GR. No.

L-37061 September 5, 1984

MAMBULAO LUMBER COMPANY, petitioner,
vs.
REPUBLIC OF THE PHILIPPINES, respondent.

CUEVAS, J.:
Petitioner in this appeal by certiorari, seeks the reversal of the decision of the defunct Court of Appeals which affirmed the judgment of the then Court
of First Instance of Manila ordering petitioner to pay respondent the amount of P15,739.80 representing its tax liability not secured by any bond, with
legal interest thereon from August 25, 1961 until fully paid.
Sometime in 1957 Agent Nestor Banzuela of the Bureau of Internal Revenue, Regional District No. 6, Bicol Region, Naga City, conducted an
examination of the books of accounts of herein petitioner Mambulao number Company for the purpose of determining said taxpayer's forest charges
and percentage tax liabilities.
On July 31, 1957, Agent Banzuela submitted his report wherein it was stated among others that
xxx xxx xxx
xxx xxx xxx
xxx xxx xxx
It can be stated in this connection that sometime in the early part of 1949, the personnel of the local office of the
Bureau of Forestry in Daet, Camarines Norte, manifested under the name of the subject taxpayer 2,052.48 cubic
meters of timber, with the corresponding forest charges in the total amount of P15,443.65 including surcharges. The
Bureau of Forestry then demanded for the payment of said forest charges on January 15, 1949. However, the subject
taxpayer, for one reason or the other, contested this assessment until this case reached the hands of the Secretary of
Agriculture and Natural Resources, the undersigned cannot therefore include in his assessment this amount in
question, hence, due course is given, recommending that this bureau take proper action regarding this case.
Consequently, on August 29, 1958, the Acting Commissioner of Internal Revenue addressed a letter to petitioner, the pertinent portion of which
readsMambulao Lumber Company
R-406 Samanillo Building
Escolta, Manila
Gentlemen:
xxx xxx xxx
It was also ascertained that in 1949 you manifested 2,052.48 cubic meters of timber, the forest charges and
surcharges of which in the total amount of P15,443.55 was demanded of you by the Bureau of Forestry on January 15,
1949. ...
In view thereof there is due from you the amount of P33,595.26 as deficiency sales tax, forest charges and surcharges,
committed as follows:
Sales Tax x x x
Forest Charges
Forest charges and surcharges for the year 1949 appealed to the Secretary of Agriculture and Natural Resources
P15,443.55
xxx xxx xxx
Total amount due & payable P33,595.26
Demand is hereby made upon you to pay the aforesaid amount of P 33,595.26 to the City Treasurer of Manila or this
office within ten (10) days from receipt hereof so that this case may be closed.
Page 1 of 24

xxx xxx xxx

Sgd.Melencio
Domingo
Acting
Commissioner
of Internal Revenue
The aforesaid letter was acknowledged to have been received by petitioner on September 19, 1958. 3 On October 18, 1958, petitioner requested for
a reinvestigation of its tax liability. Subsequently, in a letter dated July 8, 1959, respondent Commissioner of Internal Revenue give petitioner a period
of twenty (20) days from receipt thereof to submit the results of its verification of payments with a warning that failure to comply therewith would be
construed as an abandonment of the request for reinvestigation.
For failure of petitioner to comply with the above letter-request and/or to pay its tax liability despite demands for the payment thereof, respondent
Commissioner of Internal Revenue filed. a complaint for collection in the Court of First Instance of Manila on August 25, 1961. 4
After trial, judgment was rendered by the trial court, the dispositive portion of which reads
WHEREFORE, judgment is rendered
(a) Ordering both defendants, jointly and severally, to pay plaintiff the amount of P1,219.95 plus legal interest thereon
from August 25, 1961, the date of the filing of the original complaint until fully paid, or in case of failure to Pay the said
amount, ordering the forfeiture of GISCOR Bond No. 35 to the amount of P1,219.95; and
(b) Ordering defendant Mambulao Lumber Company to pay the plaintiff the amount of P15,739.80 representing its tax
liability not secured by any bond, with legal interest thereon from August 25, 1961, until paid.
With costs against defendants.
From the aforesaid decision, petitioner appealed to the Court of Appeals 5 that portion of the trial court's decision ordering it to pay the amount of
P15,443.55 representing forest charges and surcharges due for the year 1949.
As herein earlier stated, the then Court of Appeals affirmed the decision of the trial court. Petitioner filed a motion for reconsideration which was
denied by the said court in its Resolution dated June 7, 1973. Hence, the instant appeal, petitioner presenting the lone issue of whether or not the
right of plaintiff (respondent herein) to file a judicial action for the collection of the amount of P15,443.55 as forest charges and surcharges due from
the petitioner Mambulao Lumber Company for the year 1949 has already prescribed.
Relying on the provisions of Section 332 of the National Internal Revenue Code which readsSection 332. Exemptions as to period of limitation of assessment and collection of taxes
xxx xxx xxx
(c) Where the assessment of any internal revenue tax has been made within the period of limitation above prescribed
such tax may be collected by distraint or levy or by a proceeding in court, but only if begun (1) within five years after
the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the
Collector of Internal Revenue and the taxpayer before the expiration of such five-year period. The period so agreed
upon may be extended by subsequent agreements in writing made before the expiration of the period previously
agreed upon.
petitioner argues that counting from January 15, 1949 when the Bureau of Forestry in Daet, Camarines Norte made an assessment and demand for
payment of the amount of P15,443.55 as forest charges and surcharges for the year 1949, up to the filing of the complaint for collection before the
lower court on August 25, 196 1, more than five (5) years had already elapsed, hence, the action had clearly prescribed.
Petitioner's aforesaid argument lacks merit. As correctly observed by the trial court and the Court of Appeals in the appealed decision, the letter of
demand of the Acting Commissioner of Internal Revenue dated August 29, 1958 was the basis of respondent's complaint filed in this case and not
the demand letter of the Bureau of Forestry dated January 15, 1949. This must be so because forest charges are internal revenue taxes 6 and the
sole power and duty to collect the same is lodged with the Bureau of Internal Revenue 7 and not with the Bureau of Forestry. The computation and/or
assessment of forest charges made by the Bureau of Forestry may or may not be adopted by the Commissioner of Internal Revenue and such
computation made by the Bureau of Forestry is not appealable to the Court of Tax Appeals. 8 Therefore, for the purpose of computing the five-year
period within which to file a complaint for collection, the demand or even the assessment made by the Bureau of Forestry is immaterial.
In the case at bar, the commencement of the five-year period should be counted from August 29, 1958, the date of the letter of demand of the Acting
Commissioner of Internal Revenue 9 to petitioner Mambulao Lumber Company. It is this demand or assessment that is appealable to the Court of Tax
Appeals. The complaint for collection was filed in the Court of First Instance of Manila on August 25, 1961, very much within the five-year period
prescribed by Section 332 (c) of the Tax Code. Consequently, the right of the Commissioner of Internal Revenue to collect the forest charges and
surcharges in the amount of P15,443.55 has not prescribed.

Page 2 of 24

Furthermore, it is not disputed that on October 18, 1958, petitioner requested for a reinvestigation of its tax liability. In reply thereto, respondent in a
letter dated July 8, 1959, gave petitioner a period of twenty (20) days from receipt thereof to submit the results of its verification of payments and
failure to comply therewith would be construed as abandonment of the request for reinvestigation. Petitioner failed to comply with this requirement.
Neither did it appeal to the Court of Tax Appeals within thirty (30) days from receipt of the letter dated July 8, 1959, as prescribed under Section 11 of
Republic Act No. 1125, thus making the assessment final and executory.
Taxpayer's failure to appeal to the Court of Tax Appeals in due time made the assessment in question final, executory
and demandable. And when the action was instituted on September 2, 1958 to enforce the deficiency assessment in
question, it was already barred from disputing the correctness of the assessment or invoking any defense that would
reopen the question of its tax liability. Otherwise, the period of thirty days for appeal to the Court of Tax Appeals would
make little sense.
In a proceeding like this the taxpayer's defenses are similar to those of the defendant in a case for the enforcement of
a judgment by judicial action under Section 6 of Rule 39 of the Rules of Court. No inquiry can be made therein as to
the merits of the original case or the justness of the judgment relied upon, other than by evidence of want of
jurisdiction, of collusion between the parties, or of fraud in the party offering the record with respect to the proceedings.
As held by this Court in Insular Government vs. Nico the taxpayer may raise only the questions whether or not the
Collector of Internal Revenue had jurisdiction to do the particular act, and whether any fraud was committed in the
doing of the act. In that case, Doroteo Nico was fined by the Collector of Internal Revenue for violation of subparagraphs (d), (e) and (g) of Section 28 as well as Sections 36, 101 and 107 of Act 1189. Under Section 54 of the
same Act, the taxpayer was given the right to appeal from the decision of the Collector of Internal Revenue to the Court
of First Instance within a period of ten days from notice of imposition of the fine. Nico did not appeal, neither did he pay
the fine. Pursuant to Section 33 of the Act, the Collector of Internal Revenue filed an action in the Court of First
Instance to enforce his decision and collect the fine. The decision of the Collector of Internal Revenue having become
final, this Court, on appeal, allowed no further inquiry into the merits of the same. 10
In a suit for collection of internal revenue taxes, as in this case, where the assessment has already become final and executory, the action to collect
is akin 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. Petitioner is thus already precluded from raising the defense of prescription.
Where the taxpayer did not contest the deficiency income tax assessed against him, the same became final and
properly collectible by means of an ordinary court action. The taxpayer cannot dispute an assessment which is being
enforced by judicial action, He should have disputed it before it was brought to court. 11
WHEREFORE, the decision appealed from is hereby AFFIRMED and the petition DISMISSED. No costs.
SO ORDERED.
Abad Santos, Escolin and Gutierrez, Jr.,* JJ concur.
Makasiar, (Chairman) and Guerrero, JJ., are on leave.
Concepcion, Jr., J., took no part.

Page 3 of 24

G.R. No. L-21551

September 30, 1969

FERNANDEZ HERMANOS, INC., petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.
----------------------------G.R. No. L-21557

September 30, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
FERNANDEZ HERMANOS, INC., and COURT OF TAX APPEALS, respondents.
----------------------------G.R. No. L-24972

September 30, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
FERNANDEZ HERMANOS INC., and the COURT OF TAX APPEALS, respondents.
----------------------------G.R. No. L-24978

September 30, 1969

FERNANDEZ HERMANOS, INC., petitioner,

vs.
THE COMMISSIONER OF INTERNAL REVENUE, and HON. ROMAN A. UMALI, COURT OF TAX APPEALS, respondents.
L-21551:
Rafael Dinglasan for petitioner.
Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and Special Attorney Virgilio G. Saldajeno for respondent.
L-21557:
Office of the Solicitor General for petitioner.
Rafael Dinglasan for respondent Fernandez Hermanos, Inc.
L-24972:
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete and Special Attorney Virgilio G. Saldajeno for
petitioner.
Rafael Dinglasan for respondent Fernandez Hermanos, Inc.
L-24978:
Rafael Dinglasan for petitioner.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Antonio G. Ibarra and Special Attorney Virgilio G. Saldajeno for
respondent.

