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BPI vs.

CIR

GR No. 139736 October 17, 2005

This Petition for Review on Certiorari, under Rule 45 of the 1997 Rules of Civil Procedure, assails the Decision of the
Court of Appeals in CA-G.R. SP No. 51271, dated 11 August 1999,[1] which reversed and set aside the Decision of
the Court of Tax Appeals (CTA), dated 02 February 1999,[2] and which reinstated Assessment No. FAS-5-85-89-
002054 requiring petitioner Bank of the Philippine Islands (BPI) to pay the amount of P28,020.00 as deficiency
documentary stamp tax (DST) for the taxable year 1985, inclusive of the compromise penalty.

There is hardly any controversy as to the factual antecedents of this Petition.

Petitioner BPI is a commercial banking corporation organized and existing under the laws of the Philippines. On two
separate occasions, particularly on 06 June 1985 and 14 June 1985, it sold United States (US) $500,000.00 to the
Central Bank of the Philippines (Central Bank), for the total sales amount of US$1,000,000.00.

On 10 October 1989, the Bureau of Internal Revenue (BIR) issued Assessment No. FAS-5-85-89-002054,[3] finding
petitioner BPI liable for deficiency DST on its afore-mentioned sales of foreign bills of exchange to the Central Bank,
computed as follows '

1985 Deficiency Documentary Stamp Tax

Foreign Bills of Exchange.. P 18,480,000.00

Tax Due Thereon:

P18,480,000.00 x P0.30 (Sec. 182 NIRC). 27,720.00

P200.00

Add: Suggested compromise penalty. 300.00

TOTAL AMOUNT DUE AND COLLECTIBLE. P 28,020.00

Petitioner BPI received the Assessment, together with the attached Assessment Notice,[4] on 20 October 1989.

Petitioner BPI, through its counsel, protested the Assessment in a letter dated 16 November 1989, and filed with the
BIR on 17 November 1989. The said protest letter is reproduced in full below '
November 16, 1989

The Commissioner of Internal Revenue

Quezon City

Attention of: Mr. Pedro C. Aguillon

Asst. Commissioner for Collection

Sir:

On behalf of our client, Bank of the Philippine Islands (BPI), we have the honor to protest your
assessment against it for deficiency documentary stamp tax for the year 1985 in the amount of
P28,020.00, arising from its sale to the Central Bank of U.S. $500,000.00 on June 6, 1985 and
another U.S. $500,000.00 on June 14, 1985.

1. ' Under established market practice, the documentary stamp tax on telegraphic transfers or sales
of foreign exchange is paid by the buyer. Thus, when BPI sells to any party, the cost of
documentary stamp tax is added to the total price or charge to the buyer and the seller affixes the
corresponding documentary stamp on the document. Similarly, when the Central Bank sells foreign
exchange to BPI, it charges BPI for the cost of the documentary stamp on the transaction.

2. In the two transactions subject of your assessment, no documentary stamps were affixed
because the buyer,
Central Bank of the Philippines, was exempt from such tax. And while it is true that under P.D.
1994, a proviso was added to sec. 222 (now sec. 186) of the Tax Code 'that whenever one party to
a taxable document enjoys exemption from the tax herein imposed, the other party thereto who is
not exempt shall be the one directly liable for the tax, this proviso (and the other amendments of
P.D. 1994) took effect only on January 1, 1986, according to sec. 49 of P.D. 1994. Hence, the
liability for the documentary stamp tax could not be shifted to the seller.

In view of the foregoing, we request that the assessment be revoked and cancelled.

Very truly yours,

PADILLA LAW OFFICE

By:

(signed)

SABINO PADILLA, JR.[5]


Petitioner BPI did not receive any immediate reply to its protest letter. However, on 15 October 1992, the BIR issued
a Warrant of Distraint and/or Levy[6] against petitioner BPI for the assessed deficiency DST for taxable year 1985, in
the amount of P27,720.00 (excluding the compromise penalty of P300.00). It served the Warrant on petitioner BPI
only on 23 October 1992.[7]

