1) Whether or not petitioner's right to assess herein deficiency donor's tax has
vs. indeed prescribed as ruled by public respondent Court of Appeals? YES.
B.F. GOODRICH PHILS., INC. (now SIME DARBY INTERNATIONAL
TIRE CO., INC.) and THE COURT OF APPEALS, respondents.
COURT: The petition has no merit.

PANGANIBAN, J.:
Main Issue: Prescription

FACTS:
Sec. 331 of the National Internal Revenue Code provides:

Notwithstanding the expiration of the five-year prescriptive period, may the

Sec. 331. Period of limitation upon assessment and collection. — Except as
BIR still assess a taxpayer even after the latter has already paid the tax due, on
provided in the succeeding section, internal-revenue taxes shall be assessed
the ground that the previous assessment was insufficient or based on a "false"
within five years after the return was filed, and no proceeding in court without
return?
assessment for the collection of such taxes shall be begun after expiration of
such period. For the purposes of this section, a return filed before the last day
The facts undisputed. 4 Private Respondent BF Goodrich Phils., Inc. (now Sime prescribed by law for the filing thereof shall be considered as filed on such last
Darby International Tire Co, Inc.), was an American-owned and controlled day: Provided, That this limitation shall not apply to cases already investigated
corporation previous to July 3, 1974. As a condition for approving the prior to the approval of this Code.
manufacture by private respondent of tires and other rubber products, the
Central Bank of the Philippines required that it should develop a rubber
Applying this provision of law to the facts at hand, it is clear that the
plantation. In compliance with this requirement, private respondent
October 16, 1980 and the March 1981 assessments were issued by the BIR
purchased from the Philippine government in 1961, under the Public Land
beyond the five-year statute of limitations. The Court has thoroughly
Act and the Parity Amendment to the 1935 Constitution, certain parcels of
studied the records of this case and found no basis to disregard the five-
land located in Tumajubong, Basilan, and there developed a rubber
year period of prescription. As succinctly pronounced by the Court of
plantation.
Appeals:

More than a decade later, on August 2, 1973, the justice secretary rendered an
The subsequent assessment made by the respondent Commissioner on October
opinion stating that, upon the expiration of the Parity Amendment on July 3,
4, 1980, modified by that of March 16, 1981, violates the law. Involved in this
1974, the ownership rights of Americans over public agricultural lands,
petition is the income of the petitioner for the year 1974, the returns for which
including the right to dispose or sell their real estate, would be lost. On the
were required to be filed on or before April 15 of the succeeding year. The
basis of this Opinion, private respondent sold to Siltown Realty
returns for the year 1974 were duly filed by the petitioner, and assessment of
Philippines, Inc. on January 21, 1974, its Basilan landholding for P500,000
taxes due for such year — including that on the transfer of properties on June
payable in installments. In accord with the terms of the sale, Siltown
21, 1974 — was made on April 13, 1975 and acknowledged by Letter of
Realty Philippines, Inc. leased the said parcels of land to private
Confirmation No. 101155 terminating the examination on this subject. The
respondent for a period of 25 years, with an extension of another 25 years
subsequent assessment of October 10, 1980 modified, by that of March 16,
at the latter's option.
1981, was made beyond the period expressly set in Section 331 of the National
Internal Revenue Code . . . . 10
Based on the BIR's Letter of Authority No. 10115 dated April 14, 1975, the
books and accounts of private respondent were examined for the purpose of
Petitioner relies on the CTA ruling, the salient portion of which reads:
determining its tax liability for taxable year 1974. The examination resulted
in the April 23, 1975 assessment of private respondent for deficiency
income tax in the amount of P6,005.35, which it duly paid. Falsity is what we have here, and for that matter, we hasten to add that the
second assessment (March 16, 1981) of the Commissioner was well-advised
having been made in contemplation of his power under Section 15 of the 1974
Subsequently, the BIR also issued Letters of Authority Nos. 074420 RR and
Code (now Section 16, of NIRC) to assess the proper tax on the best evidence
074421 RR and Memorandum Authority Reference No. 749157 for the purpose
obtainable "when there is reason to believe that a report of a taxpayer is false,
of examining Siltown's business, income and tax liabilities. On the basis of this
incomplete or erroneous. More, when there is falsity with intent to evade tax as
examination, the BIR commissioner issued against private respondent on
October 10, 1980, an assessment for deficiency in donor's tax in the in this case, the ordinary period of limitation upon assessment and collection
does not apply so that contrary to the averment of petitioner, the right to assess
amount of P1,020,850, in relation to the previously mentioned sale of its
respondent has not prescribed.
Basilan landholdings to Siltown. Apparently, the BIR deemed the
consideration for the sale insufficient, and the difference between the fair
market value and the actual purchase price a taxable donation. What is the considered falsity? The transfer through sale of the parcels of land
in Tumajubong, Lamitan, Basilan in favor of Siltown Realty for the sum of
P500,000.00 only whereas said lands had been sworn to under Presidential
In a letter dated November 24, 1980, private respondent contested this
Decree No. 76 (Dec. 6, 1972) as having a value of P2,683,467 (P2,475,467 +
assessment. On April 9, 1981, it received another assessment dated March 16,
P207,700)
1981, which increased to P 1,092,949 the amount demanded for the alleged
deficiency donor's tax, surcharge, interest and compromise penalty.
For the purpose of safeguarding taxpayers from any unreasonable
examination, investigation or assessment, our tax law provides a statute of
Private respondent appealed the correctness and the legality of these last two
limitations in the collection of taxes. Thus, the law on prescription, being a
assessments to the CTA. After trial in due course, the CTA rendered its
remedial measure, should be liberally construed in order to afford such
Decision dated March 29, 1991, the dispositive portion of which reads as
protection. 12 As a corollary, the exceptions to the law on prescription
follows:
should perforce be strictly construed.

WHEREFORE, the decision of the Commissioner of Internal Revenue

Sec. 15 of the NIRC, on the other hand, provides that "[w]hen a report required
assessing petitioner deficiency gift tax is MODIFIED land petitioner is ordered
by law as a basis for the assessment of any national internal revenue tax shall
to pay the amount of P1,311,179.01 plus 10% surcharge and 20% annual
not be forthcoming within the time fixed by law or regulation, or when there is
interest from March 16, 1981 until fully paid provided that the maximum
reason to believe that any such report is false, incomplete, or erroneous, the
amount that may be collected as interest on delinquency shall in no case exceed
Commissioner of Internal Revenue shall assess the proper tax on the best
an amount corresponding to a period of three years pursuant to Section 130(b)
evidence obtainable." Clearly, Section 15 does not provide an exception to
(l) and (c) of the 1977 Tax Code, as amended by P.D. No. 1705, which took
the statute of limitations on the issuance of an assessment, by allowing the
effect on August 1, 1980.
initial assessment to be made on the basis of the best evidence available.
Having made its initial assessment in the manner prescribed, the
SO ORDERED. 5 commissioner could not have been authorized to issue, beyond the five-year
prescriptive period, the second and the third assessments under
consideration before us.
CA: reversed the CTA, as follows:

Nor is petitioner's claim of falsity sufficient to take the questioned

What is involved here is not a first assessment; nor is it one within the 5-year assessments out of the ambit of the statute of limitations. The relevant part
period stated in Section 331 above. Since what is involved in this case is a of then Section 332 of the NIRC, which enumerates the exceptions to the period
multiple assessment beyond the five-year period, the assessment must be based of prescription, provides:
on the grounds provided in Section 337, and not on Section 15 of the 1974 Tax
Code. Section 337 utilizes the very specific terms "fraud, irregularity,
and mistake". "Falsity does not appear to be included in this enumeration. Sec. 332. Exceptions as to period of limitation of assessment and collection of
Falsity suffices for an assessment, which is a first assessment made within the taxes. — (a) In the case of a false or fraudulent return with intent to evade a tax
five-year period. When it is a subsequent assessment made beyond the five-year or of a failure to file a return, the tax may be assessed, or a proceeding in court
period, then, it may be validly justified only by "fraud, irregularity and mistake" for the collection of such tax may be begun without assessment, at any time
on the part of the taxpayer.6 within ten years after the discovery of the falsity, fraud, or omission: . . . .
Petitioner insists that private respondent committed "falsity" when it sold G.R. No. 166786 May 3, 2006
the property for a price lesser than its declared fair market value. This fact
alone did not constitute a false return which contains wrong information due to
MICHEL J. LHUILLER Pawnshop, Inc. Petitioner,
mistake, carelessness or ignorance.13 It is possible that real property may be
vs.
sold for less than adequate consideration for a bona fide business purpose;
COMMISSIONER OF INTERNAL REVENUE, Respondent.
in such event, the sale remains an "arm's length" transaction. In the
present case, the private respondent was compelled to sell the property
even at a price less than its market value, because it would have lost all YNARES-SANTIAGO, J.:
ownership rights over it upon the expiration of the parity amendment. In
other words, private respondent was attempting to minimize its losses. At
the same time, it was able to lease the property for 25 years, renewable for FACTS:
another 25. This can be regarded as another consideration on the price.
The facts show that petitioner, a corporation engaged in the pawnshop business,
Furthermore, the fact that private respondent sold its real property for a price received Assessment Notice Nos. 81-VAT-13-97-99-12-118 and 81-
less than its declared fair market value did not by itself justify a finding of false DST-13-97-99-12-119, issued by the Chief Assessment Division, Revenue
return. Indeed, private respondent declared the sale in its 1974 return submitted Region No. 13, Cebu City, for deficiency VAT in the amount of
to the BIR. 14 Within the five-year prescriptive period, the BIR could have P19,961,636.09 and deficiency DST in the amount of P13,142,986.02, for the
issued the questioned assessment, because the declared fair market value of year 1997. Petitioner filed a motion for reconsideration of said assessment
said property was of public record. This it did not do, however, during all notices but was denied by respondent CIR.
those five years. Moreover, the BIR failed to prove that respondent's 1974
return had been filed fraudulently. Equally significant was its failure to CTA: in favor of petitioner setting aside the assessment notices issued by the
prove respondent's intent to evade the payment of the correct amount of CIR. It ruled, inter alia, that the subject of a DST under Section 195 of the
tax. National Internal Revenue Code (NIRC) is the document evidencing the
covered transaction. Holding that a pawn ticket is neither a security nor a
Ineludibly, the BIR failed to show that private respondent's 1974 return was printed evidence of indebtedness, the tax court concluded that such pawn ticket
filed fraudulently with intent to evade the payment of the correct amount of cannot be the subject of a DST.
tax. 15 Moreover, even though a donor's tax, which is defined as "a tax on the
privilege of transmitting one's property or property rights to another or others CA: reversed the CTA decision and sustained the assessments against
without adequate and full valuable consideration," 16 is different from capital petitioner. It ratiocinated, among others, that a pawn ticket, per se, is not subject
gains tax, a tax on the gain from the sale of the taxpayer's property forming part to DST; rather, it is the transaction involved, which in this case is pledge, that is
of capital assets, 17 the tax return filed by private respondent to report its being taxed. Hence, petitioner was properly assessed to pay DST.
income for the year 1974 was sufficient compliance with the legal requirement
to file a return. In other words, the fact that the sale transaction may have partly
resulted in a donation does not change the fact that private respondent already Respondent filed a motion for partial reconsideration praying that
reported its income for 1974 by filing an income tax return. petitioner be ordered to pay deficiency interest of 20% per annum for
failure to pay the same on January 2, 2000, as indicated in the notices. On
December 29, 2004, the Court of Appeals granted the motion and modified the
Since the BIR failed to demonstrate clearly that private respondent had June 29, 2004 decision as follows:
filed a fraudulent return with the intent to evade tax, or that it had failed
to file a return at all, the period for assessments has obviously prescribed.
Such instances of negligence or oversight on the part of the BIR cannot WHEREFORE, the instant petition is hereby GRANTED. The decision of the
prejudice taxpayers, considering that the prescriptive period was precisely Court of Tax Appeals dated October 24, 2001 is REVERSED and SET ASIDE.
intended to give them peace of mind. In lieu thereof, respondent Michel J. Lhuillier Pawnshop, Inc., is ORDERED
TO PAY: (1) 19,961,636.09, as deficiency Value-Added Tax, inclusive of
surcharge and interest; (2) P3,142,986.02, as deficiency Documentary Stamp
Tax, inclusive of surcharge and interest, for the year 1997; and (3) Delinquency
Interest at the rate of 20% per annum from January 2, 2000, until the
deficiency assessment are fully paid, pursuant to Section 249 of the
National Internal Revenue Code. No pronouncement as to costs.

SO ORDERED.5

On January 25, 2005, petitioner elevated the case to this Court. Subsequently,
it filed a motion to withdraw the petition with respect to the issue of
VAT.6 Petitioner manifested that the Chamber of Pawnbrokers of the
Philippines, where it is a member, entered into a Memorandum of
Agreement7 with the Bureau of Internal Revenue (BIR) allowing the
pawnshop industry to compromise the issue of VAT on pawnshops.
Considering that petitioner already paid the agreed amount of settlement,
it prayed that the case be decided solely on the issue of DST.

On September 28, 2005, the Court granted petitioner’s partial withdrawal

of the petition. Hence, the lone question to be resolved in the present petition is
whether petitioner’s pawnshop transactions are subject to DST.

ISSUE:

whether petitioner’s pawnshop transactions are subject to DST.

COURT: YES.

Sections 173 and 195 of the NIRC, state:

SEC. 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments, and
Papers. – Upon documents, instruments, loan agreements and papers, and
upon acceptances, assignments, sales and transfers of the obligation, right
or property incident thereto, there shall be levied, collected and paid for, and
in respect of the transaction so had or accomplished, the corresponding
documentary stamp taxes x x x. (Emphasis supplied)

SEC. 195. Stamp Tax on Mortgages, Pledges, and Deeds of Trust. – On

every mortgage or pledge of lands, estate, or property, real or personal,
heritable or movable, whatsoever, where the same shall be made as security for
the payment of any definite and certain sum of money lent at the time or
previously due and owing or forborne to be paid, being payable and on any
conveyance of land, estate, or property whatsoever, in trust or to be sold, or
otherwise converted into money which shall be and intended only as security,
either by express stipulation or otherwise, there shall be collected a
documentary stamp tax at the following rates:
"(a) When the amount secured does not exceed Five thousand pesos (P5,000), The Court notes that BIR Ruling No. 305-87,20 and BIR Ruling No.
Twenty pesos (P20).1avvphil.net 018-88,21 which held that a pawn ticket is subject to DST because it is an
evidence of a pledge transaction, had been revoked by BIR Ruling No.
325-88.22 In the latter ruling, the BIR held that DST is a tax on the document;
(b) On each Five thousand pesos (P5,000), or fractional part thereof in excess and since a pawn ticket is not an evidence of indebtedness, it cannot be subject
of Five thousand pesos (P5,000), an additional tax of Ten pesos (10.00). to DST. Nevertheless, this interpretation is not consistent with the provisions of
Section 195 of the NIRC which categorically taxes the privilege to enter into a
x x x x. (Emphasis supplied) contract of pledge. Indeed, administrative issuances must not override, supplant
or modify the law but must be consistent with the law they intend to carry out.23
It is clear from the foregoing provisions that the subject of a DST is not limited
to the document embodying the enumerated transactions. A DST is an excise Finally, petitioner invokes the declaration of nullity of Revenue Memorandum
tax on the exercise of a right or privilege to transfer obligations, rights or Circular (RMC) No. 43-91 in Commissioner of Internal Revenue v. Michel J.
properties incident thereto. In Philippine Home Assurance Corporation v. Court Lhuillier Pawnshop, Inc.24 Said case, however, is not applicable to the present
of Appeals,9 it was held that: controversy. RMC No. 43-91 is actually a clarification of Revenue
Memorandum Order No. 15-91 which classified pawnshops as "lending
investors" and imposed upon them a 5% lending investor’s tax. While RMC
In general, documentary stamp taxes are levied on the exercise by persons of No. 43-91 declared in addition that pawnshops are subject to DST, such was
certain privileges conferred by law for the creation, revision, or termination of never an issue in Commissioner of Internal Revenue v. Michel J. Lhuillier
specific legal relationships through the execution of specific instruments. Pawnshop, Inc., because nowhere was it mentioned therein that the pawnshop
Examples of such privileges, the exercise of which, as effected through the involved was directed to pay DST. Otherwise stated, the declaration of nullity
issuance of particular documents, are subject to the payment of documentary of RMC No. 43-91 was the Court’s finding, among others, that pawnshops
stamp taxes are leases of lands, mortgages, pledges and trusts, and cannot be classified as lending investors; and certainly not because pawnshops
conveyances of real property. (Emphasis added) are not subject to DST. The invocation of said ruling is therefore misplaced.

Pledge is among the privileges, the exercise of which is subject to DST. A WHEREFORE, the petition is DENIED and the June 29, 2004 Decision of the
pledge may be defined as an accessory, real and unilateral contract by virtue of Court of Appeals, as modified on December 29, 2004, in CA-G.R. SP No.
which the debtor or a third person delivers to the creditor or to a third person 67667, is AFFIRMED.
movable property as security for the performance of the principal obligation,
upon the fulfillment of which the thing pledged, with all its accessions and
accessories, shall be returned to the debtor or to the third person.10 This is SO ORDERED.
essentially the business of pawnshops which are defined under Section 3 of
Presidential Decree No. 114, or the Pawnshop Regulation Act, as persons or
entities engaged in lending money on personal property delivered as security
for loans.