TEEHANKEE, J.:
These four appears involve two decisions of the Court of Tax Appeals determining the taxpayer's income tax liability for the years 1950 to 1954 and for
the year 1957. Both the taxpayer and the Commissioner of Internal Revenue, as petitioner and respondent in the cases a quo respectively, appealed
from the Tax Court's decisions, insofar as their respective contentions on particular tax items were therein resolved against them. Since the issues
raised are interrelated, the Court resolves the four appeals in this joint decision.
Cases L-21551 and L-21557
The taxpayer, Fernandez Hermanos, Inc., is a domestic corporation organized for the principal purpose of engaging in business as an "investment
company" with main office at Manila. Upon verification of the taxpayer's income tax returns for the period in question, the Commissioner of Internal
Revenue assessed against the taxpayer the sums of P13,414.00, P119,613.00, P11,698.00, P6,887.00 and P14,451.00 as alleged deficiency income
Page 4 of 24

taxes for the years 1950, 1951, 1952, 1953 and 1954, respectively. Said assessments were the result of alleged discrepancies found upon the
examination and verification of the taxpayer's income tax returns for the said years, summarized by the Tax Court in its decision of June 10, 1963 in
CTA Case No. 787, as follows:
1. Losses
a. Losses in Mati Lumber Co. (1950)

P 8,050.00

b. Losses in or bad debts of Palawan Manganese Mines, Inc. (1951)

353,134.25

c. Losses in Balamban Coal Mines

1950
1951

8,989.76
27,732.66

d. Losses in Hacienda Dalupiri

1950
1951
1952
1953
1954

17,418.95
29,125.82
26,744.81
21,932.62
42,938.56

e. Losses in Hacienda Samal

1951
1952

8,380.25
7,621.73

2. Excessive depreciation of Houses

1950
1951
1952
1953
1954

P 8,180.40
8,768.11
18,002.16
13,655.25
29,314.98

3. Taxable increase in net worth

1950
1951

P 30,050.00
1,382.85

4. Gain realized from sale of real property in 1950

P 11,147.2611

The Tax Court sustained the Commissioner's disallowances of Item 1, sub-items (b) and (e) and Item 2 of the above summary, but
overruled the Commissioner's disallowances of all the remaining items. It therefore modified the deficiency assessments
accordingly, found the total deficiency income taxes due from the taxpayer for the years under review to amount to P123,436.00
instead of P166,063.00 as originally assessed by the Commissioner, and rendered the following judgment:
RESUME
1950
1951
1952
1953
1954

P2,748.00
108,724.00
3,600.00
2,501.00
5,863.00

Total

P123,436.00

WHEREFORE, the decision appealed from is hereby modified, and petitioner is ordered to pay the sum of P123,436.00 within 30
days from the date this decision becomes final. If the said amount, or any part thereof, is not paid within said period, there shall be
added to the unpaid amount as surcharge of 5%, plus interest as provided in Section 51 of the National Internal Revenue Code, as
amended. With costs against petitioner. (Pp. 75, 76, Taxpayer's Brief as appellant)
Both parties have appealed from the respective adverse rulings against them in the Tax Court's decision. Two main issues are raised by the parties:
Page 5 of 24

first, the correctness of the Tax Court's rulings with respect to the disputed items of disallowances enumerated in the Tax Court's summary reproduced
above, and second, whether or not the government's right to collect the deficiency income taxes in question has already prescribed.
On the first issue, we will discuss the disputed items of disallowances seriatim.
1. Re allowances/disallowances of losses.
(a) Allowance of losses in Mati Lumber Co. (1950). The Commissioner of Internal Revenue questions the Tax Court's allowance of the taxpayer's
writing off as worthless securities in its 1950 return the sum of P8,050.00 representing the cost of shares of stock of Mati Lumber Co. acquired by the
taxpayer on January 1, 1948, on the ground that the worthlessness of said stock in the year 1950 had not been clearly established. The Commissioner
contends that although the said Company was no longer in operation in 1950, it still had its sawmill and equipment which must be of considerable
value. The Court, however, found that "the company ceased operations in 1949 when its Manager and owner, a certain Mr. Rocamora, left for Spain
,where he subsequently died. When the company eased to operate, it had no assets, in other words, completely insolvent. This information as to the
insolvency of the Company reached (the taxpayer) in 1950," when it properly claimed the loss as a deduction in its 1950 tax return, pursuant to
Section 30(d) (4) (b) or Section 30 (e) (3) of the National Internal Revenue Code. 2
We find no reason to disturb this finding of the Tax Court. There was adequate basis for the writing off of the stock as worthless securities. Assuming
that the Company would later somehow realize some proceeds from its sawmill and equipment, which were still existing as claimed by the
Commissioner, and that such proceeds would later be distributed to its stockholders such as the taxpayer, the amount so received by the taxpayer
would then properly be reportable as income of the taxpayer in the year it is received.
(b) Disallowance of losses in or bad debts of Palawan Manganese Mines, Inc. (1951). The taxpayer appeals from the Tax Court's disallowance of its
writing off in 1951 as a loss or bad debt the sum of P353,134.25, which it had advanced or loaned to Palawan Manganese Mines, Inc. The Tax Court's
findings on this item follow:
Sometime in 1945, Palawan Manganese Mines, Inc., the controlling stockholders of which are also the controlling stockholders of
petitioner corporation, requested financial help from petitioner to enable it to resume it mining operations in Coron, Palawan. The
request for financial assistance was readily and unanimously approved by the Board of Directors of petitioner, and thereafter a
memorandum agreement was executed on August 12, 1945, embodying the terms and conditions under which the financial
assistance was to be extended, the pertinent provisions of which are as follows:
"WHEREAS, the FIRST PARTY, by virtue of its resolution adopted on August 10, 1945, has agreed to extend to the
SECOND PARTY the requested financial help by way of accommodation advances and for this purpose has authorized
its President, Mr. Ramon J. Fernandez to cause the release of funds to the SECOND PARTY.
"WHEREAS, to compensate the FIRST PARTY for the advances that it has agreed to extend to the SECOND PARTY, the
latter has agreed to pay to the former fifteen per centum (15%) of its net profits.
"NOW THEREFORE, for and in consideration of the above premises, the parties hereto have agreed and covenanted
that in consideration of the financial help to be extended by the FIRST PARTY to the SECOND PARTY to enable the
latter to resume its mining operations in Coron, Palawan, the SECOND PARTY has agreed and undertaken as it hereby
agrees and undertakes to pay to the FIRST PARTY fifteen per centum (15%) of its net profits." (Exh. H-2)
Pursuant to the agreement mentioned above, petitioner gave to Palawan Manganese Mines, Inc. yearly advances starting from 1945, which advances
amounted to P587,308.07 by the end of 1951. Despite these advances and the resumption of operations by Palawan Manganese Mines, Inc., it
continued to suffer losses. By 1951, petitioner became convinced that those advances could no longer be recovered. While it continued to give
advances, it decided to write off as worthless the sum of P353,134.25. This amount "was arrived at on the basis of the total of advances made from
1945 to 1949 in the sum of P438,981.39, from which amount the sum of P85,647.14 had to be deducted, the latter sum representing its pre-war assets.
(t.s.n., pp. 136-139, Id)." (Page 4, Memorandum for Petitioner.) Petitioner decided to maintain the advances given in 1950 and 1951 in the hope that it
might be able to recover the same, as in fact it continued to give advances up to 1952. From these facts, and as admitted by petitioner itself, Palawan
Manganese Mines, Inc., was still in operation when the advances corresponding to the years 1945 to 1949 were written off the books of petitioner.
Under the circumstances, was the sum of P353,134.25 properly claimed by petitioner as deduction in its income tax return for 1951, either as losses or
bad debts?
It will be noted that in giving advances to Palawan Manganese Mine Inc., petitioner did not expect to be repaid. It is true that some testimonial evidence
was presented to show that there was some agreement that the advances would be repaid, but no documentary evidence was presented to this effect.
The memorandum agreement signed by the parties appears to be very clear that the consideration for the advances made by petitioner was 15% of
the net profits of Palawan Manganese Mines, Inc. In other words, if there were no earnings or profits, there was no obligation to repay those advances.
It has been held that the voluntary advances made without expectation of repayment do not result in deductible losses. 1955 PH Fed. Taxes, Par. 13,
329, citing W. F. Young, Inc. v. Comm., 120 F 2d. 159, 27 AFTR 395; George B. Markle, 17 TC. 1593.
Is the said amount deductible as a bad debt? As already stated, petitioner gave advances to Palawan Manganese Mines, Inc., without expectation of
repayment. Petitioner could not sue for recovery under the memorandum agreement because the obligation of Palawan Manganese Mines, Inc. was to
pay petitioner 15% of its net profits, not the advances. No bad debt could arise where there is no valid and subsisting debt.
Again, assuming that in this case there was a valid and subsisting debt and that the debtor was incapable of paying the debt in 1951, when petitioner
wrote off the advances and deducted the amount in its return for said year, yet the debt is not deductible in 1951 as a worthless debt. It appears that
the debtor was still in operation in 1951 and 1952, as petitioner continued to give advances in those years. It has been held that if the debtor
corporation, although losing money or insolvent, was still operating at the end of the taxable year, the debt is not considered worthless and therefore
Page 6 of 24

not deductible. 3
The Tax Court's disallowance of the write-off was proper. The Solicitor General has rightly pointed out that the taxpayer has taken an "ambiguous
position " and "has not definitely taken a stand on whether the amount involved is claimed as losses or as bad debts but insists that it is either a loss or
a bad debt." 4 We sustain the government's position that the advances made by the taxpayer to its 100% subsidiary, Palawan Manganese Mines, Inc.
amounting to P587,308,07 as of 1951 were investments and not loans. 5 The evidence on record shows that the board of directors of the two
companies since August, 1945, were identical and that the only capital of Palawan Manganese Mines, Inc. is the amount of P100,000.00 entered in the
taxpayer's balance sheet as its investment in its subsidiary company. 6 This fact explains the liberality with which the taxpayer made such large
advances to the subsidiary, despite the latter's admittedly poor financial condition.
The taxpayer's contention that its advances were loans to its subsidiary as against the Tax Court's finding that under their memorandum agreement,
the taxpayer did not expect to be repaid, since if the subsidiary had no earnings, there was no obligation to repay those advances, becomes
immaterial, in the light of our resolution of the question. The Tax Court correctly held that the subsidiary company was still in operation in 1951 and
1952 and the taxpayer continued to give it advances in those years, and, therefore, the alleged debt or investment could not properly be considered
worthless and deductible in 1951, as claimed by the taxpayer. Furthermore, neither under Section 30 (d) (2) of our Tax Code providing for deduction by
corporations of losses actually sustained and charged off during the taxable year nor under Section 30 (e) (1) thereof providing for deduction of bad
debts actually ascertained to be worthless and charged off within the taxable year, can there be a partial writing off of a loss or bad debt, as was sought
to be done here by the taxpayer. For such losses or bad debts must be ascertained to be so and written off during the taxable year, are therefore
deductible in full or not at all, in the absence of any express provision in the Tax Code authorizing partial deductions.
The Tax Court held that the taxpayer's loss of its investment in its subsidiary could not be deducted for the year 1951, as the subsidiary was still in
operation in 1951 and 1952. The taxpayer, on the other hand, claims that its advances were irretrievably lost because of the staggering losses suffered
by its subsidiary in 1951 and that its advances after 1949 were "only limited to the purpose of salvaging whatever ore was already available, and for the
purpose of paying the wages of the laborers who needed help." 7 The correctness of the Tax Court's ruling in sustaining the disallowance of the write-off
in 1951 of the taxpayer's claimed losses is borne out by subsequent events shown in Cases L-24972 and L-24978 involving the taxpayer's 1957
income tax liability. (Infra, paragraph 6.) It will there be seen that by 1956, the obligation of the taxpayer's subsidiary to it had been reduced from
P587,398.97 in 1951 to P442,885.23 in 1956, and that it was only on January 1, 1956 that the subsidiary decided to cease operations. 8
(c) Disallowance of losses in Balamban Coal Mines (1950 and 1951). The Court sustains the Tax Court's disallowance of the sums of P8,989.76 and
P27,732.66 spent by the taxpayer for the operation of its Balamban coal mines in Cebu in 1950 and 1951, respectively, and claimed as losses in the
taxpayer's returns for said years. The Tax Court correctly held that the losses "are deductible in 1952, when the mines were abandoned, and not in
1950 and 1951, when they were still in operation." 9 The taxpayer's claim that these expeditions should be allowed as losses for the corresponding
years that they were incurred, because it made no sales of coal during said years, since the promised road or outlet through which the coal could be
transported from the mines to the provincial road was not constructed, cannot be sustained. Some definite event must fix the time when the loss is
sustained, and here it was the event of actual abandonment of the mines in 1952. The Tax Court held that the losses, totalling P36,722.42 were
properly deductible in 1952, but the appealed judgment does not show that the taxpayer was credited therefor in the determination of its tax liability for
said year. This additional deduction of P36,722.42 from the taxpayer's taxable income in 1952 would result in the elimination of the deficiency tax
liability for said year in the sum of P3,600.00 as determined by the Tax Court in the appealed judgment.
(d) and (e) Allowance of losses in Hacienda Dalupiri (1950 to 1954) and Hacienda Samal (1951-1952). The Tax Court overruled the Commissioner's
disallowance of these items of losses thus:
Petitioner deducted losses in the operation of its Hacienda Dalupiri the sums of P17,418.95 in 1950, P29,125.82 in 1951,
P26,744.81 in 1952, P21,932.62 in 1953, and P42,938.56 in 1954. These deductions were disallowed by respondent on the ground
that the farm was operated solely for pleasure or as a hobby and not for profit. This conclusion is based on the fact that the farm
was operated continuously at a loss.1awphl.nt
From the evidence, we are convinced that the Hacienda Dalupiri was operated by petitioner for business and not pleasure. It was
mainly a cattle farm, although a few race horses were also raised. It does not appear that the farm was used by petitioner for
entertainment, social activities, or other non-business purposes. Therefore, it is entitled to deduct expenses and losses in
connection with the operation of said farm. (See 1955 PH Fed. Taxes, Par. 13, 63, citing G.C.M. 21103, CB 1939-1, p.164)
Section 100 of Revenue Regulations No. 2, otherwise known as the Income Tax Regulations, authorizes farmers to determine their
gross income on the basis of inventories. Said regulations provide:
"If gross income is ascertained by inventories, no deduction can be made for livestock or products lost during the year,
whether purchased for resale, produced on the farm, as such losses will be reflected in the inventory by reducing the
amount of livestock or products on hand at the close of the year."
Evidently, petitioner determined its income or losses in the operation of said farm on the basis of inventories. We quote from the
memorandum of counsel for petitioner:
"The Taxpayer deducted from its income tax returns for the years from 1950 to 1954 inclusive, the corresponding yearly
losses sustained in the operation of Hacienda Dalupiri, which losses represent the excess of its yearly expenditures over
the receipts; that is, the losses represent the difference between the sales of livestock and the actual cash disbursements
or expenses." (Pages 21-22, Memorandum for Petitioner.)
As the Hacienda Dalupiri was operated by petitioner for business and since it sustained losses in its operation, which losses were
determined by means of inventories authorized under Section 100 of Revenue Regulations No. 2, it was error for respondent to
Page 7 of 24

