Tuesday, March 13, 2012

CIR vs. Tulio [G.R. No. 139858 October 25, 2005]

Facts: Arturo Tulio is engaged in the construction business. The CIR sent him a demand letter with two final assessment notices requesting payment of his deficiency percentage taxes of P188,585.76 and P245,669.53 for the taxable years 1986 and 1987. However, despite receipt, Tulio failed to act on the assessment notices. Hence, the same became final and executor pursuant to Section 229 of the 1996 NIRC. 

CIR, petitioner sent letters to respondent giving him the last opportunity to settle his deficiency tax liabilities. But respondent was obstinate. Thus, on October 29, 1997, petitioner filed with the RTC, Branch 60, Baguio City a civil action for the collection of the deficiency percentage taxes, docketed as Civil Case No. 3853-R. Incidentally, it bears emphasis that it is the RTC which has jurisdiction over this case, not the Court of Tax Appeals. It is the ordinary courts, not the tax court, which can entertain BIR money claims based on assessments that have become final and executory. 

On March 22, 1999, the RTC issued an Order directing respondent to file his answer to the complaint. Three days thereafter, respondent filed a motion to dismiss alleging that the complaint was filed beyond the three-year prescriptive period provided by Section 203 of the National Internal Revenue Code. 

The RTC issued its first challenged Order dismissing Civil Case No. 3853-R by reason of prescription. Petitioner filed a motion for reconsideration but was denied on August 25, 1999. Hence, this petition for review on certiorari. 

Issue: Whether petitioner’s cause of action for the collection of deficiency percentage taxes against respondent has prescribed. 

Held: The petition is GRANTED. Petitioner’s cause of action for the collection of deficiency percentage taxes against respondent has not prescribed. 

The lower court erroneously applied Section 203 of the same Code providing for the three-year prescriptive period from the filing of the tax return within which internal revenue taxes shall be assessed. It held that such period should be counted from the day the return was filed, or from August 15, 1990 up to August 15, 1993. However, as shown by the records, respondent failed to file a tax return, forcing petitioner to invoke the powers of his office in tax administration and enforcement. Respondent’s failure to file his tax returns is thus covered by Section 223 providing for a ten-year prescriptive period within which a proceeding in court may be filed. 

Section 223 (now Section 222) of the National Internal Revenue Code provides: 

"Section 223. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. – 

(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (10) years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which had become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof. 

(c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in paragraph (a) hereof may be collected by distraint or levy or by a proceeding in court within three (3) years following the assessment of the tax." 

Section 223 specifies three (3) instances when the running of the three-year prescriptive period does not apply. These are: (1) filing a false return, (2) filing a fraudulent return with intent to evade tax or (3) failure to file a return. The period within which to assess tax is ten years from discovery of the fraud, falsification or omission. 

Here, respondent failed to file his tax returns for 1986 and 1987. On September 14, 1989, petitioner found respondent’s omission. Hence, the running of the ten-year prescriptive period within which to assess and collect the taxes due from respondent commenced on that date until September 14, 1999. The two final assessment notices were issued on February 28, 1991, well within the prescriptive period of three (3) years. When respondent failed to question or protest the deficiency assessments thirty (30) days therefrom, or until March 30, 1991, the same became final and executory. 

As we held in Marcos II vs. Court of Appeals,the omission to file an estate tax return, and the subsequent failure to contest or appeal the assessment made by the BIR is fatal, considering that under Section 223 of the NIRC, in case of failure to file a return, the tax may be assessed at any time within ten years after the omission, and any tax so assessed may be collected by levy upon real property within three years following the assessment of the tax (as was done here). Since the estate tax assessment had become final and unappealable, there is now no reason why petitioner should not enforce its authority to collect respondent’s deficiency percentage taxes for 1986 and 1987. 


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