Section 12 of the Pawnshop Regulation Act and Section 21 of the Rules and
Regulations For Pawnshops11 issued by the Central Bank12 to implement the
Act, require every pawnshop or pawnbroker to issue, at the time of every such
loan or pledge, a memorandum or ticket signed by the pawnbroker and
containing the following details: (1) name and residence of the pawner; (2) date
the loan is granted; (3) amount of principal loan; (4) interest rate in percent; (5)
period of maturity; (6) description of pawn; (7) signature of pawnbroker or his
authorized agent; (8) signature or thumb mark of pawner or his authorized
agent; and (9) such other terms and conditions as may be agreed upon between
the pawnbroker and the pawner. In addition, Central Bank Circular No.
445,13 prescribed a standard form of pawn tickets with entries for the required
details on its face and the mandated terms and conditions of the pledge at the
dorsal portion thereof.

Section 3 of the Pawnshop Regulation Act defines a pawn ticket as follows:

"Pawn ticket" is the pawnbrokers’ receipt for a pawn. It is neither a security nor
a printed evidence of indebtedness."

True, the law does not consider said ticket as an evidence of security or
indebtedness. However, for purposes of taxation, the same pawn ticket is
proof of an exercise of a taxable privilege of concluding a contract of
pledge. At any rate, it is not said ticket that creates the pawnshop’s
obligation to pay DST but the exercise of the privilege to enter into a
contract of pledge. There is therefore no basis in petitioner’s assertion that
a DST is literally a tax on a document and that no tax may be imposed on a
pawn ticket.

The settled rule is that tax laws must be construed in favor of the taxpayer and
strictly against the government; and that a tax cannot be imposed without clear
and express words for that purpose.14 Taking our bearing from the foregoing
doctrines, we scrutinized Section 195 of the NIRC, but there is no way that said
provision may be interpreted in favor of petitioner. Section 195 unqualifiedly
subjects all pledges to DST. It states that "[o]n every x x x pledge x x x there
shall be collected a documentary stamp tax x x x." It is clear, categorical, and
needs no further interpretation or construction. The explicit tenor thereof
requires hardly anything than a simple application.15

The onus of proving that pawnshops are not subject to DST is thus shifted to
petitioner. In establishing tax exemptions, it should be borne in mind that
taxation is the rule, exemption is the exception. Accordingly, statutes granting
tax exemptions must be construed in strictissimi juris against the taxpayer and
liberally in favor of the taxing authority. One who claims an exemption from
tax payments rests the burden of justifying the exemption by words too plain to
be mistaken and too categorical to be misinterpreted.16

In the instant case, there is no law specifically and expressly exempting pledges
entered into by pawnshops from the payment of DST. Section 19917 of the
NIRC enumerated certain documents which are not subject to stamp tax; but a
pawnshop ticket is not one of them. Hence, petitioner’s nebulous claim that it is
not subject to DST is without merit. It cannot be over-emphasized that tax
exemption represents a loss of revenue to the government and must, therefore,
not rest on vague inference.18 Exemption from taxation is never presumed. For
tax exemption to be recognized, the grant must be clear and express; it cannot
be made to rest on doubtful implications.19
G.R. No. L-38540 April 30, 1987 THAT, ASSUMING, WITHOUT ADMITTING, THAT THE LETTER DATED
JULY 16, 1955 (EXHIBIT "A") CANNOT BE CONSIDERED AS AN
ASSESSMENT, ON THE THEORY THAT THE SAME HAS NOT BEEN
REPUBLIC OF THE PHILIPPINES, petitioner, RECEIVED BY PRIVATE RESPONDENT, THE COURT OF APPEALS
vs. ERRED IN NOT HOLDING THAT THE LETTER OF THE DEPUTY
THE COURT OF APPEALS, and NIELSON & COMPANY, COLLECTOR (NOW DEPUTY COMMISSIONER) OF INTERNAL
INC., respondents. REVENUE DATED SEPTEMBER 19, 1956 (EXHIBIT "E") IS ITSELF AN
ASSESSMENT WHICH WAS DULY RECEIVED BY PRIVATE
PADILLA, J.: RESPONDENT.

FACTS: COURT:

In a demand letter, dated 16 July 1955 (Exhibit A), the Commissioner of PETITIONER’S CONTENTION:
Internal Revenue assessed private respondent deficiency taxes for the years
1949 to 1952, totalling P14,449.00, computed as follows: Relying on the provisions of Section 8, Rule 13 and Section 5, paragraphs m &
v. Rule 131 of the Revised Rules of Court, petitioner claims that the demand
1-1/2% ad valorem tax on P448,000.00..........................P7,320.00 letter of 16 July 1955 showed an imprint indicating that the original thereof was
released and mailed on 4 August 1955 by the Chief, Records Section of the
Bureau of Internal Revenue, and that the original letter was not returned to said
25% surcharge for late payment......................................1,830.00 Bureau; thus, said demand letter must be considered to have been received by
the private respondent. 3 According to petitioner, if service is made by ordinary
Occupation fees for the years 1949 mail, unless the actual date of receipt is shown, service is deemed complete and
effective upon the expiration of five (5) days after mailing. 4 As the letter of
demand dated 16 July 1955 was actually mailed to private respondent, there
to 1952 at P1.00 per ha. per arises the presumption that the letter was received by private respondent in the
absence of evidence to the contrary. 5 More so, where private respondent did
year on 1, 230 hectares.....................................4,920.00 not offer any evidence, except the self-serving testimony of its witness, that it
had not received the original copy of the demand letter dated 16 July 1955. 6

Additional residence tax on P79,000.00

We do not agree with petitioner's above contentions. As correctly observed by
the respondent court in its appealed decision, while the contention of
at P1.00 per every P5,000.00 petitioner is correct that a mailed letter is deemed received by the
addressee in the ordinary course of mail, stilt this is merely a disputable
presumption, subject to controversion, and a direct denial of the receipt
per year or P75.00 x 4 years................................303.20
thereof shifts the burden upon the party favored by the presumption to
prove that the mailed letter was indeed received by the addressee. Thus:
25% surcharge for late payment.........................................75.00
Appellee contends that per Exhibit A, the notice was released and mailed to the
TOTAL AMOUNT DUE............................ P14,449.00 2 appellant by the BIR on Aug. 4, 1955 under the signature of the Chief, Records
Section, Office; that since the original thereof was not returned to the appellee,
the presumption is that the appellant received the mailed notice. This is correct,
Petitioner reiterated its demand upon private respondent for payment of said but this being merely a mere disputable presumption, the same is subject to
amount, per letters dated 24 April 1956 (Exhibit D), 19 September 1956 controversion, and a direct denial of the receipt thereof shifts the burden upon
(Exhibit E) and 9 February 1960 (Exhibit F). Private respondent did not the party favored by the presumption to prove that the mailed letter was
contest the assessment in the Court of Tax Appeals. On the theory that the received by the addressee. The appellee, however, argues that since notice was
assessment had become final and executory, petitioner filed a complaint for rc-,Ieased and mailed and the fact of its release was admitted by the appellant
collection of the said amount against private respondent with the Court of the admission is proof that he received the mailed notice of assessment. We do
First Instance of Manila, where it was docketed as Civil Case No. 42911. not think so. It is true the Court a quo made such a finding of fact, but as
However, for failure to serve summons upon private respondent, the complaint pointed out by the appehant in its brief, and as borne out by the records, no such
was dismissed, without prejudice, in the Court's order dated 30 June 1961. On admission was ever made by the appellant in the answer or in any other
motion, the order of dismissal was set aside, at the same time giving petitioner pleading, or in any declaration, oral or documentary before the trial court. We
sixty (60) days within which to serve summons upon private respondent. note that the appellee has not met this challenge, and after a review of the
records, we find appeflant's assertion well-taken. 7
For failure anew to serve summons, the Court of First Instance of Manila issued
an order dated 4 October 1962 dismissing Civil Case No. 42911 without Since petitioner has not adduced proof that private respondent had in fact
prejudice. The order of dismissal became final on 5 November 1962. received the demand letter of 16 July 1955, it can not be assumed that
private respondent received said letter. Records, however, show that
On 15 November 1962, the complaint against private respondent for collection petitioner wrote private respondent a follow-up letter dated 19 September
of the same tax was refiled, but the same was erroneously docketed as Civil 1956, reiterating its demand for the payment of taxes as originally
Case No. 42911, the same case previously dismissed without prejudice. Without demanded in petitioner's letter dated 16 July 1955. This follow-up letter is
correcting this error, another complaint was filed on 26 November 1963, considered a notice of assessment in itself which was duly received by
docketed as Civil Case No. 55817, the subject matter of the present appeal. private respondent in accordance with its own admission. 8 The aforesaid
letter reads:
As herein earlier stated, the Court a quo rendered a decision against the private
respondent. On appeal to the respondent Court of Appeals, the decision was September 19, 1956
reversed. Petitioner, Republic of the Philippines, filed a motion for
reconsideration which was likewise denied by said Court in a resolution dated Nielson and Company, Inc.
31 May 1974. Hence, this petition, with the following assignment of errors:

Ayala Boulevard, Manila

I

Gentlemen:
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
LETTER OF ASSESSMENT DATED JULY 16, 1955, EXHIBIT "A," WAS
RECEIVED BY PRIVATE RESPONDENT IN THE ORDINARY COURSE In reply to you (sic) letter dated June 1, 1956 relative to your pending internal
OF THE MAIL PURSUANT TO SECTION 8, RULE 13 OF THE REVISED revenue tax liability involving the amount of P15,649.00 as annual occupation
RULES OF COURT. fees, ad valorem and additional residence taxes, surcharges and penalty,
originally demanded of you on July 16, 1955, I have the honor to inform you
that investigation conducted by an agent of this office show that you and the
II Hixbar Gold Mining Co., Inc. entered into an agreement in 1938 whereby you
were given full exclusive and irrevocable control of all the operations,
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PRIVATE development, processing and marketing of mineral products from the latter's
RESPONDENT FAILED TO REBUT THE PRESUMPTION THAT THE mines and that au the assessments, taxes and fees of any nature in connection
LETTER ASSESSMENT DATED JULY 16, 1955, HAVING BEEN DULY with the said operation, development, proceeding and marketing of these
DIRECTED AND MAILED WAS RECEIVED IN THE REGULAR COURSE products shall be paid by you. In view thereof, and it appearing that the
OF THE MAIL AND THAT OFFICIAL DUTY HAS BEEN REGULARLY aforesaid tax liabilities accrued when your contract was in fun force and effect,
PERFORMED. you are therefore, the party hable for the payment thereof, notwithstanding the
alleged contract subsequently entered into by you and the Hixbar Gold Mining
Co., Inc. on September 9, 1954.
III
It is therefore, again requested that payment of the aforesaid amount of G.R. No. 196596
P15,649.00 be made to the City Treasurer, Manila within five (5) days from
your receipt hereof so that this case may be closed.
COMMISSIONER OF INTERNAL REVENUE, Petitioner
vs.
You are further requested to pay the sum of P150.00 as compromise suggested DE LA SALLE UNIVERSITY, INC., Respondent
in our letter to you dated February 24, 1955, it appearing that the same has not
as yet been paid up to the present.
FACTS:

Very respectfully yours,

Sometime in 2004, the Bureau of Internal Revenue (BIR) issued to DLSU
Letter of Authority (LOA) No. 2794 authorizing its revenue officers to
JOSE ARANAS examine the latter's books of accounts and other accounting records for all
internal revenue taxes for the period Fiscal Year Ending 2003 and
Unverified Prior Years.5
Deputy Collector of Internal Revenue 9

On May 19, 2004, BIR issued a Preliminary Assessment Notice to DLSU.6

Under Section 7 of Republic Act No. 1125, the assessment is appealable to
the Court of Tax Appeals within thirty (30) days from receipt of the letter.
The taxpayer's failure to appeal in due time, as in the case at bar, makes Subsequently on August 18, 2004, the BIR through a Formal Letter of
the assessment in question final, executory and demandable. Thus, private Demand assessed DLSU the following deficiency taxes: (1) income tax on
respondent is now barred from disputing the correctness of the assessment rental earnings from restaurants/canteens and bookstores operating within the
or from invoking any defense that would reopen the question of its liability campus; (2) value-added tax (VAI) on business income; and (3) documentary
on the merits. stamp tax (DSI) on loans and lease contracts. The BIR demanded the payment
of ₱17,303,001.12, inclusive of surcharge, interest and penalty for taxable
years 2001, 2002 and 2003.7
In Mamburao Lumber Co. vs. Republic, 11 this Court further said:

DLSU protested the assessment. The Commissioner failed to act on the protest;
In a suit for collection of internal revenue taxes, as in this case, where the thus, DLSU filed on August 3, 2005 a petition for review with the CTA
assessment has already become final and executory, the action to collect is akin Division.8
to an action to enforce a judgment. No inquiry can be made therein as to the
merits of the original case or the justness of the judgment relied upon. ...
DLSU, a non-stock, non-profit educational institution, principally anchored its
petition on Article XIV, Section 4 (3) of the Constitution, which reads:
ACCORDINGLY, the appealed decision is hereby reversed. The decision of the
Court a quo is hereby reinstated. No costs.
(3) All revenues and assets of non-stock, non-profit educational institutions
used actually, directly, and exclusively for educational purposes shall be exempt
SO ORDERED. from taxes and duties. xxx.

On January 5, 2010, the CTA Division partially granted DLSU's petition for
review. The dispositive portion of the decision reads:

WHEREFORE, the Petition for Review is PARTIALLY GRANTED. The

DST assessment on the loan transactions of [DLSU] in the amount of
₱1,1681,774.00 is hereby CANCELLED. However, [DLSU] is ORDERED
TO PAY deficiency income tax, VAT and DST on its lease contracts, plus 25%
surcharge for the fiscal years 2001, 2002 and 2003 in the total amount
of ₱18,421,363.53 ... xxx.

In addition, [DLSU] is hereby held liable to pay 20% delinquency interest on

the total amount due computed from September 30, 2004 until full payment
thereof pursuant to Section 249(C)(3) of the [National Internal Revenue Code].
Further, the compromise penalties imposed by [the Commissioner] were
excluded, there being no compromise agreement between the parties.

SO ORDERED.9

Dissatisfied with the partial reduction of its tax liabilities, DLSU filed
a separate petition for review with the CTA En Banc (CTA En Banc Case No.
671) on the following grounds: (1) the entire assessment should have been
cancelled because it was based on an invalid LOA; (2) assuming the LOA was
valid, the CTA Division should still have cancelled the entire assessment
because DLSU submitted evidence similar to those submitted by Ateneo De
Manila University (Ateneo) in a separate case where the CTA cancelled
Ateneo's tax assessment;17 and (3) the CTA Division erred in finding that
a portion of DLSU's rental income was not proved to have been used actually,
directly and exclusively for educational purposes.18

The CTA En Banc Rulings

CTA En Banc Case No. 622

The CTA En Banc dismissed the Commissioner's petition for review and
sustained the findings of the CTA Division.19

Tax on rental income

Relying on the findings of the court-commissioned Independent Certified

Public Accountant (Independent CPA), the CTA En Banc found that DLSU was
able to prove that a portion of the assessed rental income was used actually,
directly and exclusively for educational purposes; hence, exempt from
tax.20 The CTA En Banc was satisfied with DLSU's supporting evidence
confirming that part of its rental income had indeed been used to pay the loan it
obtained to build the university's Physical Education – Sports Complex.21

Parenthetically, DLSU's unsubstantiated claim for exemption, i.e., the part of its
income that was not shown by supporting documents to have been actually,
directly and exclusively used for educational purposes, must be subjected to
income tax and VAT.22
DST on loan and mortgage transactions DLSU puts forward the same counter-arguments discussed above.67 In addition,
DLSU prays that the Court award attorney's fees in its favor because it was
constrained to unnecessarily retain the services of counsel in this separate
Contrary to the Commissioner's contention, DLSU froved its remittance of the petition.68
DST due on its loan and mortgage documents.23 The CTA En Banc found that
DLSU's DST payments had been remitted to the BIR, evidenced by the stamp
on the documents made by a DST imprinting machine, which is allowed under Issues
Section 200 (D) of the National Internal Revenue Code (Tax Code)24 and
Section 2 of Revenue Regulations (RR) No. 15-2001.25
II. Whether the entire assessment should be voided because of the defective
LOA;
Admissibility of DLSU's supplemental evidence
COURT:
The CTA En Banc held that the supplemental pieces of documentary evidence
were admissible even if DLSU formally offered them only when it moved for
II. The LOA issued to DLSU is not entirely void. The assessment for
reconsideration of the CTA Division's original decision. Notably, the law
taxable year 2003 is valid.
creating the CTA provides that proceedings before it shall not be governed
strictly by the technical rules of evidence.26
DLSU objects to the CTA En Banc 's conclusion that the LOA is valid for
taxable year 2003 and insists that the entire LOA should be voided for being
The Commissioner moved but failed to obtain a reconsideration of the CTA En
contrary to RMO No. 43-90, which provides that if tax audit includes more than
Banc's December 10, 2010 decision.27 Thus, she came to this court for relief
one taxable period, the other periods or years shall be specifically indicated in
through a petition for review on certiorari (G.R. No. 196596).
the LOA.