have disallowed the deduction of said losses. The same is true with respect to loss sustained in the operation of the Hacienda
Samal for the years 1951 and 1952. 10
The Commissioner questions that the losses sustained by the taxpayer were properly based on the inventory method of accounting. He concedes,
however, "that the regulations referred to does not specify how the inventories are to be made. The Tax Court, however, felt satisfied with the evidence
presented by the taxpayer ... which merely consisted of an alleged physical count of the number of the livestock in Hacienda Dalupiri for the years
involved." 11 The Tax Court was satisfied with the method adopted by the taxpayer as a farmer breeding livestock, reporting on the basis of receipts and
disbursements. We find no Compelling reason to disturb its findings.
2. Disallowance of excessive depreciation of buildings (1950-1954). During the years 1950 to 1954, the taxpayer claimed a depreciation allowance
for its buildings at the annual rate of 10%. The Commissioner claimed that the reasonable depreciation rate is only 3% per annum, and, hence,
disallowed as excessive the amount claimed as depreciation allowance in excess of 3% annually. We sustain the Tax Court's finding that the taxpayer
did not submit adequate proof of the correctness of the taxpayer's claim that the depreciable assets or buildings in question had a useful life only of 10
years so as to justify its 10% depreciation per annum claim, such finding being supported by the record. The taxpayer's contention that it has many
zero or one-peso assets, 12 representing very old and fully depreciated assets serves but to support the Commissioner's position that a 10% annual
depreciation rate was excessive.
3. Taxable increase in net worth (1950-1951). The Tax Court set aside the Commissioner's treatment as taxable income of certain increases in the
taxpayer's net worth. It found that:
For the year 1950, respondent determined that petitioner had an increase in net worth in the sum of P30,050.00, and for the year
1951, the sum of P1,382.85. These amounts were treated by respondent as taxable income of petitioner for said years.
It appears that petitioner had an account with the Manila Insurance Company, the records bearing on which were lost. When its
records were reconstituted the amount of P349,800.00 was set up as its liability to the Manila Insurance Company. It was
discovered later that the correct liability was only 319,750.00, or a difference of P30,050.00, so that the records were adjusted so
as to show the correct liability. The correction or adjustment was made in 1950. Respondent contends that the reduction of
petitioner's liability to Manila Insurance Company resulted in the increase of petitioner's net worth to the extent of P30,050.00 which
is taxable. This is erroneous. The principle underlying the taxability of an increase in the net worth of a taxpayer rests on the theory
that such an increase in net worth, if unreported and not explained by the taxpayer, comes from income derived from a taxable
source. (See Perez v. Araneta, G.R. No. L-9193, May 29, 1957; Coll. vs. Reyes, G.R. Nos. L- 11534 & L-11558, Nov. 25, 1958.) In
this case, the increase in the net worth of petitioner for 1950 to the extent of P30,050.00 was not the result of the receipt by it of
taxable income. It was merely the outcome of the correction of an error in the entry in its books relating to its indebtedness to the
Manila Insurance Company. The Income Tax Law imposes a tax on income; it does not tax any or every increase in net worth
whether or not derived from income. Surely, the said sum of P30,050.00 was not income to petitioner, and it was error for
respondent to assess a deficiency income tax on said amount.
The same holds true in the case of the alleged increase in net worth of petitioner for the year 1951 in the sum of P1,382.85. It appears that certain
items (all amounting to P1,382.85) remained in petitioner's books as outstanding liabilities of trade creditors. These accounts were discovered in 1951
as having been paid in prior years, so that the necessary adjustments were made to correct the errors. If there was an increase in net worth of the
petitioner, the increase in net worth was not the result of receipt by petitioner of taxable income." 13 The Commissioner advances no valid grounds in
his brief for contesting the Tax Court's findings. Certainly, these increases in the taxpayer's net worth were not taxable increases in net worth, as they
were not the result of the receipt by it of unreported or unexplained taxable income, but were shown to be merely the result of the correction of errors in
its entries in its books relating to its indebtednesses to certain creditors, which had been erroneously overstated or listed as outstanding when they had
in fact been duly paid. The Tax Court's action must be affirmed.
4. Gain realized from sale of real property (1950). We likewise sustain as being in accordance with the evidence the Tax Court's reversal of the
Commissioner's assessment on all alleged unreported gain in the sum of P11,147.26 in the sale of a certain real property of the taxpayer in 1950. As
found by the Tax Court, the evidence shows that this property was acquired in 1926 for P11,852.74, and was sold in 1950 for P60,000.00, apparently,
resulting in a gain of P48,147.26. 14 The taxpayer reported in its return a gain of P37,000.00, or a discrepancy of P11,147.26. 15 It was sufficiently
proved from the taxpayer's books that after acquiring the property, the taxpayer had made improvements totalling P11,147.26, 16 accounting for the
apparent discrepancy in the reported gain. In other words, this figure added to the original acquisition cost of P11,852.74 results in a total cost of
P23,000.00, and the gain derived from the sale of the property for P60,000.00 was correctly reported by the taxpayer at P37,000.00.
On the second issue of prescription, the taxpayer's contention that the Commissioner's action to recover its tax liability should be deemed to have
prescribed for failure on the part of the Commissioner to file a complaint for collection against it in an appropriate civil action, as contradistinguished
from the answer filed by the Commissioner to its petition for review of the questioned assessments in the case a quo has long been rejected by this
Court. This Court has consistently held that "a judicial action for the collection of a tax is begun by the filing of a complaint with the proper court of first
instance, or where the assessment is appealed to the Court of Tax Appeals, by filing an answer to the taxpayer's petition for review wherein payment of
the tax is prayed for." 17 This is but logical for where the taxpayer avails of the right to appeal the tax assessment to the Court of Tax Appeals, the said
Court is vested with the authority to pronounce judgment as to the taxpayer's liability to the exclusion of any other court. In the present case, regardless
of whether the assessments were made on February 24 and 27, 1956, as claimed by the Commissioner, or on December 27, 1955 as claimed by the
taxpayer, the government's right to collect the taxes due has clearly not prescribed, as the taxpayer's appeal or petition for review was filed with the Tax
Court on May 4, 1960, with the Commissioner filing on May 20, 1960 his Answer with a prayer for payment of the taxes due, long before the expiration
of the five-year period to effect collection by judicial action counted from the date of assessment.
Cases L-24972 and L-24978
These cases refer to the taxpayer's income tax liability for the year 1957. Upon examination of its corresponding income tax return, the Commissioner
Page 8 of 24

assessed it for deficiency income tax in the amount of P38,918.76, computed as follows:
Net income per return
Add: Unallowable deductions:
(1) Net loss claimed on Ha. Dalupiri
(2) Amortization of Contractual right claimed as an expense under
Mines Operations
Net income per investigation
Tax due thereon

P29,178.70

89,547.33
48,481.62
P167,297.65
38,818.00

Less: Amount already assessed

Balance
Add:
1/2% monthly interest from 6-20-59 to 6-20-62

5,836.00
P32,982.00
5,936.76

TOTAL AMOUNT DUE AND COLLECTIBLE

P38,918.76

The Tax Court overruled the Commissioner's disallowance of the taxpayer's losses in the operation of its Hacienda Dalupiri in the sum of P89,547.33
but sustained the disallowance of the sum of P48,481.62, which allegedly represented 1/5 of the cost of the "contractual right" over the mines of its
subsidiary, Palawan Manganese Mines, Inc. which the taxpayer had acquired. It found the taxpayer liable for deficiency income tax for the year 1957 in
the amount of P9,696.00, instead of P32,982.00 as originally assessed, and rendered the following judgment:
WHEREFORE, the assessment appealed from is hereby modified. Petitioner is hereby ordered to pay to respondent the amount of
P9,696.00 as deficiency income tax for the year 1957, plus the corresponding interest provided in Section 51 of the Revenue Code.
If the deficiency tax is not paid in full within thirty (30) days from the date this decision becomes final and executory, petitioner shall
pay a surcharge of five per cent (5%) of the unpaid amount, plus interest at the rate of one per cent (1%) a month, computed from
the date this decision becomes final until paid, provided that the maximum amount that may be collected as interest shall not
exceed the amount corresponding to a period of three (3) years. Without pronouncement as to costs. 19
Both parties again appealed from the respective adverse rulings against them in the Tax Court's decision.
5. Allowance of losses in Hacienda Dalupiri (1957). The Tax Court cited its previous decision overruling the Commissioner's disallowance of losses
suffered by the taxpayer in the operation of its Hacienda Dalupiri, since it was convinced that the hacienda was operated for business and not for
pleasure. And in this appeal, the Commissioner cites his arguments in his appellant's brief in Case No. L-21557. The Tax Court, in setting aside the
Commissioner's principal objections, which were directed to the accounting method used by the taxpayer found that:
It is true that petitioner followed the cash basis method of reporting income and expenses in the operation of the Hacienda Dalupiri
and used the accrual method with respect to its mine operations. This method of accounting, otherwise known as the hybrid
method, followed by petitioner is not without justification.
... A taxpayer may not, ordinarily, combine the cash and accrual bases. The 1954 Code provisions permit, however, the
use of a hybrid method of accounting, combining a cash and accrual method, under circumstances and requirements to
be set out in Regulations to be issued. Also, if a taxpayer is engaged in more than one trade or business he may use a
different method of accounting for each trade or business. And a taxpayer may report income from a business on accrual
basis and his personal income on the cash basis.' (See Mertens, Law of Federal Income Taxation, Zimet & Stanley
Revision, Vol. 2, Sec. 12.08, p. 26.) 20
The Tax Court, having satisfied itself with the adequacy of the taxpayer's accounting method and procedure as properly reflecting
the taxpayer's income or losses, and the Commissioner having failed to show the contrary, we reiterate our ruling [supra, paragraph
1 (d) and (e)] that we find no compelling reason to disturb its findings.
6. Disallowance of amortization of alleged "contractual rights." The reasons for sustaining this disallowance are thus given by the Tax Court:
It appears that the Palawan Manganese Mines, Inc., during a special meeting of its Board of Directors on January 19, 1956,
approved a resolution, the pertinent portions of which read as follows:
"RESOLVED, as it is hereby resolved, that the corporation's current assets composed of ores, fuel, and oil, materials and
supplies, spare parts and canteen supplies appearing in the inventory and balance sheet of the Corporation as of
December 31, 1955, with an aggregate value of P97,636.98, contractual rights for the operation of various mining claims
in Palawan with a value of P100,000.00, its title on various mining claims in Palawan with a value of P142,408.10 or a
total value of P340,045.02 be, as they are hereby ceded and transferred to Fernandez Hermanos, Inc., as partial
settlement of the indebtedness of the corporation to said Fernandez Hermanos Inc. in the amount of P442,895.23." (Exh.
E, p. 17, CTA rec.)
On March 29, 1956, petitioner's corporation accepted the above offer of transfer, thus:
Page 9 of 24