Then again, petitioner BPI did not hear from the BIR until 11 September 1997, when its counsel received a letter,
dated 13 August 1997, signed by then BIR Commissioner Liwayway Vinzons-Chato, denying its' 'request for
reconsideration, and addressing the points raised by petitioner BPI in its protest letter, dated 16 November 1989, thus
'

In reply, please be informed that after a thorough and careful study of the facts of the case as well
as the law and jurisprudence pertinent thereto, this Office finds the above argument to be legally
untenable. It is admitted that while industry practice or market convention has the force of law
between the members of a particular industry, it is not binding with the BIR since it is not a party
thereto. The same should, therefore, not be allowed to prejudice the Bureau of its lawful task of
collecting revenues necessary to defray the expenses of the government. (Art. 11 in relation to Art.
1306 of the New Civil Code.)

Moreover, let it be stated that even before the amendment of Sec. 222 (now Sec. 173) of the Tax
Code, as amended, the same was already interpreted to hold that the other party who is not
exempt from the payment of documentary stamp tax liable from the tax. This interpretation was
further strengthened by the following BIR Rulings which in substance state:

1. BIR Unnumbered Ruling dated May 30, 1977 '

'x x x Documentary stamp taxes are payable by either person, signing, issuing, accepting, or
transferring the instrument, document or paper. It is now settled that where one party to the
instrument is exempt from said taxes, the other party who is not exempt should be liable.

2. BIR Ruling No. 144-84 dated September 3, 1984 '

'x x x Thus, where one party to the contract is exempt from said tax, the other party, who is not
exempt, shall be liable therefore. Accordingly, since A.J.L. Construction Corporation, the other
party to the contract and the one assuming the payment of the expenses incidental to the
registration in the vendee's name of the property sold, is not exempt from said tax, then it is the one
liable therefore, pursuant to Sec. 245 (now Sec. 196), in relation to Sec. 222 (now Sec. 173), both
of the Tax Code of 1977, as amended.

Premised on all the foregoing considerations, your request for reconsideration is hereby DENIED.
[8]
Upon receipt of the above-cited letter from the BIR, petitioner BPI proceeded to file a Petition for Review with the CTA
on 10 October 1997;[9] to which respondent BIR Commissioner, represented by the Office of the Solicitor General,
filed an Answer on 08 December 1997.[10]

Petitioner BPI raised in its Petition for Review before the CTA, in addition to the arguments presented in its protest
letter, dated 16 November 1989, the defense of prescription of the right of respondent BIR Commissioner to enforce
collection of the assessed amount. It alleged that respondent BIR Commissioner only had three years to collect on
Assessment No. FAS-5-85-89-002054, but she waited for seven years and nine months to deny the protest. In her
Answer and subsequent Memorandum, respondent BIR Commissioner merely reiterated her position, as stated in her
letter to petitioner BPI, dated 13 August 1997, which denied the latter's protest; and remained silent as to the
expiration of the prescriptive period for collection of the assessed deficiency DST.

After due trial, the CTA rendered a Decision on 02 February 1999, in which it identified two primary issues in the
controversy between petitioner BPI and respondent BIR Commissioner: (1) whether or not the right of respondent
BIR Commissioner to collect from petitioner BPI the alleged deficiency DST for taxable year 1985 had prescribed;
and (2) whether or not the sales of US$1,000,000.00 on 06 June 1985 and 14 June 1985 by petitioner BPI to the
Central Bank were subject to DST.

The CTA answered the first issue in the negative and held that the statute of limitations for respondent BIR
Commissioner to collect on the Assessment had not yet prescribed. In resolving the issue of prescription, the CTA
reasoned that '

In the case of Commissioner of Internal Revenue vs. Wyeth Suaco Laboratories, Inc., G.R.
No. 76281, September 30, 1991, 202 SCRA 125, the Supreme Court laid to rest the first issue. It
categorically ruled that a 'protest is to be treated as request for reinvestigation or reconsideration
and a mere request for reexamination or reinvestigation tolls the prescriptive period of the
Commissioner to collect on an assessment. . .

...

In the case at bar, there being no dispute that petitioner filed its protest on the subject assessment
on November 17, 1989, there can be no conclusion other than that said protest stopped the running
of the prescriptive period of the Commissioner to collect.