CTA En Banc Case No. 671

A LOA is the authority given to the appropriate revenue officer to examine
the books of account and other accounting records of the taxpayer in order
The CTA En Banc partially granted DLSU's petition for review and further to determine the taxpayer's correct internal revenue liabilities95 and for the
reduced its tax liabilities to ₱2,554,825.47 inclusive of surcharge.28 purpose of collecting the correct amount of tax,96 in accordance with
Section 5 of the Tax Code, which gives the CIR the power to obtain
information, to summon/examine, and take testimony of persons. The LOA
On the validity of the Letter of Authority commences the audit process97 and informs the taxpayer that it is under
audit for possible deficiency tax assessment.
The issue of the LOA' s validity was raised during trial;29 hence, the issue was
deemed properly submitted for decision and reviewable on appeal. Given the purposes of a LOA, is there basis to completely nullify the LOA
issued to DLSU, and consequently, disregard the BIR and the CTA's findings of
Citing jurisprudence, the CTA En Banc held that a LOA should cover only tax deficiency for taxable year 2003?
one taxable period and that the practice of issuing a LOA covering audit
of unverified prior years is prohibited.30 The prohibition is consistent with We answer in the negative.
Revenue Memorandum Order (RMO) No. 43-90, which provides that if the
audit includes more than one taxable period, the other periods or years
shall be specifically indicated in the LOA.31 The relevant provision is Section C of RMO No. 43-90, the pertinent
portion of which reads:
In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003
and Unverified Prior Years. Hence, the assessments for deficiency income tax, 3. A Letter of Authority [LOA] should cover a taxable period not exceeding
VAT and DST for taxable years 2001 and 2002 are void, but the assessment for one taxable year. The practice of issuing [LO As] covering audit of
taxable year 2003 is valid.32 unverified prior years is hereby prohibited. If the audit of a taxpayer shall
include more than one taxable period, the other periods or years shall be
specifically indicated in the [LOA].98
The Consolidated Petitions

What this provision clearly prohibits is the practice of issuing LOAs

G.R. No. 196596 covering audit of unverified prior years. RMO 43-90 does not say that a
LOA which contains unverified prior years is void. It merely prescribes
The Commissioner submits the following arguments: that if the audit includes more than one taxable period, the other periods
or years must be specified. The provision read as a whole requires that if a
taxpayer is audited for more than one taxable year, the BIR must specify
G.R. No. 198841 each taxable year or taxable period on separate LOAs.

DLSU argues as that: Read in this light, the requirement to specify the taxable period covered by
the LOA is simply to inform the taxpayer of the extent of the audit and the
First, RMO No. 43-90 prohibits the practice of issuing a LOA with any scope of the revenue officer's authority. Without this rule, a revenue officer
indication of unverified prior years. A LOA issued contrary to RMO No. 43-90 can unduly burden the taxpayer by demanding random accounting records
is void, thus, an assessment issued based on such defective LOA must also be from random unverified years, which may include documents from as far
void.46 back as ten years in cases of fraud audit.99

DLSU points out that the LOA issued to it covered the Fiscal Year Ending 2003 In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003
and Unverified Prior Years. On the basis of this defective LOA, the and Unverified Prior Years. The LOA does not strictly comply with RMO
Commissioner assessed DLSU for deficiency income tax, VAT and DST for 43-90 because it includes unverified prior years. This does not mean, however,
taxable years 2001, 2002 and 2003.47 DLSU objects to the CTA En that the entire LOA is void.
Banc's conclusion that the LOA is valid for taxable year 2003. According to
DLSU, when RMO No. 43-90 provides that: As the CTA correctly held, the assessment for taxable year 2003 is valid
because this taxable period is specified in the LOA. DLSU was fully
The practice of issuing [LOAs] covering audit of 'unverified prior years' is apprised that it was being audited for taxable year 2003. Corollarily, the
hereby prohibited. assessments for taxable years 2001 and 2002 are void for having
been unspecified on separate LOAs as required under RMO No. 43-90.

it refers to the LOA which has the format "Base Year + Unverified Prior
Years." Since the LOA issued to DLSU follows this format, then any
assessment arising from it must be entirely voided.48

The CIR's Comment on G.R. No. 198841

The Commissioner submits that DLSU is estopped from questioning the LOA's
validity because it failed to raise this issue in both the administrative and
judicial proceedings.64 That it was asked on cross-examination during the trial
does not make it an issue that the CTA could resolve.65 The Commissioner also
maintains that DLSU's rental income is not tax-exempt because an educational
institution is only exempt from property tax but not from tax on the income
earned from the property.66

DLSU's Comment on G.R. No. 198941

G.R. No. 222743 twenty-five percent (25%) surcharge imposed under -Section 248(A)(3) of the
NIRC of 1997, as amended, computed as follows:
MEDICARD PHILIPPINES, INC., Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent. Basic Deficiency VAT ₱l78,538,566.68

Add: 25% Surcharge 44,634,641.67

REYES,, J.:
Total ₱223.173.208.35
FACTS:

MEDICARD is a Health Maintenance Organization (HMO) that provides In addition, [MEDICARD] is ordered to pay:
prepaid health and medical insurance coverage to its clients. Individuals
enrolled in its health care programs pay an annual membership fee and are a. Deficiency interest at the rate of twenty percent (20%) per annum on the
entitled to various preventive, diagnostic and curative medical services basis deficiency VAT of Pl 78,538,566.68 computed from January 25, 2007
provided by duly licensed physicians, specialists and other professional until full payment thereof pursuant to Section 249(B) of the NIRC of 1997, as
technical staff participating in the group practice health delivery system at a amended; and
hospital or clinic owned, operated or accredited by it.7

b. Delinquency interest at the rate of twenty percent (20%) per annum on the
MEDICARD filed its First, Second, and Third Quarterly VAT Returns through total amount of ₱223,173,208.35 representing basic deficiency VAT of
Electronic Filing and Payment System (EFPS) on April 20, 2006, July 25, 2006 ₱l78,538,566.68 and· 25% surcharge of ₱44,634,64 l .67 and on the 20%
and October 20, 2006, respectively, and its Fourth Quarterly VAT Return on deficiency interest which have accrued as afore-stated in (a), computed from
January 25, 2007.8 June 19, 2009 until full payment thereof pursuant to Section 249(C) of the
NIRC of 1997.
Upon finding some discrepancies between MEDICARD's Income Tax Returns
(ITR) and VAT Returns, the CIR informed MEDICARD and issued a Letter SO ORDERED.19
Notice (LN) No. 122-VT-06-00-00020 dated September 20, 2007.
Subsequently, the CIR also issued a Preliminary Assessment Notice (PAN)
against MEDICARD for deficiency VAT. A Memorandum dated December The CTA Division held that: (1) the determination of deficiency VAT is not
10, 2007 was likewise issued recommending the issuance of a Formal limited to the issuance of Letter of Authority (LOA) alone as the CIR is
Assessment Notice (FAN) against MEDICARD.9 On. January 4, 2008, granted vast powers to perform examination and assessment functions; (2)
MEDICARD received CIR's FAN dated December' 10, 2007 for alleged in lieu of an LOA, an LN was issued to MEDICARD informing it· of the
deficiency VAT for taxable year 2006 in the total amount of Pl discrepancies between its ITRs and VAT Returns and this procedure is
96,614,476.69,10 inclusive of penalties. 11 authorized under Revenue Memorandum Order (RMO) No. 30-2003 and
42-2003; (3) MEDICARD is estopped from questioning the validity of the
assessment on the ground of lack of LOA since the assessment issued against
According to the CIR, the taxable base of HMOs for VAT purposes is its MEDICARD contained the requisite legal and factual bases that put
gross receipts without any deduction under Section 4.108.3(k) of Revenue MEDICARD on notice of the deficiencies and it in fact availed of the remedies
Regulation (RR) No. 16-2005. Citing Commissioner of Internal Revenue v. provided by law without questioning the nullity of the assessment; (4) the
Philippine Health Care Providers, Inc., 12 the CIR argued that since amounts that MEDICARD earmarked , and eventually paid to doctors, hospitals
MEDICARD. does not actually provide medical and/or hospital services, but and clinics cannot be excluded from · the computation of its gross receipts
merely arranges for the same, its services are not VAT exempt.13 under the provisions of RR No. 4-2007 because the act of earmarking or
allocation is by itself an act of ownership and management over the funds by
MEDICARD argued that: (1) the services it render is not limited merely to MEDICARD which is beyond the contemplation of RR No. 4-2007; (5)
arranging for the provision of medical and/or hospital services by hospitals and/ MEDICARD's earnings from its clinics and laboratory facilities cannot be
or clinics but include actual and direct rendition of medical and laboratory excluded from its gross receipts because the operation of these clinics and
services; in fact, its 2006 audited balance sheet shows that it owns x-ray and laboratory is merely an incident to MEDICARD's main line of business as
laboratory facilities which it used in providing medical and laboratory services HMO and there is no evidence that MEDICARD segregated the amounts
to its members; (2) out of the ₱l .9 Billion membership fees, ₱319 Million was pertaining to this at the time it received the premium from its members; and (6)
received from clients that are registered with the Philippine Export Zone MEDICARD was not able to substantiate the amount pertaining to its January
Authority (PEZA) and/or Bureau of Investments; (3) the processing fees 2006 income and therefore has no basis to impose a 10% VAT rate.20
amounting to ₱l 1.5 Million should be excluded from gross receipts because
P5.6 Million of which represent advances for professional fees due from clients ISSUE:
which were paid by MEDICARD while the remainder was already previously
subjected to VAT; (4) the professional fees in the amount of Pl 1 Million should
also be excluded because it represents the amount of medical services actually l. WHETHER THE ABSENCE OF THE LOA IS FATAL; and
and directly rendered by MEDICARD and/or its subsidiary company; and (5)
even assuming that it is liable to pay for the VAT, the 12% VAT rate should not
COURT: The petition is meritorious.
be applied on the entire amount but only for the period when the 12% VAT rate
was already in effect, i.e., on February 1, 2006. It should not also be held liable
for surcharge and deficiency interest because it did not pass on the VAT to its The absence of an LOA violated MEDICARD's right to due process
members.14
An LOA is the authority given to the appropriate revenue officer assigned
On February 14, 2008, the CIR issued a Tax Verification Notice authorizing to perform assessment functions. It empowers or enables said revenue
Revenue Officer Romualdo Plocios to verify the supporting documents of officer to examine the books of account and other accounting records of a
MEDICARD's Protest. MEDICARD also submitted additional supporting taxpayer for the purpose of collecting the correct amount of tax. 25 An LOA
documentary evidence in aid of its Protest thru a letter dated March 18, 2008.15 is premised on the fact that the examination of a taxpayer who has already
filed his tax returns is a power that statutorily belongs only to the CIR
himself or his duly authorized representatives. Section 6 of the NIRC clearly
On June 19, 2009, MEDICARD received CIR's Final Decision on Disputed
provides as follows:
Assessment dated May 15, 2009, denying MEDICARD's protest, to wit:

SEC. 6. Power of the Commissioner to Make Assessments and Prescribe

IN VIEW HEREOF, we deny your letter protest and hereby reiterate in
Additional Requirements for Tax Administration and Enforcement. –
toto assessment of deficiency [VAT] in total sum of ₱196,614,476.99. It is
requested that you pay said deficiency taxes immediately. Should payment be
made later, adjustment has to be made to impose interest until date of payment. (A) Examination of Return and Determination of Tax Due.- After a return
This is olir final decision. If you disagree, you may take an appeal to the [CTA] has been filed as required under the provisions of this Code, the Commissioner
within the period provided by law, otherwise, said assessment shall become or his duly authorized representative may authorize the examinationof any
final, executory and demandable. 16 taxpayer and the assessment of the correct amount of tax: Provided, however,
That failure to file a return shall not prevent the Commissioner from
authorizing the examination of any taxpayer.
On July 20, 2009, MEDICARD proceeded to file a petition for review before
the CT A, reiterating its position before the tax authorities. 17
x x x x (Emphasis and underlining ours)
On June 5, 2014, the CTA Division rendered a Decision18 affirming with
modifications the CIR's deficiency VAT assessment covering taxable year 2006, Based on the afore-quoted provision, it is clear that unless authorized by
viz.: the CIR himself or by his duly authorized representative, through an LOA,
an examination of the taxpayer cannot ordinarily be undertaken. The
circumstances contemplated under Section 6 where the taxpayer may be
WHEREFORE, premises considered, the deficiency VAT assessment issued
assessed through best-evidence obtainable, inventory-taking, or
by [CIR] against [MEDICARD] covering taxable year 2006 ·is
surveillance among others has nothing to do with the LOA. These are
hereby AFFIRMED WITH MODIFICATIONS. Accordingly, [MEDICARD]
simply methods of examining the taxpayer in order to arrive at .the correct
is ordered to pay [CIR] the amount of P223,l 73,208.35, inclusive of the
amount of taxes. Hence, unless undertaken by the CIR himself or his duly summary list of LNs for conversion to LAs (using the herein prescribed format
authorized representatives, other tax agents may not validly conduct any of in Annex "E" hereof) to the OACIR-LTS I ORD for the preparation of the
these kinds of examinations without prior authority. corresponding LAs with the notation "This LA cancels LN_________ No. "

With the advances in information and communication technology, the BIR xxxx
promulgated RMO No. 30-2003 to lay down the policies and guidelines once
its then incipient centralized Data Warehouse (DW) becomes fully operational
V. PROCEDURES
in conjunction with its Reconciliation of Listing for Enforcement System
(RELIEF System).26 This system can detect tax leaks by matching the data
available under the BIR's Integrated Tax System (ITS) with data gathered from xxxx
third-party sources. Through the consolidation and cross-referencing of third-
party information, discrepancy reports on sales and purchases can be generated
to uncover under declared income and over claimed purchases of Goods and B. At the Regional Office/Large Taxpayers Service
services.
xxxx
Under this RMO, several offices of the BIR are tasked with specific functions
relative to the RELIEF System, particularly with regard to LNs. Thus, the 7. Evaluate the Summary List of LNs for Conversion to LAs submitted by the
Systems Operations Division (SOD) under the Information Systems Group RDO x x x prior to approval.
(ISG) is responsible for: (1) coming up with the List of Taxpayers with
discrepancies within the threshold amount set by management for the issuance
of LN and for the system-generated LNs; and (2) sending the same to the 8. Upon approval of the above list, prepare/accomplish and sign the
taxpayer and to the Audit Information, Tax Exemption and Incentives Division corresponding LAs.
(AITEID). After receiving the LNs, the AITEID under the Assessment
xxxx
Service (AS), in coordination with the concerned offices under the ISG, shall be
responsible for transmitting the LNs to the investigating offices [Revenue Decision 11 G.R. No. 222743
District Office (RDO)/Large Taxpayers District Office (LTDO)/Large
Taxpayers Audit and Investigation Division (LTAID)]. At the level of these
investigating offices, the appropriate action on the LN s issued to taxpayers xxxx
with RELIEF data discrepancy would be determined.
10. Transmit the approved/signed LAs, together with the duly accomplished/
RMO No. 30-2003 was supplemented by RMO No. 42-2003, which laid down approved Summary List of LNs for conversion to LAs, to the concerned
the "no-contact-audit approach" in the CIR's exercise of its ·power to investigating offices for the encoding of the required information x x x and for
authorize any examination of taxpayer arid the assessment of the correct service to the concerned taxpayers.
amount of tax. The no-contact-audit approach includes the process of
computerized matching of sales and purchases data contained in the Schedules xxxx
of Sales and Domestic Purchases and Schedule of Importation submitted by
VAT taxpayers under the RELIEF System pursuant to RR No. 7-95, as amended
by RR Nos. 13-97, 7-99 and 8-2002. This may also include the matching of C. At the RDO x x x
data from other information or returns filed by the taxpayers with the BIR such
as Alphalist of Payees subject to Final or Creditable Withholding Taxes.
xxxx

Under this policy, even without conducting a detailed examination of taxpayer's

11. If the LN discrepancies remained unresolved within One Hundred and
books and records, if the computerized/manual matching of sales and
Twenty (120) days from issuance thereof, prepare a summary list of said LN s
purchases/expenses appears to reveal discrepancies, the same shall be
for conversion to LAs x x x.
communicated to the concerned taxpayer through the issuance of LN. The LN
shall serve as a discrepancy notice to taxpayer similar to a Notice for
Informal Conference to the concerned taxpayer. Thus, under the RELIEF xxxx
System, a revenue officer may begin an examination of the taxpayer even
prior to the issuance of an LN or even in the absence of an LOA with the
aid of a computerized/manual matching of taxpayers': documents/records. 16. Effect the service of the above LAs to the concerned taxpayers.28
Accordingly, under the RELIEF System, the presumption that the tax returns
are in accordance with law and are presumed correct since these are filed under In this case, there is no dispute that no LOA was issued prior to the issuance of
the penalty of perjury27 are easily rebutted and the taxpayer becomes instantly a PAN and FAN against MED ICARD. Therefore no LOA was also served on
burdened to explain a purported discrepancy. MEDICARD. The LN that was issued earlier was also not converted into an
LOA contrary to the above quoted provision. Surprisingly, the CIR did not even
Noticeably, both RMO No. 30-2003 and RMO No. 42-2003 are silent on the dispute the applicability of the above provision of RMO 32-2005 in the present
statutory requirement of an LOA before any investigation or examination of the case which is clear and unequivocal on the necessity of an LOA for the·
taxpayer may be conducted. As provided in the RMO No. 42-2003, the LN is assessment proceeding to be valid. Hence, the CTA's disregard of
merely similar to a Notice for Informal Conference. However, for a Notice of MEDICARD's right to due process warrant the reversal of the assailed decision
Informal Conference, which generally precedes the issuance of an assessment and resolution.
notice to be valid, the same presupposes that the revenue officer who issued the
same is properly authorized in the first place. In the case of Commissioner of Internal Revenue v. Sony Philippines, Inc. ,29 the
Court said that:
With this apparent lacuna in the RMOs, in November 2005, RMO No. 30-2003,
as supplemented by RMO No. 42-2003, was amended by RMO No. 32-2005 to Clearly, there must be a grant of authority before any revenue officer can
fine tune existing procedures in handing assessments against taxpayers'· issued conduct an examination or assessment. Equally important is that the revenue
LNs by reconciling various revenue issuances which conflict with the NIRC. officer so authorized must not go beyond the authority given. In the absence of
Among the objectives in the issuance of RMO No. 32-2005 is to prescribe such an authority, the assessment or examination is a nullity.30 (Emphasis
procedure in the resolution of LN discrepancies, conversion of LNs to LOAs and underlining ours)
and assessment and collection of deficiency taxes.