"WHEREAS, the Palawan Manganese Mines, Inc., due to its yearly substantial losses has decided to cease operation on
January 1, 1956 and in order to satisfy at least a part of its indebtedness to the Corporation, it has proposed to transfer
its current assets in the amount of NINETY SEVEN THOUSAND SIX HUNDRED THIRTY SIX PESOS & 98/100
(P97,636.98) as per its balance sheet as of December 31, 1955, its contractual rights valued at ONE HUNDRED
THOUSAND PESOS (P100,000.00) and its title over various mining claims valued at ONE HUNDRED FORTY TWO
THOUSAND FOUR HUNDRED EIGHT PESOS & 10/100 (P142,408.10) or a total evaluation of THREE HUNDRED
FORTY THOUSAND FORTY FIVE PESOS & 08/100 (P340,045.08) which shall be applied in partial settlement of its
obligation to the Corporation in the amount of FOUR HUNDRED FORTY TWO THOUSAND EIGHT HUNDRED EIGHTY
FIVE PESOS & 23/100 (P442,885.23)," (Exh. E-1, p. 18, CTA rec.)
Petitioner determined the cost of the mines at P242,408.10 by adding the value of the contractual rights (P100,000.00) and the
value of its mining claims (P142,408.10). Respondent disallowed the deduction on the following grounds: (1) that the Palawan
Manganese Mines, Inc. could not transfer P242,408.10 worth of assets to petitioner because the balance sheet of the said
corporation for 1955 shows that it had only current as worth P97,636.96; and (2) that the alleged amortization of "contractual rights"
is not allowed by the Revenue Code.
The law in point is Section 30(g) (1) (B) of the Revenue Code, before its amendment by Republic Act No. 2698, which provided in
part:
"(g) Depletion of oil and gas wells and mines.:
"(1) In general. ... (B) in the case of mines, a reasonable allowance for depletion thereof not to exceed the market
value in the mine of the product thereof, which has been mined and sold during the year for which the return and
computation are made. The allowances shall be made under rules and regulations to be prescribed by the Secretary of
Finance: Provided, That when the allowances shall equal the capital invested, ... no further allowance shall be made."
Assuming, arguendo, that the Palawan Manganese Mines, Inc. had assets worth P242,408.10 which it actually transferred to the
petitioner in 1956, the latter cannot just deduct one-fifth (1/5) of said amount from its gross income for the year 1957 because such
deduction in the form of depletion charge was not sanctioned by Section 30(g) (1) (B) of the Revenue Code, as above-quoted.
xxx

xxx

xxx

The sole basis of petitioner in claiming the amount of P48,481.62 as a deduction was the memorandum of its mining engineer
(Exh. 1, pp. 31-32, CTA rec.), who stated that the ore reserves of the Busuange Mines (Mines transferred by the Palawan
Manganese Mines, Inc. to the petitioner) would be exhausted in five (5) years, hence, the claim for P48,481.62 or one-fifth (1/5) of
the alleged cost of the mines corresponding to the year 1957 and every year thereafter for a period of 5 years. The said
memorandum merely showed the estimated ore reserves of the mines and it probable selling price. No evidence whatsoever was
presented to show the produced mine and for how much they were sold during the year for which the return and computation were
made. This is necessary in order to determine the amount of depletion that can be legally deducted from petitioner's gross income.
The method employed by petitioner in making an outright deduction of 1/5 of the cost of the mines is not authorized under Section
30(g) (1) (B) of the Revenue Code. Respondent's disallowance of the alleged "contractual rights" amounting to P48,481.62 must
therefore be sustained. 21
The taxpayer insists in this appeal that it could use as a method for depletion under the pertinent provision of the Tax Code its "capital investment,"
representing the alleged value of its contractual rights and titles to mining claims in the sum of P242,408.10 and thus deduct outright one-fifth (1/5) of
this "capital investment" every year. regardless of whether it had actually mined the product and sold the products. The very authorities cited in its brief
give the correct concept of depletion charges that they "allow for the exhaustion of the capital value of the deposits by production"; thus, "as the cost of
the raw materials must be deducted from the gross income before the net income can be determined, so the estimated cost of the reserve used up is
allowed." 22 The alleged "capital investment" method invoked by the taxpayer is not a method of depletion, but the Tax Code provision, prior to its
amendment by Section 1, of Republic Act No. 2698, which took effect on June 18, 1960, expressly provided that "when the allowances shall equal the
capital invested ... no further allowances shall be made;" in other words, the "capital investment" was but the limitation of the amount of depletion that
could be claimed. The outright deduction by the taxpayer of 1/5 of the cost of the mines, as if it were a "straight line" rate of depreciation, was correctly
held by the Tax Court not to be authorized by the Tax Code.
ACCORDINGLY, the judgment of the Court of Tax Appeals, subject of the appeals in Cases Nos. L-21551 and L-21557, as modified by the crediting of
the losses of P36,722.42 disallowed in 1951 and 1952 to the taxpayer for the year 1953 as directed in paragraph 1 (c) of this decision, is hereby
affirmed. The judgment of the Court of Tax Appeals appealed from in Cases Nos. L-24972 and L-24978 is affirmed in toto. No costs. So ordered.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, Capistrano and Barredo, JJ., concur.

Page 10 of 24

G.R. No. L-14142

May 30, 1961

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
J. AMADO ARANETA and AMADO ARANETA & CO., INC., and MANILA SURETY & FIDELITY CO., INC., defendants.
J. AMADO ARANETA & CO., INC., defendants-appellants.
MANILA SURETY & FIDELITY CO., INC., cross-plaintiff-appellant,
vs.
J. AMADO ARANETA and J. AMADO ARANETA & CO., INC., cross-defendants-appellees.
Office of the Solicitor General for plaintiff-appellee.
Camus and Araneta for defendants-appellants.
Dimayuga, Villaluz and Dimayuga for defendant and cross-plaintiff-appellant.
PADILLA, J.:
On 22 February 1957 in the Court of First Instance of Manila the Solicitor General, in behalf of the Republic Of the Philippines, brought an action
against J. Amado Araneta and J. Amado Araneta & Company, Inc., as principals and the Manila Surety & Fidelity Company, Inc., as surety, to recover
from them jointly and severally the sum of P30, as fixed tax upon business due from 1946 to 1948, imposed by section 182, in connection with
sections 178 to 180 of the National Internal Revenue Code, as amended: P5,067.42, as 2% tax on P253,370.84, the gross receipts from their
business as a common carrier during the said period, pursuant to section 192 of the same Code; and P1,266.86, as 25% surcharge, or a total sum of
P6,364.28, the payment of which was guaranteed by a bond (Annex B) executed by the defendant-surety, and 6% in interest on the amount of
P6,364.28 from 6 December 1951, when the first extrajudicial demand was made, until fully paid. On 12 March 1957 the defendants-principals filed a
motion to dismiss the plaintiffs complaint on the ground that its cause of action is barred by the statute of limitations and on 20 March 1957 the
plaintiff, an objection thereto. On 23 March 1957 the Court denied the defendants-principals' motion to dismiss.
On 29 March the defendants-principals filed their answer denying that they had operated their vessel as a common carrier, the truth being that they
had used it to ship goods and cargoes manufactured and sold by them and allied companies owned and/or controlled by them; asserting that granting
without admitting that they were liable for common carrier's tax, their gross receipts during the alleged period was P166,299.67 only and not
P253,370.24; and that the "Bond to Guarantee Payment of Common Carrier's Tax and Compensating Tax," attached to the complaint as Annex A or to
the stipulation of facts filed on 25 February 1958 as Annex B, is not genuine and had not been duly executed because the same had not been
approved by the Collector of Internal Revenue; and setting up affirmative defenses that the five-year period of limitation provided for in section 332,
paragraph (c) of the National Internal Revenue Code, as amended, already had elapsed, hence the plaintiff's action was barred; and that granting that
the said bond was valid, the enforcement of the principal obligation having been barred, it follows that the enforcement of the obligation undertaken in
the said bond was also barred. They set up a counterclaim of P2,000 for expenses of litigation and attorney's fees incurred in defending their legal
rights. On 30 March 1957 the defendant surety filed its answer setting up the following affirmative defenses: that the plaintiff's complaint states no
cause of action; that its liability under the bond (Annex B) was extinguished by its novation and alteration without its knowledge and consent; that
granting that its liability still subsists, the said bond being merely se ondary or auxiliary to a principal obligation that could no longer be enforced by
reason of prescription, its obligation thereunder could, likewise, no longer be enforced; and that the bond (Annex B), not having been approved by the
Collector of Internal Revenue, was void. As counterclaim, it sought from the plaintiff the sum of P2,500 for expenses of litigation and attorney's fees
incurred for the protection of its rights.
On 10 April 1957, the plaintiff answered the defendants' respective counterclaim, alleging that it was a valid cause of action against them and that its
complaint was filed pursuant to its policy of collecting long overdue accounts from delinquent taxpayers.
After obtaining leave of court, on 25 May 1957 the de defendant-surety filed an amended answer reiterating its denials, affirmative defenses and
counterclaim in its first answer and adding or including a cross-claim against the defendants-principals for recovery from the latter of whatever sum of
money it might be ordered to pay the plaintiff by judgment of the Court, with interest at the rate of 12% per annum from the date of payment until the
sum it shall have paid be fully reimbursed to it by the defendants-principals; of the sum of P3,598.20 as premiums due for the period from 18
September 1949 to 18 March 1957, with interest at the rate 12% per annum from 18 March 1957 until fully paid; of a sum equivalent to 15% of the
total amount claimed as attorney's fees, as agreed upon in the indemnity bond executed by the cross-defendants on 21 March 1949 and accepted by
the cross-plaintiff (Annex "1-MSFCI") attached to the attended answer and made a part thereof; and of the costs of the suit with respect to its crossclaim. It prayed further for any other just and equitable relief.
On 10 June 1957 the cross-defendants filed an answer to the cross-complaint of the defendant-surety, denying the truth, genuineness and correctness
of the copy of the bond attached to the complaint as Annex A and as Annex B of the stipulation of facts; and claiming that the mere filing of a suit
against the cross-plaintiff did not render it liable to pay the alleged tax liability of the cross-defendants; that the bond filed on 18 March 1949 by the
cross-plaintiff (Annex B) was null and void, hence the same could not be the basis of the cross-plaintiff's cross-claim against the cross-defendants;
that since both of them have denied liability to the plaintiff for any amount, the cross-plaintiff has no cause of action against the cross-defendants; and
that the amount of expenses of litigation and attorney's fees claimed by the cross-plaintiff, should there be any, is to be determined by the Court in the
exercise of its discretion. As counterclaim, they prayed for recovery from the cross-plaintiff of the sum of P2,000 as expenses of litigation and
attorney's fees incurred in defending their rights on the cross-claim.
On 18 June 1957, the cross-plaintiff filed an answer to the cross-defendants' counterclaim denying the allegations therein and setting up a
counterclaim to the cross-defendants defendants' counterclaim in the amount of P1,000 as exemplary damages.
On 3 December 1957 the defendants-principals filed a motion to dismiss on the ground of lack of jurisdiction because the case involves a disputed tax
assessment; on 9 December 1957 the plaintiff, an "opposition" thereto. On 12 December 1957 the Court denied the motion to dismiss.
Page 11 of 24

On 25 February 1957 the cross-plaintiff and the cross-defendants entered into the following stipulation of facts:
COME NOW, the parties in the cross-complaint represented by their respective counsel and to this Honorable Court respect-fully submit the following
stipulation of facts:
1. That the jurisdictional facts and the capacity of the parties to sue and be sued are submitted;
2. That on or about March 18, 1949, cross-defendants J. Amado Araneta and J. Amado Araneta & Co., Inc. (Philippine Shipping
Lines) represented by J. Amado Araneta requested the herein cross-plaintiff to post a surety bond in behalf of cross-defendant
Philippine Shipping Lines and in favor of the Republic of the Philippines in the amount of P11,814.00 to guarantee the payment of
the Common Carrier's Tax and Compensating Tax of the former with the latter, to which request the cross-plaintiff agreed and did
in fact post the said bond, the original copy of which is attached as Annex "A" of the Stipulation of Facts entered into with the
plaintiff Republic of the Philippines and made an integral part hereof by reference as Annex "1-MSFC";
3. That the parties admit the truth of the terms and conditions of said bond;
4. That the cross-plaintiff agreed and did in fact post the aforesaid surety bond upon written undertaking of the cross-defendants
the original carbon copy of which is hereto attached as Annex "2-MSFCI" and made an integral part of this stipulation of facts
obligating themselves to indemnify the cross-plaintiff for any damage, losses, costs, charges or expenses of whatever kind and
nature including counsel or attorney's fees which the company may incur at any time as a consequence of having become surety
of the abovementioned bond;
5. That the parties admit the truth of the terms and conditions of the said written undertaking marked Annex "2- MSFCI";
6. That upon the passage and approval of Republic Act No. 961 on June 9, 1949, exempting from payment of the compensating
tax the purchase or receipt of vessels, their equipment and/or appurtenances, from without the Philippines, before or after the
taking effect of said Republic Act No. 361, the alleged tax liability of the cross-defendant was reduced by P5,250.00 from the
original assessment of P11,814.00 leaving the sum of P6,364.28 only, representing the fixed and common carrier's tax allegedly
due the Government;
7. That on February 22, 1957, the Republic of the Philippines initiated court proceedings seeking to recover from the as principal
and the cross-plaintiff as surety the said sum of P6,364.28 including penalties plus six (6%) percent thereon from December 6,
1951 until fully paid plus costs;
8. That in accordance with the indemnity agreement An Annex "2-MSFCI", the cross-defendants agreed to indemnify the crossplaintiff as soon as the latter has become liable for the payment of any amount under the aforementioned bond, whether or not it
shall have paid such sum or sums of money, or any part thereof;
9. That in spite of repeated demands cross-defendants have failed and refused and still fail and refuse to indemnify the crossplaintiff the amount claimed for in the cross-plaintiff's complaint;
10. That the cross-plaintiff hereby withdraws the second and third causes of action as contained in the cross-claim; and
11. That the parties hereto hereby withdraw their respective counterclaims.
which they submitted to the Court (pp. 71-76; 84-91, recs. on app.).
On the same day, 25 February 1957, all the parties to this case submitted to the Court the following stipulation of facts dated 7 February 1957:
COME NOW the parties in the above-entitled case represented by their respective counsel and to this Honorable Court respectfully submit the
following stipulation of facts:
1. That the jurisdictional facts and the capacity of the parties to sue and be sued are admitted;
2. That sometime in 1946, the defendant J. Amado Araneta purchased from the Philippine Shipping Commission, and received
delivery of one F. S. vessel for the sum of P120,000.00;
3. That during the fourth quarter of 1946 up to and in including the fourth quarter of 1948, defendants J. Amado Araneta and/or J.
Amado Araneta & Co., operated said F. S. vessel within Philippine waters under the business style "Philippine Shipping Lines"
without first providing themselves with the necessary fixed tax C-3-C required by Sec. 182 of the Tax Code;
4. That during the above-mentioned period from the fourth quarter of 1946 to the fourth quarter of 1947, said defendants J. Amado
Araneta and/or J. Amado Araneta & Co., failed to make a return of gross receipts from the operation of said F.S. vessel;
5. That the Bureau of Internal Revenue conducted an examination of the books of the Philippine Shipping Lines, as a result of
which the Bureau of Internal Revenue assessed defer defendant in the sums of P6,361.28, as fixed and percentage taxes and
surcharge and P5,250.00 as compensating tax and surcharge, or a total of P11,614.28, as evidenced by the letter, dated May 15,
Page 12 of 24

