G.R. No. L-14519. July 26, 1960 Republic vs Ablaza

FACTS:

Collector of Internal Revenue assessed income taxes for the years 1945, 1946, 1947 and 1948 on the income tax returns of defendant-appellee Luis G. Ablaza, amounting to P5,254.70. The accountants for Ablaza requested a reinvestigation of tax liability, on the following grounds:
    (1) the assessment is erroneous and incomplete; 
    (2) the assessment is based on third-party information, and 

    (3) neither the taxpayer nor his accountants were permitted to appear in person.

The petition for reinvestigation was granted. Days after, the accountants for Ablaza again sent another letter to the Collector of Internal Revenue submitting a copy of their own computation. And on March 10, 1954, the accountants for Ablaza sent a letter to the examiner of accounts and collections of the Bureau of Internal Revenue, stating a portion which:

"In this connection, we wish to state that this case is presently under reinvestigation as per our request dated October 16, 1951, and your letter to us dated October 17, 1951, and that said tax liability being only a tentative assessment, we are not as yet advised of the results of the requested reinvestigation.

In view thereof, we wish to request, in fairness to the taxpayer concerned, that we be furnished a copy of the detailed computation of the alleged tax liability as soon as the reinvestigation is terminated to enable us to prove the veracity of the taxpayer’s side of the case, and if it is found out that said assessment is proper and in order, we assure you of our assistance in the speedy disposition of this case." 

After the reinvestigation, Collector of Internal Revenue made a final assessment of amounted to P2,066.56. Notice of the said assessment was sent and upon receipt thereof the accountants of Ablaza, on its letter dated May 8, 1957, protested the assessments on the ground that the income taxes are no longer collectible for the reason that they have already prescribed. 

The Collector did not agree to the alleged claim of prescription, thus, an action was instituted by him in the Court of First Instance. The said court upheld the contention of Ablaza. Hence, an appeal was filed asserting that the prescriptive period has not fully run at the time of the assessment.

ISSUE:

Whether or not the action to collect the assessed income taxes had prescribed.

HELD:

Yes. The Court finds the appeal without merit and hereby affirms the judgment of the lower court dismissing the action without costs.

 

Upon request of Ablaza's accountants dated October 14, 1951 for reinvestigation of the assessment of the income taxes against him, the period of prescription of action to collect the taxes was suspended. (Sec. 333, C. A. No. 466.) The provision of law on prescription was adopted in statute books upon recommendation of the tax commissioner of the Philippines which declares:

"Under the former law, the right of the Government to collect the tax does not prescribe. However, in fairness to the taxpayer, the Government should be estopped from collecting the tax where it failed to make the necessary investigation and assessment within 5 years after the filing of the return and where it failed to collect the tax within 5 years from the date of assessment thereof. Just as the government is interested in the stability of its collections, so also are the taxpayers entitled to an assurance that they will not be subjected to further investigation for tax purposes after the expiration of a reasonable period of time." (Vol. II, Report of the Tax Commission of the Philippines, pp. 321-322)

The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficient purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law.

The question in the case at bar boils down to the interpretation of the letter dated March 10, 1954, quoted above. If said letter be interpreted as a request for further investigation or a new investigation, different and distinct from the investigation demanded or prayed for in Ablaza’s first letter, then the period of prescription would continue to be suspended thereby. But if the letter in question does not ask for another investigation, the result would be just the opposite. In the Court's opinion, the letter in question does not ask for another investigation. Nowhere does the letter imply a demand or request for a different or new and distinct reinvestigation from that already requested and, therefore, the said letter may not be interpreted to authorize or justify the continuance of the suspension of the period of limitations.