The Court cannot convert the LN into the LOA required under the law
IV. POLICIES AND GUIDELINES even if the same was issued by the CIR himself. Under RR No. 12-2002, LN
is issued to a person found to have underreported sales/receipts per data
xxxx generated under the RELIEF system. Upon receipt of the LN, a taxpayer
may avail of the BIR's Voluntary Assessment and Abatement Program. If a
taxpayer fails or refuses to avail of the said program, the BIR may avail of
8. In the event a taxpayer who has been issued an LN refutes the administrative and criminal .remedies, particularly closure, criminal
discrepancy shown in the LN, the concerned taxpayer will be given an action, or audit and investigation. Since the law specifically requires an
opportunity to reconcile its records with those of the BIR within LOA and RMO No. 32-2005 requires the conversion of the previously
issued LN to an LOA, the absence thereof cannot be simply swept under
the rug, as the CIR would have it. In fact Revenue Memorandum Circular
One Hundred and Twenty (120) days from the date of the issuance of the LN.
No. 40-2003 considers an LN as a notice of audit or investigation only for
However, the subject taxpayer shall no longer be entitled to the abatement of
the purpose of disqualifying the taxpayer from amending his returns.
interest and penalties after the lapse of the sixty (60)-day period from the LN
issuance.
The following differences between an LOA and LN are crucial. First, an LOA
addressed to a revenue officer is specifically required under the NIRC before an
9. In case the above discrepancies remained unresolved at the end of the
examination of a taxpayer may be had while an LN is not found in the NIRC
One Hundred and Twenty (120)-day period, the revenue officer (RO)
and is only for the purpose of notifying the taxpayer that a discrepancy is found
assigned to handle the LN shall recommend the issuance of [LOA) to
based on the BIR's RELIEF System. Second, an LOA is valid only for 30 days
replace the LN. The head of the concerned investigating office shall submit a
from date of issue while an LN has no such limitation. Third, an LOA gives the G.R. No. L-46893 November 12, 1985
revenue officer only a period of 10days from receipt of LOA to conduct his
examination of the taxpayer whereas an LN does not contain such a
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,
limitation.31 Simply put, LN is entirely different and serves a different purpose
vs.
than an LOA. Due process demands, as recognized under RMO No.
FRANCISCO RICARTE, defendant-appellee.
32-2005, that after an LN has serve its purpose, the revenue officer should
have properly secured an LOA before proceeding with the further
examination and assessment of the petitioner. Unfortunarely, this was not Collection of tax filed out of time (beyond the 5yr prescriptive period)
done in this case. MAKASIAR, C.J.:

Contrary to the ruling of the CTA en banc, an LOA cannot be dispensed FACTS:
with just because none of the financial books or records being physically
kept by MEDICARD was examined. To begin with, Section 6 of the NIRC
requires an authority from the CIR or from his duly authorized On March 2, 1959, defendant-appellee Francisco Ricarte filed his income
representatives before an examination "of a taxpayer" may be made. The tax return for the year 1958. On April 6, 1959, the Office of the Collector of
requirement of authorization is therefore not dependent on whether the Internal Revenue made the corresponding assessment and fixed at P222.00 the
taxpayer may be required to physically open his books and financial defendant's income tax liability pursuant to the express provision of Section
records but only on whether a taxpayer is being subject to examination. 51(a) of the National Internal Revenue Code (Commonwealth Act No. 466),
then in effect. Defendant paid his income tax in two equal installments of P
111.00 each the first on May 15, 1959 and the second on August 17, 1959.
The BIR's RELIEF System has admittedly made the BIR's assessment and
collection efforts much easier and faster. The ease by which the BIR's revenue
generating objectives is achieved is no excuse however for its non-compliance On June 20, 1959, Republic Act No. 2343 took effect amending
with the statutory requirement under Section 6 and with its own administrative Commonwealth Act No. 466 including Section 51(a). Under the
issuance. In fact, apart from being a statutory requirement, an LOA is equally amendatory act, the taxpayer assesses himself, files his return and pays the
needed even under the BIR's RELIEF System because the rationale of tax as shown in his return upon filing thereof.
requirement is the same whether or not the CIR conducts a physical
examination of the taxpayer's records: to prevent undue harassment of a In the year 1961, the Bureau of Internal Revenue, after investigation, found
taxpayer and level the playing field between the government' s vast resources that the defendant had a deficiency of P 1,136.87 in his income tax for
for tax assessment, collection and enforcement, on one hand, and the solitary 1958. On January 19, 1961, assessment notice No. 17-A-708424-58 for the
taxpayer's dual need to prosecute its business while at the same time responding amount aforestated was issued and, together with the corresponding audit
to the BIR exercise of its statutory powers. The balance between these is sheet and letter of demand, was mailed to the defendant on January 25,
achieved by ensuring that any examination of the taxpayer by the BIR' s 1961.
revenue officers is properly authorized in the first place by those to whom the
discretion to exercise the power of examination is given by the statute.
For failure of defendant to pay his deficiency income tax liability, plaintiff, on
January 14, 1966, filed a complaint for collection of unpaid taxes before the
That the BIR officials herein were not shown to have acted unreasonably is City Court of Cebu.
beside the point because the issue of their lack of authority was only brought up
during the trial of the case. What is crucial is whether the proceedings that led
to the issuance of VAT deficiency assessment against MEDICARD had the After trial and hearing, the court a quo rendered a decision dated October
prior approval and authorization from the CIR or her duly authorized 29, 1966 dismissing the case on the ground of prescription of action. The
representatives. Not having authority to examine MEDICARD in the first place, trial court reasoned out that the assessment was made by the Bureau of
the assessment issued by the CIR is inescapably void. Internal Revenue on April 6, 1959, but the present case was filed only on
January 14, 1966 or more than the prescriptive period of five years as
provided for in Section 332(c) of the National Internal Revenue Code.

On appeal to the former Court of First Instance of Cebu, the parties entered into
a stipulation of facts:

1. That the plaintiff is a political entity with capacity to sue and may be served
with processes thru the Revenue Regional Director, Bureau of Internal
Revenue, Revenue Region No. 13, Cebu City; while defendant Francisco
Ricarte is of legal age, with postal address at 278 South Expressway (formerly
at 451-C Tres de Abril Street), Cebu City, where he may be served with
summons.

2. That on or about March 2, 1959, defendant, an arrastre contractor, filed his

income tax return for the year 1958 showing on the face thereof a net income of
P 12,271.26; copy of which is hereto attached as Annex 'A' and made an
integral part hereof.

3. That the amount of P 222.00 was assessed on April 6, 1959 per Assessment
No. 17-A-708424-58 by the plaintiff as defendant's 1958 income tax liability
per return filed by the latter which amount was duly stamped 'Assessed' on
defendant's 1958 income tax return.

4. That the aforesaid amount of P222.00 was paid by the defendant in two
installments under Official Receipt No. 1671571 dated May 15, 1959 for the
amount of P111.00 and under Official Receipt No. 2466278 dated August 17,
1959 for P111.00.

5. That in the verification of defendant's 1958 income tax return by the plaintiff
thru the Bureau of Internal Revenue on January 19, 1961, there was found due
from him the amount of P l,136.87 as deficiency income tax for said year,
computed as follows:

Net income per return........................................ P 12,271.28

Add: Personal living expenses................................. 7,800.00

Total amount of income per audit review ................. 20,071.28

Less: Personal and additional exemption................... 7,800.00

Amount of income subject to tax............................ 12,271.28

Amount of tax due ................................................. 1,265.00

Less: Amount of tax already assessed and paid........... 222.00 subject to tax shall be notified of the amount for which they are respectively
liable on or before the first day of May of each successive year.
Deficiency income tax due..........................…...... P 1,043.00
but as amended by R.A. No. 2343, effective on June 20, 1959, it now reads:
Add: ½% monthly interest from 6-20-59 to
Sec. 51. Payment and assessment of income tax.—(a) Payment of tax.— (1) In
general.-The total amount of tax imposed by this Title shall be paid at the time
12-20-60 (Sec. 51 Tax Code, R.A. 2343 & the return is filed but not later than the fifteenth day of April following the close
of the calendar year, ... ...
implemented by Gen. Cir. No. V-318)................... 93.87
xxx xxx xxx
Total amount of tax due & collective (Def'cy )............. P 1,136.87
(b) Assessment and payment of deficiency tax.—After the return is filed the
6. That on January 19, 1961, Assessment Notice No. 17- A-708424-58 for the Commissioner of Internal Revenue shall examine it and assess the correct
aforesaid amount of P l,136.87 together with the letter of demand bearing same amount of the tax. The tax or deficiency in tax so discovered shall be paid upon
date and the audit sheet were issued by the plaintiff thru the Bureau of Internal notice and demand from the Commissioner of Internal Revenue.
Revenue and officially mailed and released to the defendant on January 25,
1961, copies of which communications are hereto attached as Annexes 'B', 'C' Clearly, before the amendment, the taxpayer files his income tax return
and 'D', respectively, and made integral parts hereof. and the Collector (now Commissioner) of Internal Revenue assesses the tax
due and notifies the taxpayer thereof. On the other hand, under the
7. That in plaintiff's letter dated January l9, 1961, Annex 'C' hereof, an amendatory act, the taxpayer assesses himself, files his return and is
explanation was made as to how the aforesaid deficiency assessment was required to pay the tax as shown in his return upon filing thereof. This
brought about. procedure is commonly known as the "pay-as-you-file" system. In other
words, under the old law, the Collector of Internal Revenue was required
to assess the tax due, while under R.A. No. 2343 the taxpayer himself
8. That a call up letter dated September 23, 1964 was sent by the plaintiff to the computes the tax on the basis of the figures appearing in his income tax
defendant requesting settlement of his liability under Assessment Notice No. return.
17-A-708424-58 mentioned in paragraph 6 hereof, copy of which letter is
hereto attached as Annex 'E' and made an integral part hereof, which letter was
officially mailed and released by the plaintiff thru the Bureau of Internal WE do not agree with the former Court of First Instance of Cebu that the
Revenue on October 13, 1964 per Registry Receipt No. 863. subsequent assessment made on January 19, 1961 was based on the amendatory
act.
9. That another letter dated November 15, 1965 calling for payments of the
aforesaid amount was again officially mailed and released to the defendant, per Appellee filed his income tax return for the year 1958 on March 2, 1959 and the
Registry Receipt No. 1125, copy of which letter is hereto attached as Annex 'F' same was assessed by the Bureau of Internal Revenue on April 6, 1959. The tax
and made an integral part hereof. was paid in two installments. The Bureau of Internal Revenue reviewed the said
return and found out a deficiency in the assessment it previously made and the
income tax paid by the appellee. A notice of assessment was sent to the appellee
10. That the abovementioned assessment has not been contested by the on January 19, 1961. Such subsequent assessment undertaken by the Bureau of
defendant before the Court of Tax Appeals. Internal Revenue was based merely on the income tax return filed by the
appellee where no assessment has been made by him. As has been said, the
11. That the same assessment has not been paid until date. amount of tax due was previously computed by the Bureau of Internal Revenue.
Finding that it made an error, the Bureau reassessed the income tax return of the
appellee; but such reassessment was made pursuant to the old law and not
12. That the instant case for collection was filed before the City Court of Cebu under the amendatory act.
City on January 14, 1966" (pp. 46-50, ROA; p. 3, rec.).

However, We agree with the lower court that the present action was filed after
On September 29, 1968, the former Court of First Instance, on the basis of the the prescriptive period of five (5) years provided for in Section 332(c) of the
stipulation of facts, rendered its decision dismissing herein appellant's National Internal Revenue Code which reads:
complaint. The said court stated that what the Bureau of Internal Revenue
sought to collect from the appellee was based on an assessment which the
Bureau made under the provisions of a new law, R.A. No. 2343, which was not (c) Where the assessment of any internal revenue tax has been made within the
yet in effect at the time of the filing of appellee's income tax return for 1958; period of limitation above described such tax may be collected by distraint or
and that the action against the appellee had already prescribed. levy or by a proceeding in court, but only if begun (1) within five years after
the assessment of the tax,

On October 16, 1968, appellant sought reconsideration of the lower court's

decision. The motion was denied on December 14, 1968, hence this appeal, xxx xxx xxx
appellant alleging that the lower court erred in holding:
Appellant asseverates that the present action was filed within the five-year
... that the deficiency assessment has no legal standing. prescriptive period provided for under the abovequoted provision of the
tax code; that the subsequent notice of assessment was made and appellee
notified thereof on January 19, 1961; that from January 19, 1961 up to the
... that the plaintiff's action has prescribed. date this case was filed in court on January 14, 1966, only four years,
eleven months and twenty-five days had elapsed.
... that plaintiff failed to prove service upon defendant of the deficiency
assessment dated January 19, 1961 (p. 5, Brief for Plaintiff-Appellant; p. 14, Although a subsequent notice of assessment was allegedly made and sent to
rec.). appellee on January 19, 1961, it was the finding both of the former City
Court of Cebu and the defunct Court of First Instance of Cebu that no
ISSUE: whether the appellant can still collect the alleged deficiency income evidence has been presented by the appellant that the appellee actually
tax liability thru judicial proceeding? received a copy of that assessment notice regarding the alleged deficiency
tax. Such finding, being one of fact, can no longer be reviewed by this
Court. Even in the stipulation of facts entered into between the parties,
COURT: NO there is no stipulation showing that the appellant actually received the
subsequent notice of assessment. Thus, the prescriptive period provided for
in Section 332(c) of the tax code should be counted from April 6, 1959, the
In holding that the subsequent assessment made by the Bureau of Internal
date when the Bureau of Internal Revenue assessed the income tax return
Revenue on January 19, 1961 has no legal basis, the lower court was of the
of the appellant. From said date until the filing of this case on January 14,
impression that the same was made under the provision of a new law, R.A. No.
1966, six years and nine months had elapsed. Verily, the action had already
2343, which was not yet in effect at the time of the filing of the 1958 income
prescribed.
tax return in question. Said court observed that the unamended provision of
Section 51(a) of the National Internal Revenue Code which was enforcible
when the appellant filed his 1958 income tax return should apply to this case WHEREFORE THE APPEALED DECISION DATED SEPTEMBER 29,
and not that of Section 51(b) of the same Code, as amended by R.A. No. 2343, 1968, IS HEREBY AFFIRMED. NO COSTS.
which went into effect only on June 20, 1959.
SO ORDERED.
It may be pointed out that before the amendment of the tax code, Section 51(a)
relating to payment and assessment of income tax, prescribed:

Sec. 51. Assessment and payment of income tax.-(a) An assessment shall be

made by the Collector of Internal Revenue and all persons and corporations
G.R. No. L-59758 December 26, 1984 deficiency taxes (pp. 4, 29 and 30, Rollo). The warrants were served upon the
taxpayer on April 18 and May 25, 1978.
ADVERTISING ASSOCIATES, INC., petitioner,
vs. More than a year later, Acting Commissioner Efren I. Plana wrote a letter
COURT OF APPEALS and COMMISSIONER OF INTERNAL dated May 23, 1979 in answer to the requests of the taxpayer for the
REVENUE, respondents. cancellation of the assessments and the withdrawal of the warrants of
distraint
AQUINO, J.:
He justified the assessments by stating that the rental income of Advertising
Associates from billboards and neon signs constituted fees or compensation for
FACTS: its advertising services. He requested the taxpayer to pay the deficiency taxes
within ten days from receipt of the demand; otherwise, the Bureau would
This case is about the liability of Advertising Associates, lnc. for enforce the warrants of distraint. He closed his demand letter with this
P382,700.16 as 3% contractor's percentage tax on its rental income from paragraph:
the lease of neon signs and billboards imposed by section 191 of the Tax
Code (as amended by Republic Acts Nos. 1612 and 6110) on business agents This constitutes our final decision on the matter. If you are not agreeable,
and independent contractors. Parenthetically, it may be noted that Presidential you may appeal to the Court of Tax Appeals within 30 days from receipt of
Decree No. 69, effective November 24, 1972, added paragraph 17 to section this letter.
191 by taxing lessors of personal property.