1948, hereto attached as Annex "A" to this stipulation of facts and made an integral part hereof, computed as follows:

Fixed Tax (1947-1948) ......................................................

P 30.00

2% common carrier's tax in accordance with Sec. 192, NIRC,

on gross receipt for the same period in the sum of P253,370.84
..................................................................

5,067.42

25% surcharge ..................................................................

1,266.86

TOTAL .....................................................................

P 6,364.28

and an assessment for compensating tax as follows:

2-1/2% on P120,000.00 .............................................

P 4,200.00

25% surcharge on P4,200.00 ...................................

1,050.00

TOTAL COMPENSATING TAX DUE ....................

P 5,250.00

6. That on March 18, 1949, defendants J. Amado Araneta as principal and the Manila Surety & Fidelity Co., Inc. as surety
executed "Bond to Guarantee Payment of Common Carriers Tax and Compensating Tax", the original of which is hereto attached
to this stipulation of facts as Annex "B" and made an integral part hereof. That the parties admit the truth of the terms and
conditions of said bond and the fact that at the lower portion of said bond which reads:
"APPROVED:
"BIBIANO L. MEER
"Collector of Internal Revenue"
was left unsigned by said official;
7. That in view of the enactment of Rep. Act No. 361, the defendant J. Amado Araneta and/or J. Amado Araneta & Co., Inc. sent a
letter to the Collector of Internal Revenue dated June 14, 1949, a certified true copy of which is hereto attached with this
stipulation of facts as Annex "C" and made an integral part hereof. Said letter was answered by the Collector of Internal Revenue
dated June 21, 1949, a certified true copy of which is likewise attached to this stipulation of facts as Annex "D" and made an
integral part hereof;
8. That plaintiff through the Collector of Internal Revenue sent letters of demand to the defendants J. Amado Araneta and the
Manila Surety & Fidelity Co., Inc., dated December 6, 1951 and May 17, 1952, respectively, certified true copies of which are
hereto attached to this stipulation of facts as Annexes "E" and "F" and made integral parts hereof. Another set of demand letters
dated November 14, 1953, was sent to the defendant J. Amado Araneta under the firm name of Philippine Shipping Lines and to
the Manila Surety & Fidelity Co., Inc. certified true copies of which are likewise hereto attached to this stipulation of facts as
Annexes "G" and "H" and likewise made integral parts hereof;
9. That on February 3, 1955, the Bureau of Internal Revenue sent another demand letter to the Philippine Shipping Lines. A copy
of said letter is hereto attached and made an integral part hereof as Annex I;
10. That due to the failure of defendants to comply with the above-demands, plaintiff instituted the present action on February 22,
1957, to collect from defendants J. Amado Araneta and/or J. Amado Araneta & Co., Inc., and Manila Surety & Fidelity Co., Inc.,
jointly and severally the amount of P6,364.28 including penalties plus 6% interest thereon from December 6, 1951, until fully paid,
and/or in default thereof, to execute upon the bond (Annex "B") for the satisfaction of the claim.
WHEREFORE, it is respectfully prayed that the above case be submitted for decision based upon the above stipulation of facts.
Page 13 of 24

(pp. 76-101; 66-83, recs. on app.)

On 31 May 1958 the Court rendered judgment holding that the action brought by the plaintiff was for the enforcement of an obligation undertaken by
the defendants-principals and the defendant-surety in the bond executed by them in favor of the plaintiff (Annex B); that the action having been
brought on 22 February 1957 was within the period of ten years from 18 March 1949, the date of execution of the bond; that the defendants-principals
having defaulted in the payment of their tax obligation, which the defendant-surety had guaranteed to pay should the principals fail, the surety's
obligation undertaken in the bond became a principal obligation; and that although the Collector of Internal Revenue failed to affix his signature in the
bond (Annex B), the latter's acceptance constituted approval thereof, and ordering the defendants, jointly and severally, to pay the plaintiff the sum of
P6,364.28, with interest at the rate of 6% per annum from 22 February 1957, the date of the filing of the complaint, until fully paid; and dismissing the
defendants' counterclaims against the plaintiff and those against each other as well as the cross-claim by the cross plaintiff and defendant-surely
against the cross-defendants and defendants-principals, without pronouncement as to costs.
On 12 June and 5 July 1958 the defendants filed motions for reconsideration; on 14 June 1958, the cross-defendants, an objection to the crossplaintiff's motion for reconsideration.
On 27 June and 8 July 1958 the Court denied the defendants' respective motions for reconsideration.
The defendants have appealed separately.
The contention of the appellants-taxpayers (J. Amado Araneta and J. Amado Araneta & Company, Inc.) is that the appellee's cause of action has
prescribed, because the action for recovery of internal revenue taxes and surcharge due brought on 22 February 1957, was not commenced within the
period of five years after the assessment dated 15 May 1948 had been made (Annex A); that the bond executed by them and the appellant-surety
(Manila Surety & Fidelity Company, Inc.) to guarantee payment of the common carrier's tax (Annex B), being merely auxiliary or ancillary to the
principal obligation the enforcement of which has prescribed, the enforcement of their auxiliary obligation in the bond also has prescribed; and that the
bond, (Annex B) is null and void because the same was not approved by the Collector of Internal Revenue.
The ground of the appellant-surety's appeal is that, not-withstanding the fact that the appellants-taxpayers had bound themselves to indemnify it "for
any damages, loss, costs, charges, or expenses of whatever kind and nature," as a result of its having executed and filed the bond marked as Annex
B (Annex 2-MSFCI), the trial court dismissed its cross-claim against the appellants-taxpayers instead of ordering them to pay it whatever amount it
shall have paid to the appellee by virtue of its judgment and the stipulated interests thereon from the date of payment of said amount by the crossplaintiff to the appellee until full payment thereof by the cross-defendants to the cross-plaintiff.
The appellants-taxpayers' appeal is without merit. They cannot invoke prescription under the provisions of section 331 of the National Internal
Revenue Code, as amended, because the appellee is suing on the bond executed and filed by them and the appellant-surety (Annex B). It must be
borne in mind that on 15 March 1948 the Collector of Internal Revenue assessed the appellants-taxpayers for fixed tax upon business due from 1946
to 1948 under the provisions of section 182, in connection with sections 178 to 180, of the National Internal Revenue Code, as amended, and 2% tax
on gross receipts from their business as common carrier under those of section 192 of the same Code, and surcharge, all amounting to P6,364.28 (An
Annex A);1 that the appellants-taxpayers requested the Collector of internal Revenue to be allowed to pay their tax liability in six equal monthly
installments beginning 15 April 1949; that the Collector of Internal Revenue granted their request provided a bond to guarantee payment of their tax
liability be filed by them (Annex B); that the appellants-taxpayers requested the appellant-surety to underwrite the required bond (Annex 2-MSFCI);
and that on 18 March 1949 the appellants-taxpayers and the appel appellant-surety executed the, required bend (Annex B) and submitted it to the
Collector of Internal Revenue who received and kept it. The condition of the bond is
. . . that if the above-bounden Principal (the appellants-tax-payers) truly and faithfully make a prompt and complete payment of the
2% common carriers tax and compensating tax due on the above-mentioned vessel for the year 1948, in six (6) equal monthly
installments Commencing on April 15, 1949, as well as all fines and penalties imposed in accordance with the National Internal
Revenue Code, then this obligation shall be null and void, otherwise it shall remain in full force and effect (Annex B).
The appellants-taxpayers failed to pay any of the installments due despite demand (Annexes E, G & 1). Hence, the appellee sued on the bond (Annex
B) which is a separate and distinct obligation of the parties thereto. For this Court to sustain the appellants' defense of prescription would in effect
nullify their undertaking in the bond which was executed and filed by them to lighten their tax obligation or burden by being allowed to pay in six equal
installments.
The action to enforce the obligation on the bond executed on 18 March 1949, having been filed in court by the appellee on 22 February 1957, was
within the prescriptive period of ten years.
The appellants-taxpayers' argument that the bond (Annex B) being ancillary to the principal obligation to pay heir tax liability, which already has
prescribed, the enforcement of their obligation in the bond also has prescribed is untenable. What has been said about their claim of prescription
against the collection of the tax equally applies to the claim of prescription against the enforcement of the bond obligation or undertaking.
The act of the Collector of Internal Revenue in receiving and keeping the bond, deferring collection of the tax, and suing on the bond (Annex B) upon
failure of the appellants taxpayers to pay the tax, the payment of which is guaranteed by the bond, meant or amounted to approval thereof.
Turning now to the appeal of the appellant-surety, the having bound themselves to the former as follows:
INDEMNITY: (b) To indemnify the Company for any damage, loss, costs, charges, or expenses of whatever kind and nature
including counsel or attorney's fees, which the COMPANY may, at any time, sustain or incur as a consequence of having become
surety upon the above-mentioned bond; said attorneys fees shall not be less than fifteen (15%) per cent of e total amount claimed
Page 14 of 24

in any action which the COMPANY may institute against the undersigned in Court.
MATURITY OF THE OBLIGATION UNDER THIS SECOND: (c) Said indemnity shall be paid to the COMPANY as soon as it has
become liable for the payment of any amount, under the abovementioned bond, whether or not it shall have paid such sums or
sums of money, or any part thereof.
INTEREST IN CASE OF DEFAULT: (d) And in the case of non-payment of the said sum or sums of money to the COMPANY by
the undersigned, the said undersigned shall pay, upon said sum or sums of money, an interest of twelve (12%) per cent per
annum, which interest, while not paid, shall be liquidated and accumulated monthly to the capital owed by the undersigned,
drawing the same interest as the said capital.
UNQUESTIONABILITY OF THE PAYMENTS AND DISBURSEMENTS MADE BY THE COMPANY: (e) Any payment or
disbursement made by the COMPANY on account of the abovementioned bond, either in the belief that it was bound to make said
payment or disbursement or in the belief that the payment or disbursement made was necessary or expedient, in order to avoid
greater losses or obligations for which it would be liable under the abovementioned bond, shall be final and shall not be
questioned by the undersigned who hereby agree to indemnify, jointly and severally, to the COMPANY, for each and everyone of
said payments and disbursements. (Emphasis supplied). Annex "2- MSFCI"
should be ordered to reimburse the appellant-surety for whatever amount it shall have paid to the appellee by virtue of the judgment rendered in this
case and to pay the stipulated interest thereon. The premium and attorney's fees sought to be collected by the appellant-surety in the second and third
causes of action of its cross-complaint against the appellants-taxpayers have been withdrawn by it (paragraph 10 of the stipulation of facts).
WITH THE FOREGOING MODIFICATION, the rest of the judgment appealed from is affirmed, with costs against the appellants-taxpayers.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, De Leon and Natividad JJ., concur.