Section 320 (now 223) of the Tax Code, clearly states that a request for reinvestigation which is
granted by the Commissioner, shall suspend the prescriptive period to collect. The underscored
portion above does not mean that the Commissioner will cancel the subject assessment but should
be construed as when the same was entertained by the Commissioner by not issuing any warrant
of distraint or levy on the properties of the taxpayer or any action prejudicial to the latter unless and
until the request for reinvestigation is finally given due course. Taking into consideration this
provision of law and the aforementioned ruling of the Supreme Court in Wyeth Suaco which
specifically and categorically states that a protest could be considered as a request for
reinvestigation, We rule that prescription has not set in against the government.[11]

The CTA had likewise resolved the second issue in the negative. Referring to its own decision in an earlier case,
Consolidated Bank & Trust Co. v. The Commissioner of Internal Revenue,[12] the CTA reached the conclusion that
the sales of foreign currency by petitioner BPI to the Central Bank in taxable year 1985 were not subject to DST '

From the abovementioned decision of this Court, it can be gleaned that the Central Bank, during
the period June 11, 1984 to March 9, 1987 enjoyed tax exemption privilege, including the payment
of documentary stamp tax (DST) pursuant to Resolution No. 35-85 dated May 3, 1985 of the Fiscal
Incentive Review Board. As such, the Central Bank, as buyer of the foreign currency, is exempt
from paying the documentary stamp tax for the period above-mentioned. This Court further
expounded that said tax exemption of the Central Bank was modified beginning January 1, 1986
when Presidential Decree (P.D.) 1994 took effect. Under this decree, the liability for DST on sales
of foreign currency to the Central Bank is shifted to the seller.

Applying the above decision to the case at bar, petitioner cannot be held liable for DST on its 1985
sales of foreign currencies to the Central Bank, as the latter who is the purchaser of the subject
currencies is the one liable thereof. However, since the Central Bank is exempt from all taxes
during 1985 by virtue of Resolution No. 35-85 of the Fiscal Incentive Review Board dated March 3,
1985, neither the petitioner nor the Central Bank is liable for the payment of the documentary
stamp tax for the former's 1985 sales of foreign currencies to the latter. This aforecited case of
Consolidated Bank vs. Commissioner of Internal Revenue was affirmed by the Court of Appeals in
its decision dated March 31, 1995, CA-GR Sp. No. 35930. Said decision was in turn affirmed by the
Supreme Court in its resolution denying the petition filed by Consolidated Bank dated November
20, 1995 with the Supreme Court under Entry of Judgment dated March 1, 1996.[13]

In sum, the CTA decided that the statute of limitations for respondent BIR Commissioner to collect on Assessment
No. FAS-5-85-89-002054 had not yet prescribed; nonetheless, it still ordered the cancellation of the said Assessment
because the sales of foreign currency by petitioner BPI to the Central Bank in taxable year 1985 were tax-exempt.

Herein respondent BIR Commissioner appealed the Decision of the CTA to the Court of Appeals. In its Decision
dated 11 August 1999,[14] the Court of Appeals sustained the finding of the CTA on the first issue, that the running of
the prescriptive period for collection on Assessment No. FAS-5-85-89-002054 was suspended when herein petitioner
BPI filed a protest on 17 November 1989 and, therefore, the prescriptive period for collection on the Assessment had
not yet lapsed. In the same Decision, however, the Court of Appeals reversed the CTA on the second issue and
basically adopted the position of the respondent BIR Commissioner that the sales of foreign currency by petitioner
BPI to the Central Bank in taxable year 1985 were subject to DST. The Court of Appeals, thus, ordered the
reinstatement of Assessment No. FAS-5-85-89-002054 which required petitioner BPI to pay the amount of
P28,020.00 as deficiency DST for taxable year 1985, inclusive of the compromise penalty.
Comes now petitioner BPI before this Court in this Petition for Review on Certiorari, seeking resolution of the same
two legal issues raised and discussed in the courts below, to reiterate: (1) whether or not the right of respondent BIR
Commissioner to collect from petitioner BPI the alleged deficiency DST for taxable year 1985 had prescribed; and (2)
whether or not the sales of US$1,000,000.00 on 06 June 1985 and 14 June 1985 by petitioner BPI to the Central
Bank were subject to DST.