Advertising Associates received that letter on June 18, 1979. Nineteen days
Section 191 defines an independent contractor as including all persons whose later or on July 7, it filed its petition for review. In its resolution of August 28,
activity consists essentially of the sale of all kinds of services for a fee. Section 1979, the Tax Court enjoined the enforcement of the warrants of distraint.
194(v) of the Tax Code defines a business agent as including persons who
conduct advertising agencies.
The Tax Court did not resolve the case on the merits. It ruled that the warrants
of distraint were the Commissioner's appealable decisions. Since Advertising
It should be noted that in Advertising Associates, Inc. vs. Collector of Internal Associates appealed from the decision of May 23, 1979, the petition for review
Revenue, 97 Phil. 636, the taxpayer was held liable as a manufacturer for was filed out of time. It was dismissed. The taxpayer appealed to this Court.
the.90% sales tax on its sales of neon-tube signs under section 185(k) of the Tax
Code as amended. It paid P11,986.18 as sales tax for the 4th quarter of 1948 to
1951. COURT: We hold that the petition for review was filed on time. The
reviewable decision is that contained in Commissioner Plana's letter of
May 23, 1979 and not the warrants of distraint.
This Court rejected the taxpayer's contention that it was only a contractor of
neon-tube signs and that it should pay only the 3% contractor's tax under
section 191 of the Tax Code. No amount of quibbling or sophistry can blink the fact that said letter, as
its tenor shows, embodies the Commissioner's final decision within the
meaning of section 7 of Republic Act No. 1125. The Commissioner said so.
In the instant case, Advertising Associates alleged that it sold in 1949 its He even directed the taxpayer to appeal it to the Tax Court.
advertising agency business to Philippine Advertising Counsellors, that its
business is limited to the making, construction and installation of billboards and
electric signs and making and printing of posters, signs, handbills, etc. (101 The directive is in consonance with this Court's dictum that the
tsn). It contends that it is a media company, not an advertising company, Commissioner should always indicate to the taxpayer in clear and
unequivocal language what constitutes his final determination of the
disputed assessment. That procedure is demanded by the pressing need for
It paid sales taxes for selling billboards, electric signs, calendars, posters, etc., fair play, regularity and orderliness in administrative action
realty dealer's tax for leasing billboards and electric signs and 3% contractor's
tax for repairing electric signs.
On the merits of the case, the petitioner relies on the Collector's rulings dated
September 12, 1960 and June 20, 1967 that it is neither an independent
The billboards and electric signs manufactured by it are either sold or leased, contractor nor a business agent (Exh. G and H).
As already stated, the Commissioner of Internal Revenue subjected to 3%
contractor's tax its rental income from billboards and electric signs
As already stated, it considers itself a media company, like a newspaper or a
radio broadcasting company, but not an advertising agency in spite of the
The Commissioner required Advertising Associates to pay P297,927.06 and purpose stated in its articles of incorporation. It argues that its act of leasing its
P84,773.10 as contractor's tax for 1967-1971 and 1972, respectively, including neon signs and billboards does not make it a business agent or an independent
25% surcharge (the latter amount includes interest) on its income from contractor. It stresses that it is a mere lessor of neon signs and billboards and
billboards and neon signs. does not perform advertising services.

The basis of the assessment is the fact that the taxpayer's articles of But the undeniable fact is that neon signs and billboards are primarily designed
incorporation provide that its primary purpose is to engage in general for advertising. We hold that the petitioner is a business agent and an
advertising business. Its income tax returns indicate that its business was independent contractor as contemplated in sections 191 and 194(v).
advertising (Exh. 14 and 15, etc.).

However, in view of the prior rulings that the taxpayer is not a business agent
It is supposed "to conduct a general advertising business, both as principal and nor an independent contractor and in view of the controversial nature of the
agent, including the preparation and arrangements of advertising devices and deficiency assessments, the 25% surcharge should be eliminated (C. M.
novelties; to erect, construct, purchase, lease or otherwise acquire fences, Hoskins & Co., Inc. vs. Commissioner of Internal Revenue, L-28383, June 22,
billboards, signboards, buildings and other structures suitable for advertising 1976, 71 SCRA 511, 519; Imus Electric Co., Inc. vs. Commissioner of Internal
purposes; to carry on the business of printers, publishers, binders, and Revenue, 125 Phil. 1084).
decorators in connection with advertising business and to make and carry out
contracts of every kind and character that may be necessary or conducive to the
accomplishment of any of the purposes of the company; to engage in and carry Petitioner's last contention is that the collection of the tax had already
on a general advertising business by the circulation and distribution and the prescribed. Section 332 of the 1939 Tax Code, now section 319 of the 1977
display of cards, signs, posters, dodgers, handbills, programs, banners and flags Tax Code, Presidential Decree No. 1158, effective on June 3, 1977, provides
to be placed in and on railroad cars, street cars, steam boats, cabs, hacks, that the tax may be collected by distraint or levy or by a judicial
omnibuses, stages and any and all kinds of conveyances used for passengers or proceeding begun 'within five years after the assessment of the tax".
for any other purposes; to display moveable or changeable signs, cards,
pictures, designs, mottoes, etc., operated by clockwork, electricity or any other
The taxpayer received on June 18, 1973 and March 5, 1974 the deficiency
power; to use, place and display the same in depots, hotels, halls, and other
assessments herein. The warrants of distraint were served upon it on April
public places, to advertise in the air by airplanes, streamers, skywriting and
18 and may 25,1978 or within five years after the assessment of the tax.
other similar or dissimilar operation."
Obviously, the warrants were issued to interrupt the five-year prescriptive
period. Its enforcement was not implemented because of the pending
Advertising Associates contested the assessments in its 'letters of June 25, 1973 protests of the taxpayer and its requests for withdrawal of the warrants
(for the 1967-71 deficiency taxes) and March 7, 1974 (for the 1972 deficiency). which were eventually resolved in Commissioner Plana's letter of May 23,
The Commissioner reiterated the assessments in his letters of July 12 and 1979.
September 16,1974 (p. 3, Rollo).
It should be noted that the Commissioner did not institute any judicial
The taxpayer requested the cancellation of the assessments in its letters of proceeding to collect the tax. He relied on the warrants of distraint to
September 13 and November 21, 1974 (p. 3, Rollo). Inexplicably, for about interrupt the running of the statute of limitations. He gave the taxpayer
four years there was no movement in the case. Then, on March 31, 1978, the ample opportunity to contest the assessments but at the same time
Commissioner resorted to the summary remedy of issuing two warrants of safeguarded the Government's interest by means of the warrants of
distraint, directing the collection enforcement division to levy on the distraint.
taxpayer's personal properties as would be sufficient to satisfy the
G.R. No. L-66160 May 21, 1990 taxes — by repeated requests for recomputation and reconsideration. On the
part of the Commissioner, this would encourage his office to conduct a careful
and thorough study of every questioned assessment and render a correct and
COMMISSIONER OF INTERNAL REVENUE, petitioner, definite decision thereon in the first instance. This would also deter the
vs. Commissioner from unfairly making the taxpayer grope in the dark and
UNION SHIPPING CORPORATION and THE COURT OF TAX speculate as to which action constitutes the decision appealable to the tax court.
APPEALS, respondents. Of greater import, this rule of conduct would meet a pressing need for fair play,
regularity, and orderliness in administrative action.
PARAS, J.:
There appears to be no dispute that petitioner did not rule on private
FACTS: respondent's motion for reconsideration but contrary to the above ruling
of this Court, left private respondent in the dark as to which action of the
Commissioner is the decision appealable to the Court of Tax Appeals. Had
In a letter dated December 27, 1974 (Exhibit "A") herein petitioner he categorically stated that he denies private respondent's motion for
Commissioner of Internal Revenue assessed against Yee Fong Hong, Ltd. reconsideration and that his action constitutes his final determination on
and/or herein private respondent Union Shipping Corporation, the total the disputed assessment, private respondent without needless difficulty
sum of P583,155.22 as deficiency income taxes due for the years 1971 and would have been able to determine when his right to appeal accrues and
1972. Said letter was received on January 4, 1975, and in a letter dated the resulting confusion would have been avoided.
January 10, 1975 (Exhibit "B"), received by petitioner on January 13,
1975, private respondent protested the assessment.
Much later, this Court reiterated the above-mentioned dictum in a ruling
applicable on all fours to the issue in the case at bar, that the reviewable
Petitioner, without ruling on the protest, issued a Warrant of Distraint and decision of the Bureau of Internal Revenue is that contained in the letter of
Levy (Exhibit "C"), which was served on private respondent's counsel, its Commissioner, that such constitutes the final decision on the matter
Clemente Celso, on November 25, 1976. which may be appealed to the Court of Tax Appeals and not the warrants of
distraint (Advertising Associates, Inc. v. Court of Appeals, 133 SCRA 769
In a letter dated November 27, 1976 (Exhibit "D"), received by petitioner on [1984] emphasis supplied). It was likewise stressed that the procedure
November 29, 1976 (Exhibit "D-1") private respondent reiterated its request for enunciated is demanded by the pressing need for fair play, regularity and
reinvestigation of the assessment and for the reconsideration of the summary orderliness in administrative action.
collection thru the Warrant of Distraint and Levy.
Under the circumstances, the Commissioner of Internal Revenue, not
Petitioner, again, without acting on the request for reinvestigation and having clearly signified his final action on the disputed assessment, legally
reconsideration of the Warrant of Distraint and Levy, filed a collection suit the period to appeal has not commenced to run. Thus, it was only when
before Branch XXI of the then Court of First Instance of Manila and docketed private respondent received the summons on the civil suit for collection of
as Civil Case No. 120459 against private respondent. Summons (Exhibit "E") in deficiency income on December 28, 1978 that the period to appeal
the said collection case was issued to private respondent on December 28, commenced to run.
1978.
The request for reinvestigation and reconsideration was in effect considered
On January 10, 1979, private respondent filed with respondent court its Petition denied by petitioner when the latter filed a civil suit for collection of deficiency
for Review of the petitioner's assessment of its deficiency income taxes in a income. So. that on January 10, 1979 when private respondent filed the appeal
letter dated December 27, 1974, docketed therein as CTA Case No. 2989 with the Court of Tax Appeals, it consumed a total of only thirteen (13) days
(Rollo, pp. 44-49), wherein it prays that after hearing, judgment be rendered well within the thirty day period to appeal pursuant to Section 11 of R.A. 1125.
holding that it is not liable for the payment of the income tax herein involved,
or which may be due from foreign shipowner Yee Fong Hong, Ltd.; to which On the merits, it was found fully substantiated by the Court of Tax Appeals that,
petitioner filed his answer on March 29, 1979 (Rollo, pp. 50-53). respondent corporation is the husbanding agent of the vessel Yee Fong Hong,
Ltd. as follows:
Respondent Tax Court, in a decision dated December 9, 1983, ruled in favor of
private respondent Coming to the second issue, petitioner contended and was substantiated by
satisfactory uncontradicted testimonies of Clemente Celso, Certified Public
ISSUES: Accountant, and Rodolfo C. Cabalquinto, President and General Manager, of
petitioner that it is actually and legally the husbanding agent of the vessel of
Yee Fong Hong, Ltd. as (1) it neither performed nor transacted any shipping
whether or not the Court of Tax Appeals has jurisdiction over this case and business, for and in representation, of Yee Fong Hong, Ltd. or its vessels or
otherwise negotiated or procured cargo to be loaded in the vessels of Yee Fong
COURY: Hong, Ltd. (p. 21, t.s.n., July 16, 1980); (2) it never solicited or procured cargo
or freight in the Philippines or elsewhere for loading in said vessels of Yee
Fong Hong, Ltd. (pp. 21 & 38, ibid.); (3) it had not collected any freight income
The main thrust of this petition is that the issuance of a warrant of distraint and or receipts for the said Yee Fong Hong, Ltd. (pp. 22 & 38, ibid; pp. 46 & 48,
levy is proof of the finality of an assessment because it is the most drastic t.s.n., Nov. 14, 1980.); (4) it never had possession or control, actual or
action of all media of enforcing the collection of tax, and is tantamount to an constructive, over the funds representing payment by Philippine shippers for
outright denial of a motion for reconsideration of an assessment. Among others, cargo loaded on said vessels (pp. 21 & 38, ibid; p. 48, ibid); petitioner never
petitioner contends that the warrant of distraint and levy was issued after remitted to Yee Fong Hong, Ltd. any sum of money representing freight
respondent corporation filed a request for reconsideration of subject incomes of Yee Fong Hong, Ltd. (p. 21, ibid.; p. 48, ibid); and (5) that the
assessment, thus constituting petitioner's final decision in the disputed freight payments made for cargo loaded in the Philippines for foreign
assessments (Brief for petitioner, pp. 9 and 12). destination were actually paid directly by the shippers to the said Yee Fong
Hong, Ltd. upon arrival of the goods in the foreign ports. (Rollo, pp. 58-59).
Petitioner argues therefore that the period to appeal to the Court of Tax
Appeals commenced to run from receipt of said warrant on November 25, On the same issue, the Commissioner of Internal Revenue Misael P. Vera, on
1976, so that on January 10, 1979 when respondent corporation sought query of respondent's counsel, opined that respondent corporation being merely
redress from the Tax Court, petitioner's decision has long become final and a husbanding agent is not liable for the payment of the income taxes due from
executory. the foreign ship owners loading cargoes in the Philippines

On this issue, this Court had already laid down the dictum that the Neither can private respondent be liable for withholding tax under Section 53 of
Commissioner should always indicate to the taxpayer in clear and the Internal Revenue Code since it is not in possession, custody or control of
unequivocal language what constitutes his final determination of the the funds received by and remitted to Yee Fong Hong, Ltd., a non-resident
disputed assessment. taxpayer. As correctly ruled by the Court of Tax Appeals, "if an individual or
corporation like the petitioner in this case, is not in the actual possession,
custody, or control of the funds, it can neither be physically nor legally liable or
Specifically, this Court ruled:
obligated to pay the so-called withholding tax on income claimed by Yee Fong
Hong, Ltd." (Rollo, p. 67).
. . . we deem it appropriate to state that the Commissioner of Internal Revenue
should always indicate to the taxpayer in clear and unequivocal language
Finally, it must be stated that factual findings of the Court of Tax Appeals are
whenever his action on an assessment questioned by a taxpayer constitutes his
binding on this Court (Industrial Textiles Manufacturing Company of the Phil.,
final determination on the disputed assessment, as contemplated by sections 7
Inc. (ITEMCOP) v. Commissioner of Internal Revenue, et al. (136 SCRA 549
and 11 of Republic Act 1125, as amended. On the basis of this statement
[1985]). It is well-settled that in passing upon petitions for review of the
indubitably showing that the Commissioner's communicated action is his final
decisions of the Court of Tax Appeals, this Court is generally confined to
decision on the contested assessment, the aggrieved taxpayer would then be
questions of law. The findings of fact of said Court are not to be disturbed
able to take recourse to the tax court at the opportune time. Without needless
unless clearly shown to be unsupported by substantial evidence.
difficulty, the taxpayer would be able to determine when his right to appeal to
the tax court accrues. This rule of conduct would also obviate all desire and
opportunity on the part of the taxpayer to continually delay the finality of the A careful scrutiny of the records reveals no cogent reason to disturb the
assessment — and, consequently, the collection of the amount demanded as findings of the Court of Tax Appeals.
G.R. No. L-25289 June 28, 1974 The foregoing-view accords with settled jurisprudence — and this despite the
fact that nothing in Republic Act 1125,1 as amended, even remotely suggests
the element truly determinative of the appealability to the Court of Appeals of a
SURIGAO ELECTRIC CO., INC., petitioner, ruling of the Commissioner of Internal Revenue. Thus, this Court has
vs. considered the following communications sent by the Commissioner to
THE HONORABLE COURT OF TAX APPEALS and COMMISSIONER taxpayers as embodying rulings appealable to the tax court: (a) a letter
OF INTERNAL REVENUE, respondents. which stated the result of the investigation requested by the taxpayer and
the consequent modification of the assessment;2 (b) letter which denied the
CASTRO, J.:p request of the taxpayer for the reconsideration cancellation, or withdrawal
of the original assessment;3 (c) a letter which contained a demand on the
taxpayer for the payment of the revised or reduced assessment;4 and (d) a
FACTS: letter which notified the taxpayer of a revision of previous assessments.5