Page 15 of 24

339 Phil. 253

SECOND DIVISION
[ G.R. No. 120880, June 05, 1997 ]
FERDINAND R. MARCOS II, PETITIONER, VS. COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE AND
HERMINIA D. DE GUZMAN, RESPONDENTS.
DECISION
TORRES, JR., J.:
In this Petition for Review on Certiorari, Government action is once again assailed as precipitate and unfair, suffering the basic and oftly implored
requisites of due process of law. Specifically, the petition assails the Decision [1] of the Court of Appeals dated November 29, 1994 in CA-G.R. SP No.
31363, where the said court held:
"In view of all the foregoing, we rule that the deficiency income tax assessments and estate tax assessment, are already final and (u)nappealable
-and- the subsequent levy of real properties is a tax remedy resorted to by the government, sanctioned by Section 213 and 218 of the National
Internal Revenue Code. This summary tax remedy is distinct and separate from the other tax remedies (such as Judicial Civil actions and Criminal
actions), and is not affected or precluded by the pendency of any other tax remedies instituted by the government.
WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the petition for certiorari with prayer for Restraining Order and
Injunction.
No pronouncements as to costs.
SO ORDERED."
More than seven years since the demise of the late Ferdinand E. Marcos, the former President of the Republic of the Philippines, the matter of the
settlement of his estate, and its dues to the government in estate taxes, are still unresolved, the latter issue being now before this Court for
resolution. Specifically, petitioner Ferdinand R. Marcos II, the eldest son of the decedent, questions the actuations of the respondent Commissioner
of Internal Revenue in assessing, and collecting through the summary remedy of Levy on Real Properties, estate and income tax delinquencies upon
the estate and properties of his father, despite the pendency of the proceedings on probate of the will of the late president, which is docketed as Sp.
Proc. No. 10279 in the Regional Trial Court of Pasig, Branch 156.
Petitioner had filed with the respondent Court of Appeals a Petition for Certiorari and Prohibition with an application for writ of preliminary injunction
and/or temporary restraining order on June 28, 1993, seeking to I. Annul and set aside the Notices of Levy on real property dated February 22, 1993 and May 20, 1993, issued by respondent Commissioner of
Internal Revenue;
II. Annul and set aside the Notices of Sale dated May 26, 1993;
III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service), from proceeding with the Auction of the real properties covered by
Notices of Sale.

After the parties had pleaded their case, the Court of Appeals rendered its Decision [2] on November 29, 1994, ruling that the deficiency assessments
for estate and income tax made upon the petitioner and the estate of the deceased President Marcos have already become final and unappealable,
and may thus be enforced by the summary remedy of levying upon the properties of the late President, as was done by the respondent
Commissioner of Internal Revenue.
"WHEREFORE, premises considered judgment is hereby rendered DISMISSING the petition for Certiorari with prayer for Restraining Order and
Injunction.
No pronouncements as to cost.
SO ORDERED."
Unperturbed, petitioner is now before us assailing the validity of the appellate court's decision, assigning the following as errors:
A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT THE SUMMARY TAX REMEDIES RESORTED TO BY THE GOVERNMENT
ARE NOT AFFECTED AND PRECLUDED BY THE PENDENCY OF THE SPECIAL PROCEEDING FOR THE ALLOWANCE OF THE LATE
PRESIDENT'S ALLEGED WILL. TO THE CONTRARY, THIS PROBATE PROCEEDING PRECISELY PLACED ALL PROPERTIES WHICH FORM
PART OF THE LATE PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF THE PROBATE COURT TO THE EXCLUSION OF ALL OTHER COURTS
AND ADMINISTRATIVE AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY DECIDING THAT SINCE THE TAX ASSESSMENTS OF PETITIONER AND
HIS PARENTS HAD ALREADY BECOME FINAL AND UNAPPEALABLE, THERE WAS NO NEED TO GO INTO THE MERITS OF THE GROUNDS
CITED IN THE PETITION. INDEPENDENT OF WHETHER THE TAX ASSESSMENTS HAD ALREADY BECOME FINAL, HOWEVER, PETITIONER
HAS THE RIGHT TO QUESTION THE UNLAWFUL MANNER AND METHOD IN WHICH TAX COLLECTION IS SOUGHT TO BE ENFORCED BY
Page 16 of 24

RESPONDENTS COMMISSIONER AND DE GUZMAN. THUS, RESPONDENT COURT SHOULD HAVE FAVORABLY CONSIDERED THE MERITS
OF THE FOLLOWING GROUNDS IN THE PETITION:
(1) The Notices of Levy on Real Property were issued beyond the period provided in the Revenue Memorandum Circular No. 38-68.
(2) [a] The numerous pending court cases questioning the late President's ownership or interests in several properties (both personal and real) make
the total value of his estate, and the consequent estate tax due, incapable of exact pecuniary determination at this time. Thus, respondents
assessment of the estate tax and their issuance of the Notices of Levy and Sale are premature, confiscatory and oppressive.
[b] Petitioner, as one of the late President's compulsory heirs, was never notified, much less served with copies of the Notices of Levy, contrary to the
mandate of Section 213 of the NIRC. As such, petitioner was never given an opportunity to contest the Notices in violation of his right to due process
of law.
C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION, RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT IT HAD NO
POWER TO GRANT INJUNCTIVE RELIEF TO PETITIONER. SECTION 219 OF THE NIRC NOTWITHSTANDING, COURTS POSSESS THE
POWER TO ISSUE A WRIT OF PRELIMINARY INJUNCTION TO RESTRAIN RESPONDENTS COMMISSIONER'S AND DE GUZMAN'S
ARBITRARY METHOD OF COLLECTING THE ALLEGED DEFICIENCY ESTATE AND INCOME TAXES BY MEANS OF LEVY.
The facts as found by the appellate court are undisputed, and are hereby adopted:
"On September 29, 1989, former President Ferdinand Marcos died in Honolulu, Hawaii, USA.
On June 27, 1990, a Special Tax Audit Team was created to conduct investigations and examinations of the tax liabilities and obligations of the late
president, as well as that of his family, associates and "cronies". Said audit team concluded its investigation with a Memorandum dated July 26,
1991. The investigation disclosed that the Marcoses failed to file a written notice of the death of the decedent, an estate tax returns [sic], as well as
several income tax returns covering the years 1982 to 1986, -all in violation of the National Internal Revenue Code (NIRC).
Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the Regional Trial of Quezon City for violations of Sections 82, 83
and 84 (has penalized under Sections 253 and 254 in relation to Section 252- a & b) of the National Internal Revenue Code (NIRC).
The Commissioner of Internal Revenue thereby caused the preparation and filing of the Estate Tax Return for the estate of the late president, the
Income Tax Returns of the Spouses Marcos for the years 1985 to 1986, and the Income Tax Returns of petitioner Ferdinand 'Bongbong' Marcos II for
the years 1982 to 1985.
On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment no. FAC-2-89-91-002464 (against the estate of the late
president Ferdinand Marcos in the amount of P23,293,607,638.00 Pesos); (2) Deficiency income tax assessment no. FAC-1-85-91-002452 and
Deficiency income tax assessment no. FAC-1-86-91-002451 (against the Spouses Ferdinand and Imelda Marcos in the amounts of P149,551.70 and
P184,009,737.40 representing deficiency income tax for the years 1985 and 1986); (3) Deficiency income tax assessment nos. FAC-1-82-91-002460
to FAC-1-85-91-002463 (against petitioner Ferdinand 'Bongbong' Marcos II in the amounts of P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos;
and P6,376.60 Pesos representing his deficiency income taxes for the years 1982 to 1985).
The Commissioner of Internal Revenue avers that copies of the deficiency estate and income tax assessments were all personally and constructively
served on August 26, 1991 and September 12, 1991 upon Mrs. Imelda Marcos (through her caretaker Mr. Martinez) at her last known address at No.
204 Ortega St., San Juan, M.M. (Annexes 'D' and 'E' of the Petition). Likewise, copies of the deficiency tax assessments issued against petitioner
Ferdinand 'Bongbong' Marcos II were also personally and constructively served upon him (through his caretaker) on September 12, 1991, at his last
known address at Don Mariano Marcos St. corner P. Guevarra St., San Juan, M.M. (Annexes 'J' and 'J-1' of the Petition). Thereafter, Formal
Assessment notices were served on October 20, 1992, upon Mrs. Marcos c/o petitioner, at his office, House of Representatives, Batasan Pambansa,
Quezon City. Moreover, a notice to Taxpayer inviting Mrs. Marcos (or her duly authorized representative or counsel), to a conference, was furnished
the counsel of Mrs. Marcos, Dean Antonio Coronel - but to no avail.
The deficiency tax assessments were not protested administratively, by Mrs. Marcos and the other heirs of the late president, within 30 days from
service of said assessments.
On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on real property against certain parcels of land owned by the
Marcoses - to satisfy the alleged estate tax and deficiency income taxes of Spouses Marcos.
On May 20, 1993, four more Notices of Levy on real property were issued for the purpose of satisfying the deficiency income taxes.
On May 26, 1993, additional four (4) notices of Levy on real property were again issued. The foregoing tax remedies were resorted to pursuant to
Sections 205 and 213 of the National Internal Revenue Code (NIRC).
In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of herein petitioner) calling the attention of the BIR and requesting that
they be duly notified of any action taken by the BIR affecting the interest of their client Ferdinand 'Bongbong Marcos II, as well as the interest of the
late president - copies of the aforesaid notices were served on April 7, 1993 and on June 10, 1993, upon Mrs. Imelda Marcos, the petitioner, and
their counsel of record, 'De Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law Office'.
Notices of sale at public auction were posted on May 26, 1993, at the lobby of the City Hall of Tacloban City. The public auction for the sale of the
eleven (11) parcels of land took place on July 5, 1993. There being no bidder, the lots were declared forfeited in favor of the government.
On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed the instant petition for certiorari and prohibition under Rule 65 of the Rules of
Court, with prayer for temporary restraining order and/or writ of preliminary injunction."

It has been repeatedly observed, and not without merit, that the enforcement of tax laws and the collection of taxes, is of paramount importance for
Page 17 of 24

the sustenance of government. Taxes are the lifeblood of the government and should be collected without unnecessary hindrance. However, such
collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the
common good, may be achieved."[3]
Whether or not the proper avenues of assessment and collection of the said tax obligations were taken by the respondent Bureau is now the subject
of the Court's inquiry.
Petitioner posits that notices of levy, notices of sale, and subsequent sale of properties of the late President Marcos effected by the BIR are null and
void for disregarding the established procedure for the enforcement of taxes due upon the estate of the deceased. The case of Domingo vs.
Garlitos[4] is specifically cited to bolster the argument that "the ordinary procedure by which to settle claims of indebtedness against the estate of a
deceased, person, as in an inheritance (estate) tax, is for the claimant to present a claim before the probate court so that said court may order the
administrator to pay the amount therefor." This remedy is allegedly, exclusive, and cannot be effected through any other means.
Petitioner goes further, submitting that the probate court is not precluded from denying a request by the government for the immediate payment of
taxes, and should order the payment of the same only within the period fixed by the probate court for the payment of all the debts of the decedent. In
this regard, petitioner cites the case of Collector of Internal Revenue vs. The Administratrix of the Estate of Echarri (67 Phil 502), where it was held
that:
"The case of Pineda vs. Court of First Instance of Tayabas and Collector of Internal Revenue (52 Phil 803), relied upon by the petitioner-appellant is
good authority on the proposition that the court having control over the administration proceedings has jurisdiction to entertain the claim presented by
the government for taxes due and to order the administrator to pay the tax should it find that the assessment was proper, and that the tax was legal,
due and collectible. And the rule laid down in that case must be understood in relation to the case of Collector of Customs vs. Haygood, supra., as to
the procedure to be followed in a given case by the government to effectuate the collection of the tax. Categorically stated, where during the
pendency of judicial administration over the estate of a deceased person a claim for taxes is presented by the government, the court has the
authority to order payment by the administrator; but, in the same way that it has authority to order payment or satisfaction, it also has the negative
authority to deny the same. While there are cases where courts are required to perform certain duties mandatory and ministerial in character, the
function of the court in a case of the present character is not one of them; and here, the court cannot be an organism endowed with latitude of
judgment in one direction, and converted into a mere mechanical contrivance in another direction."
On the other hand, it is argued by the BIR, that the state's authority to collect internal revenue taxes is paramount. Thus, the pendency of probate
proceedings over the estate of the deceased does not preclude the assessment and collection, through summary remedies, of estate taxes over the
same. According to the respondent, claims for payment of estate and income taxes due and assessed after the death of the decedent need not be
presented in the form of a claim against the estate. These can and should be paid immediately. The probate court is not the government agency to
decide whether an estate is liable for payment of estate of income taxes. Well-settled is the rule that the probate court is a court with special and
limited jurisdiction.
Concededly, the authority of the Regional Trial Court, sitting, albeit with limited jurisdiction, as a probate court over estate of deceased individual, is
not a trifling thing. The court's jurisdiction, once invoked, and made effective, cannot be treated with indifference nor should it be ignored with
impunity by the very parties invoking its authority.
In testament to this, it has been held that it is within the jurisdiction of the probate court to approve the sale of properties of a deceased person by his
prospective heirs before final adjudication;[5] to determine who are the heirs of the decedent; [6] the recognition of a natural child;[7] the status of a
woman claiming to be the legal wife of the decedent; [8] the legality of disinheritance of an heir by the testator; [9] and to pass upon the validity of a
waiver of hereditary rights.[10]
The pivotal question the court is tasked to resolve refers to the authority of the Bureau of Internal Revenue to collect by the summary remedy of
levying upon, and sale of real properties of the decedent, estate tax deficiencies, without the cognition and authority of the court sitting in probate
over the supposed will of the deceased.
The nature of the process of estate tax collection has been described as follows:
"Strictly speaking, the assessment of an inheritance tax does not directly involve the administration of a decedent's estate, although it may be viewed
as an incident to the complete settlement of an estate, and, under some statutes, it is made the duty of the probate court to make the amount of the
inheritance tax a part of the final decree of distribution of the estate. It is not against the property of decedent, nor is it a claim against the estate as
such, but it is against the interest or property right which the heir, legatee, devisee, etc., has in the property formerly held by decedent. Further, under
some statutes, it has been held that it is not a suit or controversy between the parties, nor is it an adversary proceeding between the state and the
person who owes the tax on the inheritance. However, under other statutes it has been held that the hearing and determination of the cash value of
the assets and the determination of the tax are adversary proceedings. The proceeding has been held to be necessarily a proceeding in rem. [11]
In the Philippine experience, the enforcement and collection of estate tax, is executive in character, as the legislature has seen it fit to ascribe this
task to the Bureau of Internal Revenue. Section 3 of the National Internal Revenue Code attests to this:
"Sec. 3. Powers and duties of the Bureau.-The powers and duties of the Bureau of Internal Revenue shall comprehend the assessment and
collection of all national internal revenue taxes, fees, and charges, and the enforcement of all forfeitures, penalties, and fines connected therewith,
including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts. Said Bureau shall also give
effect to and administer the supervisory and police power conferred to it by this Code or other laws."
Thus, it was in Vera vs. Fernandez[12] that the court recognized the liberal treatment of claims for taxes charged against the estate of the decedent.
Such taxes, we said, were exempted from the application of the statute of non-claims, and this is justified by the necessity of government funding,
immortalized in the maxim that taxes are the lifeblood of the government. Vectigalia nervi sunt rei publicae - taxes are the sinews of the state.
"Taxes assessed against the estate of a deceased person, after administration is opened, need not be submitted to the committee on claims in the
ordinary course of administration. In the exercise of its control over the administrator, the court may direct the payment of such taxes upon motion
showing that the taxes have been assessed against the estate."
Page 18 of 24