The efforts of respondent Commissioner to collect on Assessment No. FAS-5-85-89-002054 were


already barred by prescription.

Anent the question of prescription, this Court disagrees in the Decisions of the CTA and the Court of Appeals, and
herein determines the statute of limitations on collection of the deficiency DST in Assessment No. FAS-5-85-89-
002054 had already prescribed.

The period for the BIR to assess and collect an internal revenue tax is limited to three years by Section 203 of the
Tax Code of 1977, as amended,[15] which provides that '

SEC. 203. Period of limitation upon assessment and collection. ' Except as provided in the
succeeding section, internal revenue taxes shall be assessed within three years after the last day
prescribed by law for the filing of the return, and no proceeding in court without assessment for the
collection of such taxes shall be begun after the expiration of such period: Provided, That in a case
where a return is filed beyond the period prescribed by law, the three-year period shall be counted
from the day the return was filed. For the purposes of this section, a return filed before the last day
prescribed by law for the filing thereof shall be considered as filed on such last day.[16]

The three-year period of limitations on the assessment and collection of national internal revenue taxes set by
Section 203 of the Tax Code of 1977, as amended, can be affected, adjusted, or suspended, in accordance with the
following provisions of the same Code '

SEC. 223. ' Exceptions as to period of limitation of assessment and collection of taxes. ' (a) In the
case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may
be assessed, or a proceeding in court for the collection of such tax may be begun without
assessment, at any time within ten 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.
(b) If before the expiration of the time prescribed in the preceding section for the assessment of the
tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such
time the tax may be assessed within the period agreed upon. The period so agreed upon may be
extended by subsequent written agreement made before the expiration of the period previously
agreed upon.

(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.

(d) Any internal revenue tax which has been assessed within the period agreed upon as provided in
paragraph (b) hereinabove may be collected by distraint or levy or by a proceeding in court within
the period agreed upon in writing before the expiration of the three-year period. The period so
agreed upon may be extended by subsequent written agreements made before the expiration of
the period previously agreed upon.

(e) Provided, however, That nothing in the immediately preceding section and paragraph (a) hereof
shall be construed to authorize the examination and investigation or inquiry into any tax returns
filed in accordance with the provisions of any tax amnesty law or decree.[17]

SEC. 224. Suspension of running of statute. ' The running of the statute of limitation provided in
Section[s] 203 and 223 on the making of assessment and the beginning of distraint or levy or a
proceeding in court for collection, in respect of any deficiency, shall be suspended 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 a 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 and 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.[18]

As enunciated in these statutory provisions, the BIR has three years, counted from the date of actual filing of the
return or from the last date prescribed by law for the filing of such return, whichever comes later, to assess a national
internal revenue tax or to begin a court proceeding for the collection thereof without an assessment. In case of a false
or fraudulent return with intent to evade tax or the failure to file any return at all, the prescriptive period for
assessment of the tax due shall be 10 years from discovery by the BIR of the falsity, fraud, or omission. When the
BIR validly issues an assessment, within either the three-year or ten-year period, whichever is appropriate, then the
BIR has another three years[19] after the assessment within which to collect the national internal revenue tax due
thereon by distraint, levy, and/or court proceeding. The assessment of the tax is deemed made and the three-year
period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed
or sent by the BIR to the taxpayer.[20]

In the present Petition, there is no controversy on the timeliness of the issuance of the Assessment, only on the
prescription of the period to collect the deficiency DST following its Assessment. While Assessment No. FAS-5-85-
89-002054 and its corresponding Assessment Notice were both dated 10 October 1989 and were received by
petitioner BPI on 20 October 1989, there was no showing as to when the said Assessment and Assessment Notice
were released, mailed or sent by the BIR. Still, it can be granted that the latest date the BIR could have released,
mailed or sent the Assessment and Assessment Notice to petitioner BPI was on the same date they were received by
the latter, on 20 October 1989. Counting the three-year prescriptive period, for a total of 1,095 days,[21] from 20
October 1989, then the BIR only had until 19 October 1992 within which to collect the assessed deficiency DST.