In November 1961 the petitioner Surigao Electric Co., Inc., grantee of a To sustain the petitioner's contention that the Commissioner's letter of June 28,
legislative electric franchise, received a warrant of distraint and levy to 1963 denying its request for further amendment of the revised assessment
enforce the collection from "Mainit Electric" of a deficiency franchise tax constitutes the ruling appealable to the tax court and that the thirty-day period
plus surcharge in the total amount of P718.59. In a letter to the should, therefore, be counted from July 16, 1963, the day it received the June
Commissioner of Internal Revenue, the petitioner contested this warrant, 28, 1963 letter, would, in effect, leave solely to the petitioner's will the
stating that it did not have a franchise in Mainit, Surigao. determination of the commencement of the statutory thirty-day period, and
place the petitioner — and for that matter, any taxpayer — in a position, to
Thereafter the Commissioner, by letter dated April 2, 1961, advised the delay at will and on convenience the finality of a tax assessment. This absurd
petitioner to take up the matter with the General Auditing Office, enclosing a interpretation espoused by the petitioner would result in grave detriment to the
copy of the 4th Indorsement of the Auditor General dated November 23, 1960. interests of the Government, considering that taxes constitute its life-blood and
This indorsement indicated that the petitioner's liability for deficiency their prompt and certain availability is an imperative need.6
franchise tax for the period from September 1947 to June 1959 was
P21,156.06, excluding surcharge. Subsequently, in a letter to the Auditor The revised assessment embodied in the Commissioner's letter dated April
General dated August 2, 1962, the petitioner asked for reconsideration of the 29, 1963 being, in legal contemplation, the final ruling reviewable by the
assessment, admitting liability only for the 2% franchise tax in accordance with tax court, the thirty-day appeal period should be counted from May 8,
its legislative franchise and not at the higher rate of 5% imposed by section 259 1963 (the day the petitioner received a copy of the said letter). From May 8,
of the National Internal Revenue Code, as amended, which latter rate the 1963 to June 7, 1963 (the day the petitioner, by registered mail, sent to the
Auditor General used as basis in computing the petitioner's deficiency franchise Commissioner its letter of June 6, 1963 requesting for further
tax. recomputation of the amount demanded from it) saw the lapse of thirty
days. The June 6, 1963 request for further recomputation, partaking of a
An exchange of correspondence between the petitioner, on the one hand, and motion for reconsideration, tolled the running of the thirty-day period
the Commissioner and the Auditor General, on the other, ensued, all on the from June 7, 1963 (the day the petitioner sent its letter by registered mail)
matter of the petitioner's liability for deficiency franchise tax. to July 16, 1963 (the day the petitioner received the letter of the
Commissioner dated June 28, 1963 turning down its request). The
prescriptive period commenced to run again on July 16, 1963. The
The controversy culminated in a revised assessment dated April 29, 1963 petitioner filed its petition for review with the tax court on August 1, 1963
(received by the petitioner on May 8, 1963) in the amount of P11,533.53, — after the lapse of an additional sixteen days. The petition for review
representing the petitioner's deficiency franchise-tax and surcharges thereon for having been filed beyond the thirty-day period, we rule that the Court of
the period from April 1, 1956 to June 30, 1959. The petitioner then requested a Tax Appeals correctly dismissed the same.
recomputation of the revised assessment in a letter to the Commissioner dated
June 6, 1963 (sent by registered mail on June 7, 1963). The Commissioner,
however, in a letter dated June 28, 1963 (received by the petitioner on July 16, The thirty-day period prescribed by section 11 of Republic Act 1125, as
1963), denied the request for recomputation. amended, within which a taxpayer adversely affected by a decision of the
Commissioner of Internal Revenue should file his appeal with the tax
court, is a jurisdictional requirement,7 and the failure of a taxpayer to
On August 1, 1963 the petitioner appealed to the Court of Tax Appeals. The tax lodge his appeal within the prescribed period bars his appeal and renders
court dismissed the appeal on October 1, 1965 on the ground that the the questioned decision final and executory.8
appeal was filed beyond the thirty-day period of appeal provided by section
11 of Republic Act 1125.
Prescinding from all the foregoing, we deem it appropriate to state that the
Commissioner of Internal Revenue should always indicate to the taxpayer
Hence, the present recourse. in clear and unequivocal language whenever his action on an assessment
questioned by a taxpayer constitutes his final determination on the
ISSUE: whether or not the petitioner's appeal to the Court of Tax Appeals was disputed assessment, as contemplated by sections 7 and 11 of Republic Act
time-barred. 1125, as amended. On the basis of this indicium indubitably showing that
the Commissioner's communicated action is his final decision on the
contested assessment, the aggrieved taxpayer would then be able to take
COURT: YES recourse to the tax court at the opportune time. Without needless difficulty,
the taxpayer would be able to determine when his right to appeal to the tax
court accrues. This rule of conduct would also obviate all desire and
The parties disagree on which letter of the Commissioner embodies the
opportunity on the part of the taxpayer to continually delay the finality of
decision or ruling appealable to the tax court.
the assessment — and, consequently, the collection of the amount
demanded as taxes — by repeated requests for recomputation and
A close reading of the numerous letters exchanged between the petitioner and reconsideration. On the part of the Commissioner, this would encourage
the Commissioner clearly discloses that the letter of demand issued by the his office to conduct a careful and thorough study of every questioned
Commissioner on April 29, 1963 and received by the petitioner on May 8, assessment and render a correct and definite decision thereon in the first
1963 constitutes the definite determination of the petitioner's deficiency instance. This would also deter the Commissioner from unfairly making
franchise tax liability or the decision on the disputed assessment and, the taxpayer grope in the dark and speculate as to which action constitutes
therefore, the decision appealable to the tax court. This letter of April 29, the decision appealable to the tax court. Of greater import, this rule of
1963 was in response to the communications of the petitioner, particularly conduct would meet a pressing need for fair play, regularity, and
the letter of August 2, 1962 wherein it assailed the 4th Indorsement's data orderliness in administrative action.
and findings on its deficiency, franchise tax liability computed at 5% (on the
ground that its franchise precludes the imposition of a rate higher than the 2%
ACCORDINGLY, the decision of the Court of Tax Appeals dated October 1,
fixed in its legislative franchise), and the letter of April 24, 1963 wherein it
1965 is affirmed, at petitioner's cost.
again questioned the assessment and requested for a recomputation (on the
ground that the Government could make an assessment only for the period from
May 29, 1956 to June 30, 1959). Thus, as early as August 2, 1962, the
petitioner already disputed the assessment made by the Commissioner.

Moreover, the letter of demand dated April 29, 1963 unquestionably

constitutes the final action taken by the Commissioner on the petitioner's
several requests for reconsideration and recomputation. In this letter, the
Commissioner not only in effect demanded that the petitioner pay the
amount of P11,533.53 but also gave warning that in the event it failed to
pay, the said Commissioner would be constrained to enforce the collection
thereof by means of the remedies provided by law. The tenor of the letter,
specifically, the statement regarding the resort to legal remedies,
unmistakably indicates the final nature of the determination made by the
Commissioner of the petitioner's deficiency franchise tax liability.
G.R. No. 135210 July 11, 2001 The Final Notice Before Seizure sent by the Bureau of Internal Revenue (BIR)
to respondent reads as follows:
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs. "On Feb. 9, 1990, [this] Office sent you a letter requesting you to settle the
ISABELA CULTURAL CORPORATION, respondent. above-captioned assessment. To date, however, despite the lapse of a
considerable length of time, we have not been honored with a reply from you.
PANGANIBAN, J.:
In this connection, we are giving you this LAST OPPORTUNITY to settle the
adverted assessment within ten (10) days after receipt hereof. Should you again
A final demand letter from the Bureau of Internal Revenue, reiterating to the fail, and refuse to pay, this Office will be constrained to enforce its collection
taxpayer the immediate payment of a tax deficiency assessment previously by summary remedies of Warrant of Levy of Road Property, Distraint of
made, is tantamount to a denial of the taxpayer's request for reconsideration. Personal Property or Warrant of Garnishment, and/or simultaneous court action.
Such letter amounts to a final decision on a disputed assessment and is thus
appealable to the Court of Tax Appeals (CTA).
Please give this matter your preferential attention.”
Facts
Petitioner maintains that this Final Notice was a mere reiteration of the
delinquent taxpayer's obligation to pay the taxes due. It was supposedly a mere
The facts are undisputed. The Court of Appeals quoted the summary of the CTA demand that should not have been mistaken for a decision on a protested
as follows: assessment. Such decision, the commissioner contends, must unequivocably
indicate that it is the resolution of the taxpayer's request for reconsideration and
"As succinctly summarized by the Court of Tax appeals (CTA for brevity), the must likewise state the reason therefor.
antecedent facts are as follows:
Respondent, on the other hand, points out that the Final Notice Before
'In an investigation conducted on the 1986 books of account of [respondent, Seizure should be considered as a denial of its request for reconsideration of the
petitioner] had the preliminary [finding] that [respondent] incurred a total disputed assessment. The Notice should be deemed as petitioner's last act, since
income tax deficiency of P9,985,392.15, inclusive of increments. Upon protest failure to comply with it would lead to the distraint and levy of respondent's
by [respondent's] counsel, the said preliminary assessment was reduced to the properties, as indicated therein.
amount of P325,869.44.
We agree with respondent. In the normal course, the revenue district officer
On February 23, 1990, [respondent] received from [petitioner] an sends the taxpayer a notice of delinquent taxes, indicating the period
assessment letter, dated February 9, 1990, demanding payment of the covered, the amount due including interest, and the reason for the
amounts of P333,196.86 and P4,897.79 as deficiency income tax and delinquency. If the taxpayer disagrees with or wishes to protest the
expanded withholding tax inclusive of surcharge and interest, respectively, for assessment, it sends a letter to the BIR indicating its protest, stating the
the taxable period from January 1, 1986 to December 31, 1986. reasons therefor, and submitting such proof as may be necessary. That
letter is considered as the taxpayer's request for reconsideration of the
delinquent assessment. After the request is filed and received by the BIR,
In a letter, dated March 22, 1990, filed with the [petitioner's] office on March the assessment becomes a disputed assessment on which it must render a
23, 1990 (pp. 296-311, BIR rec.), [respondent] requested x x x a decision. That decision is appealable to the Court of Tax Appeals for
reconsideration of the subject assessment. review.

Supplemental to its protest was a letter, dated April 2, 1990, filed with the Prior to the decision on a disputed assessment, there may still be exchanges
[petitioner's] office on April 18, 1990 (pp. 224 & 225, BIR rec.), to which x x x between the commissioner of internal revenue (CIR) and the taxpayer. The
were attached certain documents supportive of its protest, as well as a Waiver of former may ask clarificatory questions or require the latter to submit
Statute of Limitation, dated April 17, 1990, where it was indicated that additional evidence. However, the CIR's position regarding the disputed
[petitioner] would only have until April 5, 1991 within which to asses and assessment must be indicated in the final decision. It is this decision that is
collect the taxes that may be found due from [respondent] after the re- properly appealable to the CTA for review.
investigation.

Indisputably, respondent received an assessment letter dated February 9, 1990,

On February 9, 1995, [respondent] received from [petitioner] a Final Notice stating that it had delinquent taxes due; and it subsequently filed its motion for
Before Seizure, dated December 22, 1994. In said letter, [petitioner] reconsideration on March 23, 1990. In support of its request for
demanded payment of the subject assessment within ten (10) days from receipt reconsideration, it sent to the CIR additional documents on April 18, 1990. The
thereof. Otherwise, failure on its part would constrain [petitioner] to collect the next communication respondent received was already the Final Notice Before
subject assessment through summary remedies. Seizure dated November 10, 1994.

[Respondent] considered said final notice of seizure as [petitioner's] final In the light of the above facts, the Final Notice Before Seizure cannot but be
decision. Hence, the instant petition for review filed with this Court on March considered as the commissioner's decision disposing of the request for
9, 1995. reconsideration filed by respondent, who received no other response to its
request. Not only was the Notice the only response received; its content and
The CTA having rendered judgment dismissing the petition, [respondent] filed tenor supported the theory that it was the CIR's final act regarding the request
the instant petition anchored on the argument that [petitioner's] issuance of the for reconsideration. The very title expressly indicated that it was a final notice
Final Notice Before Seizure constitutes [its] decision on [respondent's] request prior to seizure of property. The letter itself clearly stated that respondent was
for reinvestigation, which the [respondent] may appeal to the CTA."5 being given "this LAST OPPORTUNITY" to pay; otherwise, its properties
would be subjected to distraint and levy. How then could it have been made to
believe that its request for reconsideration was still pending determination,
Ruling of the Court of Appeals despite the actual threat of seizure of its properties?

In its Decision, the Court of Appeals reversed the Court of Tax Appeals. The Furthermore, Section 228 of the National Internal Revenue Code states that a
CA considered the final notice sent by petitioner as the latter's decision, which delinquent taxpayer may nevertheless directly appeal a disputed assessment, if
was appealable to the CTA. The appellate court reasoned that the final Notice its request for reconsideration remains unacted upon 180 days after submission
before seizure had effectively denied petitioner's request for a reconsideration thereof. We quote:
of the commissioner's assessment. The CA relied on the long-settled tax
jurisprudence that a demand letter reiterating payment of delinquent taxes
amounted to a decision on a disputed assessment. "Sec. 228. Protesting an Assessment. – x x x

Issues Within a period to be prescribed by implementing rules and regulations, the

taxpayer shall be required to respond to said notice. If the taxpayer fails to
respond, the Commissioner or his duly authorized representative shall issue an
"Whether or not the Final Notice Before Seizure dated February 9, 1995 signed assessment based on his findings.
by Acting Chief Revenue Collection Officer Milagros Acevedo against ICC
constitutes the final decision of the CIR appealable to the CTA."8
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the
The Court's Ruling assessment in such form and manner as may be prescribed by implementing
rules and regulations. Within sixty (60) days from filing of the protest, all
The Petition is not meritorious. relevant supporting documents shall have become final.

Sole Issue: If the protest is denied in whole or in part, or is not acted upon within one
The Nature of the Final Notice Before Seizure hundred eighty (180) days from submission of documents, the taxpayer
adversely affected by the decision or inaction may appeal to the Court of Tax
Appeals within (30) days from receipt of the said decision, or from the lapse of
the one hundred eighty (180)-day period; otherwise the decision shall become G.R. No. 148380 December 9, 2005
final, executory and demandable."10
OCEANIC WIRELESS NETWORK, INC., Petitioner,
In this case, the said period of 180 days had already lapsed when respondent vs.
filed its request for reconsideration on March 23, 1990, without any action on COMMISSIONER OF INTERNAL REVENUE, THE COURT OF TAX
the part of the CIR. APPEALS, and THE COURT OF APPEALS, Respondents.

Lastly, jurisprudence dictates that a final demand letter for payment of AZCUNA, J.:
delinquent taxes may be considered a decision on a disputed or protested
assessment. In Commissioner of Internal Revenue v. Ayala Securities
FACTS:
Corporation, this Court held:

Petitioner Oceanic Wireless Network, Inc. challenges the authority of the Chief
"The letter of February 18, 1963 (Exh. G), in the view of the Court, is
of the Accounts Receivable and Billing Division of the Bureau of Internal
tantamount to a denial of the reconsideration or [respondent corporation's] x x x
Revenue (BIR) National Office to decide and/or act with finality on behalf of
protest o[f] the assessment made by the petitioner, considering that the said
the Commissioner of Internal Revenue (CIR) on protests against disputed tax
letter [was] in itself a reiteration of the demand by the Bureau of Internal
deficiency assessments.
Revenue for the settlement of the assessment already made, and for the
immediate payment of the sum of P758,687.04 in spite of the vehement protest
of the respondent corporation on April 21, 1961. This certainly is a clear The facts of the case are as follows:
indication of the firm stand of petitioner against the reconsideration of
the disputed assessment, in view of the continued refusal of the respondent
corporation to execute the waiver of the period of limitation upon the On March 17, 1988, petitioner received from the Bureau of Internal
assessment in question. Revenue (BIR) deficiency tax assessments for the taxable year 1984 in the
total amount of ₱8,644,998.71.

This being so, the said letter amount[ed] to a decision on a disputed or protested
assessment and, there, the court a quo did not err in taking cognizance of this Petitioner filed its protest against the tax assessments and requested a
case."11 reconsideration or cancellation of the same in a letter to the BIR Commissioner
dated April 12, 1988.