Such liberal treatment of internal revenue taxes in the probate proceedings extends so far, even to allowing the enforcement of tax obligations
against the heirs of the decedent, even after distribution of the estate's properties.
"Claims for taxes, whether assessed before or after the death of the deceased, can be collected from the heirs even after the distribution of the
properties of the decedent. They are exempted from the application of the statute of non-claims. The heirs shall be liable therefor, in proportion to
their share in the inheritance."[13]
"Thus, the Government has two ways of collecting the taxes in question. One, by going after all the heirs and collecting from each one of them the
amount of the tax proportionate to the inheritance received. Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all
property and rights to property belong to the taxpayer for unpaid income tax, is by subjecting said property of the estate which is in the hands of an
heir or transferee to the payment of the tax due the estate. (Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105, September 15, 1967.)
From the foregoing, it is discernible that the approval of the court, sitting in probate, or as a settlement tribunal over the deceased is not a mandatory
requirement in the collection of estate taxes. It cannot therefore be argued that the Tax Bureau erred in proceeding with the levying and sale of the
properties allegedly owned by the late President, on the ground that it was required to seek first the probate court's sanction. There is nothing in the
Tax Code, and in the pertinent remedial laws that implies the necessity of the probate or estate settlement court's approval of the state's claim for
estate taxes, before the same can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden not to authorize the executor or judicial
administrator of the decedent's estate to deliver any distributive share to any party interested in the estate, unless it is shown a Certification by the
Commissioner of Internal Revenue that the estate taxes have been paid. This provision disproves the petitioner's contention that it is the probate
court which approves the assessment and collection of the estate tax.
If there is any issue as to the validity of the BIR's decision to assess the estate taxes, this should have been pursued through the proper
administrative and judicial avenues provided for by law.
Section 229 of the NIRC tells us how:
"Sec. 229. Protesting of assessment.-When the Commissioner of Internal Revenue or his duly authorized representative finds that proper taxes
should be assessed, he shall first notify the taxpayer of his findings. Within a period to be prescribed by implementing regulations, the taxpayer shall
be required to respond to said notice. If the taxpayer fails to respond, the Commissioner shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation in such form and manner as may be
prescribed by implementing regulations within (30) days from receipt of the assessment; otherwise, the assessment shall become final and
unappealable.
If the protest is denied in whole or in part, the individual, association or corporation adversely affected by the decision on the protest may appeal to
the Court of Tax Appeals within thirty (30) days from receipt of said decision; otherwise, the decision shall become final, executory and demandable.
(As inserted by P.D. 1773)"
Apart from failing to file the required estate tax return within the time required for the filing of the same, petitioner, and the other heirs never
questioned the assessments served upon them, allowing the same to lapse into finality, and prompting the BIR to collect the said taxes by levying
upon the properties left by President Marcos.
Petitioner submits, however, that "while the assessment of taxes may have been validly undertaken by the Government, collection thereof may have
been done in violation of the law. Thus, the manner and method in which the latter is enforced may be questioned separately, and irrespective of the
finality of the former, because the Government does not have the unbridled discretion to enforce collection without regard to the clear provision of
law."[14]
Petitioner specifically points out that applying Memorandum Circular No. 38-68, implementing Sections 318 and 324 of the old tax code (Republic Act
5203), the BIR's Notices of Levy on the Marcos properties, were issued beyond the allowed period, and are therefore null and void:
"...the Notices of Levy on Real Property (Annexes 0 to NN of Annex C of this Petition) in satisfaction of said assessments were still issued by
respondents well beyond the period mandated in Revenue Memorandum Circular No. 38-68. These Notices of Levy were issued only on 22
February 1993 and 20 May 1993 when at least seventeen (17) months had already lapsed from the last service of tax assessment on 12 September
1991. As no notices of distraint of personal property were first issued by respondents, the latter should have complied with Revenue Memorandum
Circular No. 38-68 and issued these Notices of Levy not earlier than three (3) months nor later than six (6) months from 12 September 1991. In
accordance with the Circular, respondents only had until 12 March 1992 (the last day of the sixth month) within which to issue these Notices of Levy.
The Notices of Levy, having been issued beyond the period allowed by law, are thus void and of no effect." [15]
We hold otherwise. The Notices of Levy upon real property were issued within the prescriptive period and in accordance with the provisions of the
present Tax Code. The deficiency tax assessment, having already become final, executory, and demandable, the same can now be collected through
the summary remedy of distraint or levy pursuant to Section 205 of the NIRC.
The applicable provision in regard to the prescriptive period for the assessment and collection of tax deficiency in this instance is Article 223 of the
NIRC, which pertinently provides:
"Sec. 223. Exceptions as to a 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 a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without
assessment, at any time within ten (10) years after the discovery of the falsity, fraud, or omission: Provided, That, in a fraud assessment which has
become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof.
xxx

Page 19 of 24

(c) Any internal revenue tax which has been assessed within the period of limitation above prescribed, may be collected by distraint or levy or by a
proceeding in court within three years following the assessment of the tax.
The omission to file an estate tax return, and the subsequent failure to contest or appeal the assessment made by the BIR is fatal to the petitioner's
cause, as under the above-cited provision, 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. Since the estate tax
assessment had become final and unappealable by the petitioner's default as regards protesting the validity of the said assessment, there is now no
reason why the BIR cannot continue with the collection of the said tax. Any objection against the assessment should have been pursued following
the avenue paved in Section 229 of the NIRC on protests on assessments of internal revenue taxes.
Petitioner further argues that "the numerous pending court cases questioning the late president's ownership or interests in several properties (both
real and personal) make the total value of his estate, and the consequent estate tax due, incapable of exact pecuniary determination at this time.
Thus, respondents' assessment of the estate tax and their issuance of the Notices of Levy and sale are premature and oppressive." He points out
the pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were filed by the government to question the ownership and interests
of the late President in real and personal properties located within and outside the Philippines. Petitioner, however, omits to allege whether the
properties levied upon by the BIR in the collection of estate taxes upon the decedent's estate were among those involved in the said cases pending
in the Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to the matter at issue. The mere fact that the decedent has
pending cases involving ill-gotten wealth does not affect the enforcement of tax assessments over the properties indubitably included in his estate.
Petitioner also expresses his reservation as to the propriety of the BIR's total assessment of P23,292,607,638.00, stating that this amount deviates
from the findings of the Department of Justice's Panel of Prosecutors as per its resolution of 20 September 1991. Allegedly, this is clear evidence of
the uncertainty on the part of the Government as to the total value of the estate of the late President.
This is, to our mind, the petitioner's last ditch effort to assail the assessment of estate tax which had already become final and unappealable.
It is not the Department of Justice which is the government agency tasked to determine the amount of taxes due upon the subject estate, but the
Bureau of Internal Revenue[16] whose determinations and assessments are presumed correct and made in good faith. [17] The taxpayer has the duty of
proving otherwise. In the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed. Even an
assessment based on estimates is prima facie valid and lawful where it does not appear to have been arrived at arbitrarily or capriciously. The
burden of proof is upon the complaining party to show clearly that the assessment is erroneous. Failure to present proof of error in the assessment
will justify the judicial affirmance of said assessment.[18] In this instance, petitioner has not pointed out one single provision in the Memorandum of the
Special Audit Team which gave rise to the questioned assessment, which bears a trace of falsity. Indeed, the petitioner's attack on the assessment
bears mainly on the alleged improbable and unconscionable amount of the taxes charged. But mere rhetoric cannot supply the basis for the charge
of impropriety of the assessments made.
Moreover, these objections to the assessments should have been raised, considering the ample remedies afforded the taxpayer by the Tax Code,
with the Bureau of Internal Revenue and the Court of Tax Appeals, as described earlier, and cannot be raised now via Petition for Certiorari, under
the pretext of grave abuse of discretion. The course of action taken by the petitioner reflects his disregard or even repugnance of the established
institutions for governance in the scheme of a well-ordered society. The subject tax assessments having become final, executory and enforceable,
the same can no longer be contested by means of a disguised protest. In the main, Certiorari may not be used as a substitute for a lost appeal or
remedy.[19] This judicial policy becomes more pronounced in view of the absence of sufficient attack against the actuations of government.
On the matter of sufficiency of service of Notices of Assessment to the petitioner, we find the respondent appellate court's pronouncements sound
and resilient to petitioner's attacks.
"Anent grounds 3(b) and (B) - both alleging/claiming lack of notice - We find, after considering the facts and circumstances, as well as evidences,
that there was sufficient, constructive and/or actual notice of assessments, levy and sale, sent to herein petitioner Ferdinand "Bongbong" Marcos as
well as to his mother Mrs. Imelda Marcos.
Even if we are to rule out the notices of assessments personally given to the caretaker of Mrs. Marcos at the latter's last known address, on August
26, 1991 and September 12, 1991, as well as the notices of assessment personally given to the caretaker of petitioner also at his last known address
on September 12, 1991 - the subsequent notices given thereafter could no longer be ignored as they were sent at a time when petitioner was
already here in the Philippines, and at a place where said notices would surely be called to petitioner's attention, and received by responsible
persons of sufficient age and discretion.
Thus, on October 20, 1992, formal assessment notices were served upon Mrs. Marcos c/o the petitioner, at his office, House of Representatives,
Batasan Pambansa, Q.C. (Annexes "A", "A-1", "A-2", "A-3"; pp. 207-210, Comment/Memorandum of OSG). Moreover, a notice to taxpayer dated
October 8, 1992 inviting Mrs. Marcos to a conference relative to her tax liabilities, was furnished the counsel of Mrs. Marcos - Dean Antonio Coronel
(Annex "B", p. 211, ibid). Thereafter, copies of Notices were also served upon Mrs. Imelda Marcos, the petitioner and their counsel "De Borja,
Medialdea, Ata, Bello, Guevarra and Serapio Law Office", on April 7, 1993 and June 10, 1993. Despite all of these Notices, petitioner never lifted a
finger to protest the assessments, (upon which the Levy and sale of properties were based), nor appealed the same to the Court of Tax Appeals.
There being sufficient service of Notices to herein petitioner (and his mother) and it appearing that petitioner continuously ignored said Notices
despite several opportunities given him to file a protest and to thereafter appeal to the Court of Tax Appeals, - the tax assessments subject of this
case, upon which the levy and sale of properties were based, could no longer be contested (directly or indirectly) via this instant petition for
certiorari."[20]
Petitioner argues that all the questioned Notices of Levy, however, must be nullified for having been issued without validly serving copies thereof to
the petitioner. As a mandatory heir of the decedent, petitioner avers that he has an interest in the subject estate, and notices of levy upon its
properties should have been served upon him.
We do not agree. In the case of notices of levy issued to satisfy the delinquent estate tax, the delinquent taxpayer is the Estate of the decedent, and
not necessarily, and exclusively, the petitioner as heir of the deceased. In the same vein, in the matter of income tax delinquency of the late president
Page 20 of 24

