Tuesday, February 21, 2012

Central Azucarera Don Pedro vs. CTA and CIR (1967)

Facts: This case involves 2 consolidated cases filed by petitioner Central Azucarera assailing the constitutionality of Sec. 51(d) of the Revenue Code which imposes ½ % monthly interest on its deficiency tax. 

1st case: 

CIR assessed against petitioner P167,935 as deficiency income tax for the fiscal year 1954 but he did not assess and impose any interest thereon. Petitioner protested said deficiency income tax assessment and requested that it be cancelled. CIR eventually assessed the amount of P10,062 as deficiency income tax to which was added P1,509.30 as ½ % monthly interest, which was imposed pursuant to Sec 51(d) of the NIRC as amended by RA2343 (effective June 20, 1959), and computed from June 20, 1959 to Dec. 20, 1961 which was the date of the revised assessment. 

Petitioner paid the revised assessment and it paid on Jan. 16, 1962 the P10,062. However, it objected, in a letter protest, to the demand and imposition of interest. CIR maintained the correctness and validity of the imposition of the interest. 

Petitioner went to the CTA claiming that the imposition of the ½ % monthly interest on its deficiency tax for 1954 is illegal because the imposition of interest on efficiency income tax earned prior to the effectivity of RA2343 will be tantamount to giving it retroactive application. CTA upheld CIR’s ruling. 

2nd case: 

CIR assessed against petitioner the amount of P21,330 as deficiency income tax plus P2,307.10 as interest. Petitioner paid the deficiency taxes and interests but it filed a claim for refund of tax credit on the P2,307.10. It claimed that the payment of the interest was erroneous and the collection therefore is illegal. CIR maintained the legality of the imposition. CTA sustained CIR’s ruling. 

In both cases, the CTA ruled that the Congress had power to impose interest on deficiency income tax due on income earned prior to the amendatory law, but assessed after its enactment, that the deficiency income tax in the case it bar was assessed after the effectivity of the new law (Rep. Act No. 2343), and inasmuch as the interest imposed thereon has been computed only from June 20, 1959 (which was the date of effectivity of said law), Republic Act No. 2343 is not being applied retroactively. It also ruled that the provision of Section 13 of Republic Act No. 2343 providing that its new tax rates should apply to income earned in 1959, did not indicate that Congress intended to limit the applicability of the interest prescribed in Section 51 (d) to the deficiency income tax on income earned after the effectivity of the new law, since said Section 51 (d) does not distinguish between taxable income earned prior to, or after, the effectivity of said Republic Act No. 2343. 

Issue: Whether or not the interest of 6% per annum (or ½% monthly interest), provided for in Section 51 (d) as amended by Republic Act No. 2343 (effective June 20, 1959) is imposable on deficiency income tax due on income earned prior to the effectivity of said Republic Act No. 2343, but assessed after it. 

Held: YES. When petitioner filed its income tax returns and paid the corresponding income taxes, the pertinent provisions of the NIRC read: 

Sec 51 (d) Refusal or neglect to make returns; fraudulent returns, etc. — In case(s) of . . . erroneous . . . returns, the Collector of Internal Revenue shall, upon discovery thereof, . . . make a return upon information obtained as provided for in this code or by existing law, or require the necessary corrections to be made, and the assessment made by the Collector of Internal Revenue thereon shall be paid by such person or corporation immediately upon notification of the amount of such assessment. 

(e) Surcharge and interest in case of delinquency.—To any sum or sums due and unpaid after the dates prescribed in subsections (b), (c) and (d) for the payment of the same, there shall be added the sum of five per centum on the amount of tax unpaid and interest at the rate of one per centum a month upon said tax from the time the same became due, except from the estates of insane, deceased, or insolvent persons. 

After the amendment the same section reads: 

Sec 51 (d) (d) Interest on deficiency. — Interest upon the amount determined as a deficiency shall be assessed at the same time as the deficiency and shall be paid upon notice and demand from the Commissioner of Internal Revenue; and shall be collected as a part of the tax, at the rate of six per centum per annum from the date prescribed for the payment of the tax (or, if the tax is paid in installments, from the date prescribed for the payment of the first installment) to the date the deficiency is assessed: Provided, That the maximum amount that may be collected as interest on deficiency shall in no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription to the contrary notwithstanding. 

(c) Sec. 13. This Act shall take effect upon its approval: Provided, That the rate hereinabove stipulated shall apply to income received from January first, nineteen hundred and fifty-nine, and for the fiscal periods ending after June thirty, nineteen hundred and fifty nine. 

Although the CIR, under the old Sec 51(e), the interest on deficiency was imposed from the time the tax became due; while under the new Section 51 (d), said interest is imposed on the deficiency from the date prescribed for the payment of the tax. 

It appearing that the new Section 51 (d) under Republic Act 2343 expressly provides that the interest on deficiency shall be assessed at the same time as the deficiency income tax; and that respondent Commissioner of Internal Revenue imposed and sought to collect the interest only from June 20, 1959, which was the date of effectivity of said Republic Act No. 2343; that the deficiency income taxes in question were assessed and unpaid when said Act was already in force, the Tax Court correctly held that said Section 51 (d), as amended, is not being applied retroactively as contended by petitioner herein. 

Moreover, the application of said Section 51 (d), as amended, in the cases at bar, operated and worked in favor of petitioner-appellant, since instead of imposing the rate of one per centum (1%) monthly interest prescribed in the old section 51 (e) from the time the tax became due, i.e., from January 15, — 1955, 1956, 1957, 1958 and 1959, respectively, respondent Commissioner merely imposed the new ½% monthly interest from January 20, 1959, which interests, as computed, are less than what would be due under the old law. 

Ex post facto law contention: 

The SC ruled that the collection of interest is not penal in nature but a just compensation to the state for the delay in paying the tax and for the concomitant use by the tax payer of funds that rightfully should be in the government’s hands. The fact that the interest charged is made proportionate to the period of delay constitutes the best evidence that such interest is not penal but compensatory. 

The doctrine of unconstitutionality raised by appellant is based on the prohibition against ex post facto laws. But this prohibition applies only to criminal or penal matters, and not to laws which concern civil matters or proceedings generally, or which affect or regulate civil or private rights.

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