Similarly, in Surigao Electric Co., Inc. v. Court of Tax Appeals12 and again
in CIR v. Union Shipping Corp.,13 we ruled: Acting in behalf of the BIR Commissioner, then Chief of the BIR Accounts
Receivable and Billing Division, Mr. Severino B. Buot, reiterated the tax
assessments while denying petitioner’s request for reinvestigation in a
"x x x. The letter of demand dated April 29, 1963 unquestionably constitutes letter 1 dated January 24, 1991, thus:
the final action taken by the commissioner on the petitioner's several requests
for reconsideration and recomputation. In this letter the commissioner not only
in effect demanded that the petitioner pay the amount of P11,533.53 but also "Note: Your request for re-investigation has been denied for failure to submit
gave warning that in the event it failed to pay, the said commissioner would be the necessary supporting papers as per endorsement letter from the office of the
constrained to enforce the collection thereof by means of the remedies provided Special Operation Service dated 12-12-90."
by law. The tenor of the letter, specifically the statement regarding the resort to
legal remedies, unmistakably indicate[d] the final nature of the determination Said letter likewise requested petitioner to pay the total amount of
made by the commissioner of the petitioner's deficiency franchise tax liability." ₱8,644,998.71 within ten (10) days from receipt thereof, otherwise the case
shall be referred to the Collection Enforcement Division of the BIR National
As in CIR v. Union Shipping,14 petitioner failed to rule on the Motion for Office for the issuance of a warrant of distraint and levy without further notice.
Reconsideration filed by private respondent, but simply continued to demand
payment of the latter's alleged tax delinquency. Thus, the Court reiterated the Upon petitioner’s failure to pay the subject tax assessments within the
dictum that the BIR should always indicate to the taxpayer in clear and prescribed period, the Assistant Commissioner for Collection, acting for the
unequivocal language what constitutes final action on a disputed assessment. Commissioner of Internal Revenue, issued the corresponding warrants of
The object of this policy is to avoid repeated requests for reconsideration by the distraint and/or levy and garnishment. These were served on petitioner on
taxpayer, thereby delaying the finality of the assessment and, consequently, the October 10, 1991 and October 17, 1991, respectively.2
collection of the taxes due. Furthermore, the taxpayer would not be groping in
the dark, speculating as to which communication or action of the BIR may be
the decision appealable to the tax court.15 On November 8, 1991, petitioner filed a Petition for Review with the Court
of Tax Appeals (CTA) to contest the issuance of the warrants to enforce the
collection of the tax assessments. This was docketed as CTA Case No. 4668.
In the instant case, the second notice received by private respondent verily
indicated its nature – that it was final. Unequivocably, therefore, it was
tantamount to a rejection of the request for reconsideration. The CTA dismissed the petition for lack of jurisdiction in a decision dated
September 16, 1994, declaring that said petition was filed beyond the thirty
(30)-day period reckoned from the time when the demand letter of January
Commissioner v. Algue16 is not in point here. In that case, the Warrant of 24, 1991 by the Chief of the BIR Accounts Receivable and Billing Division was
Distraint and Levy, issued to the taxpayer without any categorical ruling on its presumably received by petitioner, i.e., "within a reasonable time from said date
request for reconsideration, was not deemed equivalent to a denial of the in the regular course of mail pursuant to Section 2(v) of Rule 131 of the Rules
request. Because such request could not in fact be found in its records, the BIR of Court."3
cannot be presumed to have taken it into consideration. The request was
considered only when the taxpayer gave a copy of it, duly stamp-received by
the BIR. Hence, the Warrant was deemed premature. The decision cited Surigao Electric Co., Inc. v. Court of Tax Appeals4 wherein
this Court considered a mere demand letter sent to the taxpayer after his protest
of the assessment notice as the final decision of the Commissioner of Internal
In the present case, petitioner does not deny receipt of private respondent's Revenue on the protest. Hence, the filing of the petition on November 8, 1991
protest letter. As a matter of fact, it categorically relates the following in its was held clearly beyond the reglementary period.5
"Statement of Relevant Facts":17

The court a quo likewise stated that the finality of the denial of the protest by
"3. On March 23, 1990, respondent ICC wrote the CIR requesting for a petitioner against the tax deficiency assessments was bolstered by the
reconsideration of the assessment on the ground that there was an error subsequent issuance of the warrants of distraint and/or levy and garnishment to
committed in the computation of interest and that there were expenses which enforce the collection of the deficiency taxes. The issuance was not barred by
were disallowed (Ibid., pp. 296-311). prescription because the mere filing of the letter of protest by petitioner which
was given due course by the Bureau of Internal Revenue suspended the running
"4. On April 2, 1990, respondent ICC sent the CIR additional documents in of the prescription period as expressly provided under the then Section 224 of
support of its protest/reconsideration. The letter was received by the BIR on the Tax Code:
April 18, 1990. Respondent ICC further executed a Waiver of Statute of
Limitation (dated April 17, 1990) whereby it consented to the BIR to assess and SEC. 224. Suspension of Running of the Statute of Limitations. – The
collect any taxes that may be discovered in the process of reinvestigation, until running of the Statute of Limitations provided in Section 203 and 223 on the
April 3, 1991 (Ibid., pp. 296-311). A copy of the waiver is hereto attached as making of assessment and the beginning of distraint or levy or a proceeding in
Annex 'C'." court for collection, in respect of any deficiency, shall be suspended for the
period during which the Commissioner is prohibited from making the
Having admitted as a fact private respondent's request for reconsideration, assessment or beginning distraint or levy or a proceeding in court and for sixty
petitioner must have passed upon it prior to the issuance of the Final Notice (60) days thereafter; when the taxpayer requests for a reinvestigation which is
Before Seizure. granted by the Commissioner; when the taxpayer cannot be located in the
address given by him in the return files upon which a tax is being assessed or
collected: Provided, That if the taxpayer inform the Commissioner of any
WHEREFORE, the Petition is hereby DENIED and the assailed change of address, the running of the statute of limitations will not be
Decision AFFIRMED. suspended; when the warrant of distraint and levy is duly served upon the
taxpayer, his authorized representative, or a member of his household with
sufficient discretion, and no property could located; and when the taxpayer is Similarly, in Surigao Electric Co., Inc v. Court of Tax Appeals,13 and in CIR v.
out of the Philippines. 6 (Underscoring supplied.) Union Shipping Corporation,14 we held:

Petitioner filed a Motion for Reconsideration arguing that the demand ". . . In this letter, the commissioner not only in effect demanded that the
letter of January 24, 1991 cannot be considered as the final decision of the petitioner pay the amount of ₱11,533.53 but also gave warning that in the event
Commissioner of Internal Revenue on its protest because the same was it failed to pay, the said commissioner would be constrained to enforce the
signed by a mere subordinate and not by the Commissioner himself.7 collection thereof by means of the remedies provided by law. The tenor of the
letter, specifically the statement regarding the resort to legal remedies,
unmistakably indicate[d] the final nature of the determination made by the
With the denial of its motion for reconsideration, petitioner consequently filed a commissioner of the petitioner’s deficiency franchise tax liability."
Petition for Review with the Court of Appeals contending that there was no
final decision to speak of because the Commissioner had yet to make a personal
determination as regards the merits of petitioner’s case.8 The demand letter received by petitioner verily signified a character of finality.
Therefore, it was tantamount to a rejection of the request for reconsideration.
As correctly held by the Court of Tax Appeals, "while the denial of the protest
The Court of Appeals denied the petition in a decision dated October 31, 2000, was in the form of a demand letter, the notation in the said letter making
the dispositive portion of which reads: reference to the protest filed by petitioner clearly shows the intention of the
respondent to make it as [his] final decision."15
"WHEREFORE, the petition is DISMISSED for lack of merit.
This now brings us to the crux of the matter as to whether said demand letter
SO ORDERED." indeed attained finality despite the fact that it was issued and signed by the
Chief of the Accounts Receivable and Billing Division instead of the BIR
Commissioner.
Petitioner’s Motion for Reconsideration was likewise denied in a resolution
dated May 3, 2001.
The general rule is that the Commissioner of Internal Revenue may delegate
any power vested upon him by law to Division Chiefs or to officials of higher
ISSUE: rank. He cannot, however, delegate the four powers granted to him under the
WON a demand letter for tax deficiency assessments issued and signed by a National Internal Revenue Code (NIRC) enumerated in Section 7.
subordinate officer who was acting in behalf of the Commissioner of Internal
Revenue, is deemed final and executory and subject to an appeal to the Court of
Tax Appeals. As amended by Republic Act No. 8424, Section 7 of the Code authorizes the
BIR Commissioner to delegate the powers vested in him under the pertinent
provisions of the Code to any subordinate official with the rank equivalent to a
COURT: YES. We rule in the affirmative. division chief or higher, except the following:

A demand letter for payment of delinquent taxes may be considered a (a) The power to recommend the promulgation of rules and regulations by the
decision on a disputed or protested assessment. The determination on Secretary of Finance;
whether or not a demand letter is final is conditioned upon the language
used or the tenor of the letter being sent to the taxpayer.
(b) The power to issue rulings of first impression or to reverse, revoke or
modify any existing ruling of the Bureau;
We laid down the rule that the Commissioner of Internal Revenue should
always indicate to the taxpayer in clear and unequivocal language what
constitutes his final determination of the disputed assessment, thus: (c) The power to compromise or abate under Section 204(A) and (B) of this
Code, any tax deficiency: Provided, however, that assessments issued by the
Regional Offices involving basic deficiency taxes of five hundred thousand
. . . we deem it appropriate to state that the Commissioner of Internal Revenue pesos (P500,000) or less, and minor criminal violations as may be determined
should always indicate to the taxpayer in clear and unequivocal language by rules and regulations to be promulgated by the Secretary of Finance, upon
whenever his action on an assessment questioned by a taxpayer constitutes his the recommendation of the Commissioner, discovered by regional and district
final determination on the disputed assessment, as contemplated by Sections 7 officials, may be compromised by a regional evaluation board which shall be
and 11 of Republic Act No. 1125, as amended. On the basis of his statement composed of the Regional Director as Chairman, the Assistant Regional
indubitably showing that the Commissioner’s communicated action is his final Director, heads of the Legal, Assessment and Collection Divisions and the
decision on the contested assessment, the aggrieved taxpayer would then be Revenue District Officer having jurisdiction over the taxpayer, as members; and
able to take recourse to the tax court at the opportune time. Without needless
difficulty, the taxpayer would be able to determine when his right to appeal to
the tax court accrues. (d) The power to assign or reassign internal revenue officers to establishments
where articles subject to excise tax are produced or kept.
The rule of conduct would also obviate all desire and opportunity on the part of
the taxpayer to continually delay the finality of the assessment – and, It is clear from the above provision that the act of issuance of the demand letter
consequently, the collection of the amount demanded as taxes – by repeated by the Chief of the Accounts Receivable and Billing Division does not fall
requests for recomputation and reconsideration. On the part of the under any of the exceptions that have been mentioned as non-delegable.
Commissioner, this would encourage his office to conduct a careful and
thorough study of every questioned assessment and render a correct and Section 6 of the Code further provides:
definite decision thereon in the first instance. This would also deter the
Commissioner from unfairly making the taxpayer grope in the dark and
speculate as to which action constitutes the decision appealable to the tax court. "SEC. 6. Power of the Commissioner to Make Assessments and Prescribe
Of greater import, this rule of conduct would meet a pressing need for fair play, Additional Requirements for Tax Administration and Enforcement. –
regularity, and orderliness in administrative action.10
(A) Examination of Returns and Determination of Tax Due. - After a return has
In this case, the letter of demand dated January 24, 1991, unquestionably been filed as required under the provisions of this Code, the Commissioner or
constitutes the final action taken by the Bureau of Internal Revenue on his duly authorized representative may authorize the examination of any
petitioner’s request for reconsideration when it reiterated the tax taxpayer and the assessment of the correct amount of tax; Provided, however,
deficiency assessments due from petitioner, and requested its payment. That failure to file a return shall not prevent the Commissioner from
Failure to do so would result in the "issuance of a warrant of distraint and authorizing the examination of any taxpayer.
levy to enforce its collection without further notice."11 In addition, the
letter contained a notation indicating that petitioner’s request for
The tax or any deficiency tax so assessed shall be paid upon notice and demand
reconsideration had been denied for lack of supporting documents.
from the Commissioner or from his duly authorized
representative. . . ." (Emphasis supplied)
The above conclusion finds support in Commissioner of Internal Revenue v.
Ayala Securities Corporation,12 where we held:
Thus, the authority to make tax assessments may be delegated to
subordinate officers. Said assessment has the same force and effect as that
The letter of February 18, 1963 (Exh. G), in the view of the Court, is issued by the Commissioner himself, if not reviewed or revised by the latter
tantamount to a denial of the reconsideration or [respondent corporation’s]… such as in this case.16
protest o[f] the assessment made by the petitioner, considering that the said
letter [was] in itself a reiteration of the demand by the Bureau of Internal
A request for reconsideration must be made within thirty (30) days from
Revenue for the settlement of the assessment already made, and for the
the taxpayer’s receipt of the tax deficiency assessment, otherwise, the
immediate payment of the sum of P758,687.04 in spite of the vehement protest
decision becomes final, unappealable and therefore, demandable. A tax
of the respondent corporation on April 21, 1961. This certainly is a clear
assessment that has become final, executory and enforceable for failure of
indication of the firm stand of petitioner against the reconsideration of the
the taxpayer to assail the same as provided in Section 228 can no longer be
disputed assessment…This being so, the said letter amount[ed] to a decision on
contested, thus:
a disputed or protested assessment, and, there, the court a quo did not err in
taking cognizance of this case.
"SEC. 228. Protesting of Assessment. – When the Commissioner or his duly G.R. No. 128315 June 29, 1999
authorized representative finds that proper taxes should be assessed, he shall
first notify the taxpayer of his findings…Such assessment may be protested COMMISSIONER OF INTERNAL REVENUE, petitioner,
administratively by filing a request for reconsideration or reinvestigation within vs.
thirty (30) days from receipt of the assessment in such form and manner as may PASCOR REALTY AND DEVELOPMENT CORPORATION, ROGELIO
be prescribed by implementing rules and regulations. Within sixty (60) days A. DIO and VIRGINIA S. DIO, respondents.
from filing of the protest, all relevant supporting documents shall have been
submitted; otherwise, the assessment shall become final. PANGANIBAN, J.:\

An assessment contains not only a computation of tax liabilities, but also a

If the protest is denied in whole or in part, or is not acted upon within one demand for payment within a prescribed period. It also signals the time
hundred (180) days from submission of documents, the taxpayer adversely when penalties and protests begin to accrue against the taxpayer. To enable
affected by the decision or inaction may appeal to the Court of Tax Appeals the taxpayer to determine his remedies thereon, due process requires that
within thirty (30) days from receipt of the said decision, or from the lapse of the it must be served on and received by the taxpayer. Accordingly, an
one hundred eighty (180) - day period; otherwise, the decision shall become affidavit, which was executed by revenue officers stating the tax liabilities
final, executory and demandable." of a taxpayer and attached to a criminal complaint for tax evasion, cannot
be deemed an assessment that can be questioned before the Court of Tax
Here, petitioner failed to avail of its right to bring the matter before the Appeals.
Court of Tax Appeals within the reglementary period upon the receipt of
the demand letter reiterating the assessed delinquent taxes and denying its FACTS:
request for reconsideration which constituted the final determination by
the Bureau of Internal Revenue on petitioner’s protest. Being a final As found by the Court of Appeals, the undisputed facts of the case are as
disposition by said agency, the same would have been a proper subject for follows:
appeal to the Court of Tax Appeals.
It appears that by virtue of Letter of Authority No. 001198, then BIR
Commissioner Jose U. Ong authorized Revenue Officers Thomas T. Que, Sonia
The rule is that for the Court of Tax Appeals to acquire jurisdiction, an T. Estorco and Emmanuel M. Savellano to examine the books of accounts and
assessment must first be disputed by the taxpayer and ruled upon by the other accounting records of Pascor Realty and Development Corporation.
Commissioner of Internal Revenue to warrant a decision from which a (PRDC) for the years ending 1986, 1987 and 1988. The said examination
petition for review may be taken to the Court of Tax Appeals. Where an resulted in a recommendation for the issuance of an assessment in the amounts
adverse ruling has been rendered by the Commissioner of Internal of P7,498,434.65 and P3,015,236.35 for the years 1986 and 1987, respectively.
Revenue with reference to a disputed assessment or a claim for refund or
credit, the taxpayer may appeal the same within thirty (30) days after On March 1, 1995, the Commissioner of Internal Revenue filed a criminal
receipt thereof.17 complaint before the Department of Justice against the PRDC, its
President Rogelio A. Dio, and its Treasurer Virginia S. Dio, alleging evasion
We agree with the factual findings of the Court of Tax Appeals that the demand of taxes in the total amount of P10,513,671 .00. Private respondents
letter may be presumed to have been duly directed, mailed and was received by PRDC, et. al. filed an Urgent Request for Reconsideration/Reinvestigation
petitioner in the regular course of the mail in the absence of evidence to the disputing the tax assessment and tax liability.
contrary. This is in accordance with Section 2(v), Rule 131 of the Rules of
Court, and in this case, since the period to appeal has commenced to run from On March 23, 1995, private respondents received a subpoena from the DOJ in
the time the letter of demand was presumably received by petitioner within a connection with the criminal complaint filed by the Commissioner of Internal
reasonable time after January 24, 1991, the period of thirty (30) days to appeal Revenue (BIR) against them.1âwphi1.nêt
the adverse decision on the request for reconsideration had already lapsed when
the petition was filed with the Court of Tax Appeals only on November 8, 1991. In a letter dated May 17, 1995, the CIR denied the urgent request for
Hence, the Court of Tax Appeals properly dismissed the petition as the tax reconsideration/reinvestigation of the private respondents on the ground
delinquency assessment had long become final and executory. that no formal assessment of the has as yet been issued by the
Commissioner.

WHEREFORE, premises considered, the Decision of the Court of Appeals Private respondents then elevated the Decision of the CIR dated May 17, 1995
dated October 31, 2000 and its Resolution dated May 3, 2001 in CA-G.R. SP to the Court of Tax Appeals on a petition for review docketed as CTA Case No.
No. 35581 are hereby AFFIRMED. The petition is accordingly DENIED for 5271 on July 21, 1995. On September 6, 1995, the CIR filed a Motion to
lack of merit. Dismiss the petition on the ground that the CTA has no jurisdiction over the
subject matter of the petition, as there was no formal assessment issued against
SO ORDERED. the petitioners. The CTA denied the said motion to dismiss in a Resolution
dated January 25, 1996 and ordered the CIR to file an answer within thirty (30)
days from receipt of said resolution. The CIR received the resolution on
January 31, 1996 but did not file an answer nor did she move to reconsider the
resolution.