and his spouse, petitioner is not the taxpayer liable. Thus, it follows that service of notices of levy in satisfaction of these tax delinquencies upon the
petitioner is not required by law, as under Section 213 of the NIRC, which pertinently states:
"xxx
...Levy shall be effected by writing upon said certificate a description of the property upon which levy is made. At the same time, written notice of the
levy shall be mailed to or served upon the Register of Deeds of the province or city where the property is located and upon the delinquent taxpayer,
or if he be absent from the Philippines, to his agent or the manager of the business in respect to which the liability arose, or if there be none, to the
occupant of the property in question.
xxx"
The foregoing notwithstanding, the record shows that notices of warrants of distraint and levy of sale were furnished the counsel of petitioner on April
7, 1993, and June 10, 1993, and the petitioner himself on April 12, 1993 at his office at the Batasang Pambansa. [21] We cannot therefore,
countenance petitioner's insistence that he was denied due process. Where there was an opportunity to raise objections to government action, and
such opportunity was disregarded, for no justifiable reason, the party claiming oppression then becomes the oppressor of the orderly functions of
government. He who comes to court must come with clean hands. Otherwise, he not only taints his name, but ridicules the very structure of
established authority.
IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The Decision of the Court of Appeals dated November 29, 1994 is hereby
AFFIRMED in all respects.
SO ORDERED.
Regalado, (Chairman), Romero, Puno, and Mendoza, JJ., concur.

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G.R. No. 130430 December 13, 1999

REPUBLIC OF THE PHILIPPINES, represented by the Commissioner of the Bureau of Internal Revenue (BIR), petitioner,
vs.
SALUD V. HIZON, respondent.

MENDOZA, J.:
This is a petition for review of the decision 1 of the Regional Trial Court, Branch 44, San Fernando, Pampanga, dismissing the suit filed by the Bureau
of Internal Revenue for collection of tax.
The facts are as follows:
On July 18, 1986, the BIR issued to respondent Salud V. Hizon a deficiency income tax assessment of P1,113,359.68 covering the fiscal year 19811982. Respondent not having contested the assessment, petitioner, on January 12, 1989, served warrants of distraint and levy to collect the tax
deficiency. However, for reasons not known, it did not proceed to dispose of the attached properties.
More than three years later, or on November 3, 1992, respondent wrote the BIR requesting a reconsideration of her tax deficiency assessment. The
BIR, in a letter dated August 11, 1994, denied the request. On January 1, 1997, it filed a case with the Regional Trial Court, Branch 44, San
Fernando, Pampanga to collect the tax deficiency. The complaint was signed by Norberto Salud, Chief of the Legal Division, BIR Region 4, and
verified by Amancio Saga, the Bureau's Regional Director in Pampanga.
Respondent moved to dismiss the case on two grounds: (1) that the complaint was not filed upon authority of the BIR Commissioner as required by
221 2 of the National Internal Revenue Code, and (2) that the action had already prescribed. Over petitioner's objection, the trial court, on August
28, 1997, granted the motion and dismissed the complaint. Hence, this petition. Petitioner raises the following issues: 3
I. WHETHER OR NOT THE INSTITUTION OF THE CIVIL CASE FOR COLLECTION OF TAXES WAS WITHOUT THE
APPROVAL OF THE COMMISSIONER IN VIOLATION OF SECTION 221 OF THE NATIONAL INTERNAL REVENUE
CODE.
II. WHETHER OR NOT THE ACTION FOR COLLECTION OF TAXES FILED AGAINST RESPONDENT HAD
ALREADY BEEN BARRED BY THE STATUTE OF LIMITATIONS.
First. In sustaining respondent's contention that petitioner's complaint was filed without the authority of the BIR Commissioner, the trial court stated:

There is no question that the National Internal Revenue Code explicitly provides that in the matter of filing cases in
Court, civil or criminal, for the collection of taxes, etc., the approval of the commissioner must first be secured. . . . [A]n
action will not prosper in the absence of the commissioner's approval. Thus, in the instant case, the absence of the
approval of the commissioner in the institution of the action is fatal to the cause of the plaintiff . . . .
The trial court arrived at this conclusion because the complaint filed by the BIR was not signed by then Commissioner Liwayway
Chato.
Sec. 221 of the NIRC provides:
Form and mode of proceeding in actions arising under this Code. Civil and criminal actions and proceedings
instituted in behalf of the Government under the authority of this Code or other law enforced by the Bureau of Internal
Revenue shall be brought in the name of the Government of the Philippines and shall be conducted by the provincial or
city fiscal, or the Solicitor General, or by the legal officers of the Bureau of Internal Revenue deputized by the Secretary
of Justice, but no civil and criminal actions for the recovery of taxes or the enforcement of any fine, penalty or forfeiture
under this Code shall begun without the approval of the Commissioner. (Emphasis supplied)
To implement this provision Revenue Administrative Order No. 5-83 of the BIR provides in pertinent portions:
The following civil and criminal cases are to be handled by Special Attorneys and Special Counsels assigned in the
Legal Branches of Revenues Regions:
xxx xxx xxx
II. Civil Cases
1. Complaints for collection on cases falling within the jurisdiction of the Region . . . .
In all the abovementioned cases, the Regional Director is authorized to sign all pleadings filed in
connection therewith which, otherwise, requires the signature of the Commissioner.
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xxx xxx xxx

Revenue Administrative Order No. 10-95 specifically authorizes the Litigation and Prosecution Section of the Legal Division of regional district offices
to institute the necessary civil and criminal actions for tax collection. As the complaint filed in this case was signed by the BIR's Chief of Legal
Division for Region 4 and verified by the Regional Director, there was, therefore, compliance with the law.
However, the lower court refused to recognize RAO No. 10-95 and, by implication, RAO No. 5-83. It held:
[M]emorand[a], circulars and orders emanating from bureaus and agencies whether in the purely public or quasi-public
corporations are mere guidelines for the internal functioning of the said offices. They are not laws which courts can
take judicial notice of. As such, they have no binding effect upon the courts for such memorand[a] and circulars are not
the official acts of the legislative, executive and judicial departments of the Philippines. . . . 5
This is erroneous. The rule is that as long as administrative issuances relate solely to carrying into effect the provisions of the law, they are valid and
have the force of law. 6 The governing statutory provision in this case is 4(d) of the NIRC which provides:
Specific provisions to be contained in regulations. The regulations of the Bureau of Internal Revenue shall, among
other things, contain provisions specifying, prescribing, or defining:
xxx xxx xxx
(d) The conditions to be observed by revenue officers, provincial fiscals and other officials respecting the institution and
conduct of legal actions and proceedings.
RAO Nos. 5-83 and 10-95 are in harmony with this statutory mandate.
As amended by R.A. No. 8424, the NIRC is now even more categorical. Sec. 7 of the present 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 division chief or higher,
except the following:
(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;
(b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau;
(c) The power to compromise or abate under 204 (A) and (B) of this Code, any tax deficiency: Provided, however, that
assessment issued by the Regional Offices involving basic deficiency taxes of five hundred thousand pesos
(P500,000.00) or less, and minor criminal violations as may be determined by rules and regulations to be promulgated
by the Secretary of Finance, upon the recommendation of the Commissioner, discovered by regional and district
officials, may be compromised by a regional evaluation board which shall be composed of the Regional Director as
Chairman, the Assistant Regional Director, heads of the Legal, Assessment and Collection Divisions and the Revenue
District Officer having jurisdiction over the taxpayer, as members; and
(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are
produced or kept.
None of the exceptions relates to the Commissioner's power to approve the filing of tax collection cases.
Second. With regard to the issue that the case filed by petitioner for the collection of respondent's tax deficiency is barred by prescription, 223(c) of
the NIRC provides:
Any internal revenue tax which has been assessed within the period of limitation above-prescribed may be collected by
distraint or levy or by a proceeding in court within three years 7 following the assessment of the tax.
The running of the three-year prescriptive period is suspended 8
for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy
or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a reinvestigation which is granted
by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which
the tax is being assessed or collected; provided, that, if the taxpayer informs the Commissioner of any change in
address, the running of the statute of limitations will not be suspended; when the warrant of distraint or levy is duly
served upon the taxpayer, his authorized representative or a member of his household with sufficient discretion, and no
property could be located; and when the taxpayer is out of the Philippines.
Petitioner argues that, in accordance with this provision, respondent's request for reinvestigation of her tax deficiency
assessment on November 3, 1992 effectively suspended the running of the period of prescription such that the government could
still file a case for tax collection. 9

Page 23 of 24

The contention has no merit. Sec. 229 10 of the Code mandates that a request for reconsideration must be made within 30 days from the taxpayer's
receipt of the tax deficiency assessment, otherwise the assessment becomes final, unappealable and, therefore, demandable. 11 The notice of
assessment for respondent's tax deficiency was issued by petitioner on July 18, 1986. On the other hand, respondent made her request for
reconsideration thereof only on November 3, 1992, without stating when she received the notice of tax assessment. She explained that she was
constrained to ask for a reconsideration in order to avoid the harassment of BIR collectors. 12 In all likelihood, she must have been referring to the
distraint and levy of her properties by petitioner's agents which took place on January 12, 1989. Even assuming that she first learned of the
deficiency assessment on this date, her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter.
Hence, her request for reconsideration did not suspend the running of the prescriptive period provided under 223(c). Although the Commissioner
acted on her request by eventually denying it on August 11, 1994, this is of no moment and does not detract from the fact that the assessment had
long become demandable.
Nonetheless, it is contended that the running of the prescriptive period under 223(c) was suspended when the BIR timely served the warrants of
distraint and levy on respondent on January 12, 1989. 13 Petitioner cites for this purpose our ruling in Advertising Associates Inc., v. Court of Appeals.
14
Because of the suspension, it is argued that the BIR could still avail of the other remedy under 223(c) of filing a case in court for collection of the
tax deficiency, as the BIR in fact did on January 1, 1997.
Petitioner's reliance on the Court's ruling in Advertising Associates Inc. v. Court of Appeals is misplaced. What the Court stated in that case and,
indeed, in the earlier case of Palanca v. Commissioner of Internal Revenue, 15 is that the timely service of a warrant of distraint or levy suspends the
running of the period to collect the tax deficiency in the sense that the disposition of the attached properties might well take time to accomplish,
extending even after the lapse of the statutory period for collection. In those cases, the BIR did not file any collection case but merely relied on the
summary remedy of distraint and levy to collect the tax deficiency. The importance of this fact was not lost on the Court. Thus, in Advertising
Associates, it was held: 16 "It should be noted that the Commissioner did not institute any judicial proceeding to collect the tax. He relied on the
warrants of distraint and levy to interrupt the running of the statute of limitations.
Moreover, if, as petitioner in effect says, the prescriptive period was suspended twice, i.e., when the warrants of distraint and levy were served on
respondent on January 12, 1989 and then when respondent made her request for reinvestigation of the tax deficiency assessment on November 3,
1992, the three-year prescriptive period must have commenced running again sometime after the service of the warrants of distraint and levy.
Petitioner, however, does not state when or why this took place and, indeed, there appears to be no reason for such. It is noteworthy that petitioner
raised this point before the lower court apparently as an alternative theory, which, however, is untenable.
For the foregoing reasons, we hold that petitioner's contention that the action in this case had not prescribed when filed has no merit. Our holding,
however, is without prejudice to the disposition of the properties covered by the warrants of distraint and levy which petitioner served on respondent,
as such would be a mere continuation of the summary remedy it had timely begun. Although considerable time has passed since then, as held in
Advertising Associates Inc. v. Court of Appeals 17 and Palanca v. Commissioner of Internal Revenue, 18 the enforcement of tax collection through
summary proceedings may be carried out beyond the statutory period considering that such remedy was seasonably availed of.
WHEREFORE, the petition is DENIED.
Bellosillo, Quisumbing, Buena and De Leon, Jr., JJ., concur.

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