Instead, the CIR filed this petition on June 7, 1996, alleging as grounds that:

Respondent Court of Tax Appeals acted with grave abuse of discretion and
without jurisdiction in considering the affidavit/report of the revenue officer
and the indorsement of said report to the secretary of justice as assessment
which may be appealed to the Court of Tax Appeals;

Respondent Court Tax Appeals acted with grave abuse of discretion in

considering the denial by petitioner of private respondents' Motion for
Reconsideration as [a] final decision which may be appealed to the Court of
Tax Appeals.

In denying the motion to dismiss filed by the CIR, the Court of Tax Appeals
stated:

We agree with petitioners' contentions, that the criminal complaint for tax
evasion is the assessment issued, and that the letter denial of May 17, 1995 is
the decision properly appealable to [u]s. Respondent's ground of denial,
therefore, that there was no formal assessment issued, is untenable.

It is the Court's honest belief, that the criminal case for tax evasion is already
anassessment. The complaint, more particularly, the Joint Affidavit of Revenue
Examiners Lagmay and Savellano attached thereto, contains the details of the
assessment like the kind and amount of tax due, and the period covered:

Petitioners are right, in claiming that the provisions of Republic Act No. 1125,
relating to exclusive appellate jurisdiction of this Court, do not, make any
mention of "formal assessment." The law merely states, that this Court has
exclusive appellate jurisdiction over decisions of the Commissioner of Internal
Revenue on disputed assessments, and other matters arising under the National
Internal Revenue Code, other law or part administered by the Bureau of
Internal Revenue Code.

As far as this Court is concerned, the amount and kind of tax due, and the
period covered, are sufficient details needed for an "assessment." These details
are more than complete, compared to the following definitions of the term as the return. Section 222, 14 on the other hand, specifies a period of ten years
quoted hereunder. Thus: in case a fraudulent return with intent to evade was submitted or in case of
failure to file a return. Also, Section 228 15 of the same law states that said
Assessment is laying a tax. Johnson City v. Clinchfield R. Co., 43 S.W. (2d) assessment may be protested only within thirty days from receipt thereof.
386, 387, 163 Tenn. 332. (Words and Phrases, Permanent Edition, Vol. 4, p. Necessarily, the taxpayer must be certain that a specific document
446). constitutes an assessment. Otherwise, confusion would arise regarding the
period within which to make an assessment or to protest the same, or
The word assessment when used in connection with taxation, may have more whether interest and penalty may accrue thereon.
than one meaning. The ultimate purpose of an assessment to such a connection
is to ascertain the amount that each taxpayer is to pay. More commonly, the It should also be stressed that the said document is a notice duly sent to the
word "assessment" means the official valuation of a taxpayer's property for taxpayer. Indeed, an assessment is deemed made only when the collector of
purpose of taxation. State v. New York, N.H. and H.R. Co. 22 A. 765, 768, 60 internal revenue releases, mails or sends such notice to the taxpayer. 16
Conn. 326, 325. (Ibid. p. 445)
In the present case, the revenue officers' Affidavit merely contained a
From the above, it can be gleaned that an assessment simply states how much computation of respondents' tax liability. It did not state a demand or a
tax is due from a taxpayer. Thus, based on these definitions, the details of the period for payment. Worse, it was addressed to the justice secretary, not to
tax as given in the Joint Affidavit of respondent's examiners, which was the taxpayers.
attached to the tax evasion complaint, more than suffice to qualify as an
assessment. Therefore, this assessment having been disputed by petitioners, and Respondents maintain that an assessment, in relation to taxation, is simply
there being a denial of their letter disputing such assessment, this Court understood' to mean:
unquestionably acquired jurisdiction over the instant petition for review. 6
A notice to the effect that the amount therein stated is due as tax and a demand
As earlier observed, the Court of Appeals sustained the CTA and dismissed the for payment thereof. 17
petition.
Fixes the liability of the taxpayer and ascertains the facts and furnishes the data
Hence, this recourse to this Court. 7 for the proper presentation of tax rolls. 18

Ruling of the Court of Appeals Even these definitions fail to advance private respondents' case. That the BIR
examiners' Joint Affidavit attached to the Criminal Complaint contained some
The Court of Appeals held that the tax court committed no grave abuse of details of the tax liabilities of private respondents does not ipso facto make it an
discretion in ruling that the Criminal Complaint for tax evasion filed by the assessment. The purpose of the Joint Affidavit was merely to support and
Commissioner of Internal Revenue with the Department of Justice constituted substantiate the Criminal Complaint for tax evasion. Clearly, it was not meant
an "assessment" of the tax due, and that the said assessment could be the to be a notice of the tax due and a demand to the private respondents for
subject of a protest. By definition, an assessment is simply the statement of the payment thereof.
details and the amount of tax due from a taxpayer.
The fact that the Complaint itself was specifically directed and sent to the
ISSUES: Department of Justice and not to private respondents shows that the intent
of the commissioner was to file a criminal complaint for tax evasion, not to
(1) Whether or not the criminal complaint for tax evasion can be construed as issue an assessment. Although the revenue officers recommended the
an assessment. NO issuance of an assessment, the commissioner opted instead to file a criminal
case for tax evasion. What private respondents received was a notice from
(2) Whether or not an assessment is necessary before criminal charges for tax the DOJ that a criminal case for tax evasion had been filed against them,
evasion may be instituted. not a notice that the Bureau of Internal Revenue had made an assessment.

(3) Whether or not the CTA can take cognizance of the case in the absence of an In addition, what private respondents sent to the commissioner was a motion
assessment. for a reconsideration of the tax evasion charges filed, not of an assessment, as
shown thus:
COURT: The petition is meritorious.
This is to request for reconsideration of the tax evasion charges against my
Main Issue: Assessment client, PASCOR Realty and Development Corporation and for the same to be
referred to the Appellate Division in order to give my client the opportunity of a
Petitioner argues that the filing of the criminal complaint with the fair and objective hearing. 19
Department of Justice cannot in any way be construed as a formal
assessment of private respondents' tax liabilities. This position is based on Additional Issues:
Section 205 of the National Internal Revenue Code 10 (NIRC), which
provides that remedies for the collection of deficient taxes may be by either Assessment Not Necessary Before Filing of Criminal Complaint
civil or criminal action. Likewise, petitioner cites Section 223(a) of the
same Code, which states that in case of failure to file a return, the tax may Private respondents maintain that the filing of a criminal complaint must be
be assessed or a proceeding in court may be begun without assessment. preceded by an assessment. This is incorrect, because Section 222 of the
NIRC specifically states that in cases where a false or fraudulent return is
Respondents, on the other hand, maintain that an assessment is not an submitted or in cases of failure to file a return such as this case,
action or proceeding for the collection of taxes, but merely a notice that the proceedings in court may be commenced without an assessment.
amount stated therein is due as tax and that the taxpayer is required to pay Furthermore, Section 205 of the same Code clearly mandates that the civil
the same. Thus, qualifying as an assessment was the BIR examiners' Joint and criminal aspects of the case may be pursued simultaneously. In Ungab
Affidavit, which contained the details of the supposed taxes due from v. Cusi,20 petitioner therein sought the dismissal of the criminal Complaints for
respondent for taxable years ending 1987 and 1988, and which was being premature, since his protest to the CTA had not yet been resolved. The
attached to the tax evasion Complaint filed with the DOJ. Consequently, Court held that such protests could not stop or suspend the criminal action
the denial by the BIR of private respondents' request for reinvestigation of which was independent of the resolution of the protest in the CTA. This was
the disputed assessment is properly appealable to the CTA. because the commissioner of internal revenue had, in such tax evasion cases,
discretion on whether to issue an assessment or to file a criminal case against
We agree with petitioner. Neither the NIRC nor the regulations governing the taxpayer or to do both.
the protest of assessments 11 provide a specific definition or form of an
assessment. However, the NIRC defines the specific functions and effects of Private respondents insist that Section 222 should be read in relation to Section
an assessment. To consider the affidavit attached to the Complaint as a 255 of the NLRC, 21 which penalizes failure to file a return. They add that a
proper assessment is to subvert the nature of an assessment and to set a tax assessment should precede a criminal indictment. We disagree. To reiterate,
bad precedent that will prejudice innocent taxpayers. said Section 222 states that an assessment is not necessary before a criminal
charge can be filed. This is the general rule. Private respondents failed to show
True, as pointed out by the private respondents, an assessment informs the that they are entitled to an exception. Moreover, the criminal charge need only
taxpayer that he or she has tax liabilities. But not all documents coming be supported by a prima facie showing of failure to file a required return. This
from the BIR containing a computation of the tax liability can be deemed fact need not be proven by an assessment.
assessments.
The issuance of an assessment must be distinguished from the filing of a
To start with, an assessment must be sent to and received by a taxpayer, complaint. Before an assessment is issued, there is, by practice, a pre-
and must demand payment of the taxes described therein within a specific assessment notice sent to the taxpayer. The taxpayer is then given a chance to
period. Thus, the NIRC imposes a 25 percent penalty, in addition to the tax submit position papers and documents to prove that the assessment is
due, in case the taxpayer fails to pay deficiency tax within the time unwarranted. If the commissioner is unsatisfied, an assessment signed by him
prescribed for its payment in the notice of assessment. Likewise, an interest or her is then sent to the taxpayer informing the latter specifically and clearly
of 20 percent per annum, or such higher rates as may be prescribed by that an assessment has been made against him or her. In contrast, the criminal
rules and regulations, is to be collected form the date prescribed for its charge need not go through all these. The criminal charge is filed directly
payment until the full payment. 12 with the DOJ. Thereafter, the taxpayer is notified that a criminal case had
been filed against him, not that the commissioner has issued an assessment.
The issuance of an assessment is vital in determining, the period of It must be stressed that a criminal complaint is instituted not to demand
limitation regarding its proper issuance and the period within which to payment, but to penalize the taxpayer for violation of the Tax Code.
protest it. Section 203 13 of the NIRC provides that internal revenue taxes
must be assessed within three years from the last day within which to file
G.R. No. 166387 January 19, 2009 the formal letter of demand and assessment notice shall be void. The same
shall be sent to the taxpayer only by registered mail or by personal delivery.
xxx (emphasis supplied)
COMMISSIONER OF INTERNAL REVENUE, Petitioners,
vs.
ENRON SUBIC POWERCORPORATION, Respondents. It is clear from the foregoing that a taxpayer must be informed in writing of the
legal and factual bases of the tax assessment made against him. The use of the
word “shall” in these legal provisions indicates the mandatory nature of the
CORONA, J.: requirements laid down therein. We note the CTA’s findings:

FACTS: In [this] case, [the CIR] merely issued a formal assessment and indicated
therein the supposed tax, surcharge, interest and compromise penalty due
Enron, a domestic corporation registered with the Subic Bay Metropolitan thereon. The Revenue Officers of the [the CIR] in the issuance of the Final
Authority as a freeport enterprise,2 filed its annual income tax return for the Assessment Notice did not provide Enron with the written bases of the law
year 1996 on April 12, 1997. It indicated a net loss of P7,684,948. and facts on which the subject assessment is based. [The CIR] did not
Subsequently, the Bureau of Internal Revenue, through a preliminary five-day bother to explain how it arrived at such an assessment. Moreso, he failed to
letter,3 informed it of a proposed assessment of an alleged P2,880,817.25 mention the specific provision of the Tax Code or rules and regulations
deficiency income tax.4 Enron disputed the proposed deficiency assessment in which were not complied with by Enron.13
its first protest letter.5
Both the CTA and the CA concluded that the deficiency tax assessment merely
On May 26, 1999, Enron received from the CIR a formal assessment itemized the deductions disallowed and included these in the gross income. It
notice6 requiring it to pay the alleged deficiency income tax of also imposed the preferential rate of 5% on some items categorized by Enron as
P2,880,817.25 for the taxable year 1996. Enron protested this deficiency tax costs. The legal and factual bases were, however, not indicated.
assessment.7
The CIR insists that an examination of the facts shows that Enron was properly
Due to the non-resolution of its protest within the 180-day period, Enron apprised of its tax deficiency. During the pre-assessment stage, the CIR advised
filed a petition for review in the Court of Tax Appeals (CTA). It argued Enron’s representative of the tax deficiency, informed it of the proposed tax
that the deficiency tax assessment disregarded the provisions of Section deficiency assessment through a preliminary five-day letter and furnished
228 of the National Internal Revenue Code (NIRC), as amended,8and Enron a copy of the audit working paper14 allegedly showing in detail the legal
Section 3.1.4 of Revenue Regulations (RR) No. 12-999 by not providing the and factual bases of the assessment. The CIR argues that these steps sufficed to
legal and factual bases of the assessment. Enron likewise questioned the inform Enron of the laws and facts on which the deficiency tax assessment was
substantive validity of the assessment.10 based.

In a decision dated September 12, 2001, the CTA granted Enron’s petition and We disagree. The advice of tax deficiency, given by the CIR to an employee
ordered the cancellation of its deficiency tax assessment for the year 1996. The of Enron, as well as the preliminary five-day letter, were not valid
CTA reasoned that the assessment notice sent to Enron failed to comply with substitutes for the mandatory notice in writing of the legal and factual
the requirements of a valid written notice under Section 228 of the NIRC and bases of the assessment. These steps were mere perfunctory discharges of
RR No. 12-99. The CIR’s motion for reconsideration of the CTA decision was the CIR’s duties in correctly assessing a taxpayer.15 The requirement for
denied in a resolution dated November 12, 2001. issuing a preliminary or final notice, as the case may be, informing a taxpayer
of the existence of a deficiency tax assessment is markedly different from the
requirement of what such notice must contain. Just because the CIR issued an
The CIR appealed the CTA decision to the CA but the CA affirmed it. The CA advice, a preliminary letter during the pre-assessment stage and a final notice,
held that the audit working papers did not substantially comply with Section in the order required by law, does not necessarily mean that Enron was
228 of the NIRC and RR No. 12-99 because they failed to show the informed of the law and facts on which the deficiency tax assessment was
applicability of the cited law to the facts of the assessment. The CIR filed a made.
motion for reconsideration but this was deemed abandoned when he filed a
motion for extension to file a petition for review in this Court.
The law requires that the legal and factual bases of the assessment be stated in
the formal letter of demand and assessment notice. Thus, such cannot be
The CIR now argues that respondent was informed of the legal and factual presumed. Otherwise, the express provisions of Article 228 of the NIRC and
bases of the deficiency assessment against it. RR No. 12-99 would be rendered nugatory. The alleged “factual bases” in the
advice, preliminary letter and “audit working papers” did not suffice. There was
COURT: We adopt in toto the findings of fact of the CTA, as affirmed by the no going around the mandate of the law that the legal and factual bases of the
CA. In Compagnie Financiere Sucres et Denrees v. CIR,11 we held: assessment be stated in writing in the formal letter of demand accompanying
the assessment notice.

We reiterate the well-established doctrine that as a matter of practice and

principle, [we] will not set aside the conclusion reached by an agency, like the We note that the old law merely required that the taxpayer be notified of the
CTA, especially if affirmed by the [CA]. By the very nature of its function, it assessment made by the CIR. This was changed in 1998 and the taxpayer must
has dedicated itself to the study and consideration of tax problems and has now be informed not only of the law but also of the facts on which the
necessarily developed an expertise on the subject, unless there has been an assessment is made.16 Such amendment is in keeping with the constitutional
abuse or improvident exercise of authority on its part, which is not present here. principle that no person shall be deprived of property without due process.17 In
view of the absence of a fair opportunity for Enron to be informed of the legal
and factual bases of the assessment against it, the assessment in question was
The CIR errs in insisting that the notice of assessment in question complied void. We reiterate our ruling in Reyes v. Almanzor, et al.:18
with the requirements of the NIRC and RR No. 12-99.

Verily, taxes are the lifeblood of the Government and so should be collected
A notice of assessment is: without unnecessary hindrance. However, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for the
[A] declaration of deficiency taxes issued to a [t]axpayer who fails to Government itself.
respond to a Pre-Assessment Notice (PAN) within the prescribed period of
time, or whose reply to the PAN was found to be without merit. The Notice WHEREFORE, the petition is hereby DENIED. The November 24, 2004
of Assessment shall inform the [t]axpayer of this fact, and that the report decision of the Court of Appeals isAFFIRMED.
of investigation submitted by the Revenue Officer conducting the audit
shall be given due course.
No costs.

The formal letter of demand calling for payment of the taxpayer’s

deficiency tax or taxes shall state the fact, the law, rules and regulations or SO ORDERED.
jurisprudence on which the assessment is based, otherwise the formal letter
of demand and the notice of assessment shall be void. (emphasis supplied)12

Section 228 of the NIRC provides that the taxpayer shall be informed in
writing of the law and the facts on which the assessment is made.
Otherwise, the assessment is void. To implement the provisions of Section
228 of the NIRC, RR No. 12-99 was enacted. Section 3.1.4 of the revenue
regulation reads:

3.1.4. Formal Letter of Demand and Assessment Notice. – The formal letter of
demand and assessment notice shall be issued by the Commissioner or his duly
authorized representative. The letter of demand calling for payment of the
taxpayer’s deficiency tax or taxes shall state the facts, the law, rules and
regulations, or jurisprudence on which the assessment is based, otherwise,