The earliest attempt of the BIR to collect on Assessment No. FAS-5-85-89-002054 was its issuance and service of a
Warrant of Distraint and/or Levy on petitioner BPI. Although the Warrant was issued on 15 October 1992, previous to
the expiration of the period for collection on 19 October 1992, the same was served on petitioner BPI only on 23
October 1992.

Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the Warrant of Distraint and/or
Levy be fully executed so that it can suspend the running of the statute of limitations on the collection of the tax. It is
enough that the proceedings have validly began or commenced and that their execution has not been suspended by
reason of the voluntary desistance of the respondent BIR Commissioner. Existing jurisprudence establishes that
distraint and levy proceedings are validly begun or commenced by the issuance of the Warrant and service thereof
on the taxpayer.[22] It is only logical to require that the Warrant of Distraint and/or Levy be, at the very least, served
upon the taxpayer in order to suspend the running of the prescriptive period for collection of an assessed tax,
because it may only be upon the service of the Warrant that the taxpayer is informed of the denial by the BIR of any
pending protest of the said taxpayer, and the resolute intention of the BIR to collect the tax assessed.

If the service of the Warrant of Distraint and/or Levy on petitioner BPI on 23 October 1992 was already beyond the
prescriptive period for collection of the deficiency DST, which had expired on 19 October 1992, then what more the
letter of respondent BIR Commissioner, dated 13 August 1997 and received by the counsel of the petitioner BPI only
on 11 September 1997, denying the protest of petitioner BPI and requesting payment of the deficiency DST? Even
later and more unequivocally barred by prescription on collection was the demand made by respondent BIR
Commissioner for payment of the deficiency DST in her Answer to the Petition for Review of petitioner BPI before the
CTA, filed on 08 December 1997.[23]

II

There is no valid ground for the suspension of the running of the prescriptive period for collection of
the assessed DST under the Tax Code of 1977, as amended.
In their Decisions, both the CTA and the Court of Appeals found that the filing by petitioner BPI of a protest letter
suspended the running of the prescriptive period for collecting the assessed DST. This Court, however, takes the
opposing view, and, based on the succeeding discussion, concludes that there is no valid ground for suspending the
running of the prescriptive period for collection of the deficiency DST assessed against petitioner BPI.

A. The statute of limitations on assessment and collection of taxes is for the protection of the taxpayer and, thus,
shall be construed liberally in his favor.

Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both the
Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable
investigation. The indefinite extension of the period for assessment is unreasonable because it deprives the said
taxpayer of the assurance that he will no longer be subjected to further investigation for taxes after the expiration of a
reasonable period of time.[24] As aptly explained in Republic of the Philippines v. Ablaza[25]

The law prescribing a limitation of actions for the collection of the income tax is beneficial both to
the Government and to its citizens; to the Government because tax officers would be obliged to act
promptly in the making of assessment, and to citizens because after the lapse of the period of
prescription citizens would have a feeling of security against unscrupulous tax agents who will
always find an excuse to inspect the books of taxpayers, not to determine the latter's real liability,
but to take advantage of every opportunity to molest peaceful, law-abiding citizens. Without such a
legal defense taxpayers would furthermore be under obligation to always keep their books and
keep them open for inspection subject to harassment by unscrupulous tax agents. The law on
prescription being a remedial measure should be interpreted in a way conducive to bringing about
the beneficent purpose of affording protection to the taxpayer within the contemplation of the
Commission which recommend the approval of the law.

In order to provide even better protection to the taxpayer against unreasonable investigation, the Tax Code of 1977,
as amended, identifies specifically in Sections 223 and 224[26] thereof the circumstances when the prescriptive
periods for assessing and collecting taxes could be suspended or interrupted.

To give effect to the legislative intent, these provisions on the statute of limitations on assessment and collection of
taxes shall be construed and applied liberally in favor of the taxpayer and strictly against the Government.

B. The statute of limitations on assessment and collection of national internal revenue taxes may be waived, subject
to certain conditions, under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended,
respectively. Petitioner BPI, however, did not execute any such waiver in the case at bar.
According to paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, the prescriptive periods for
assessment and collection of national internal revenue taxes, respectively, could be waived by agreement, to wit '

SEC. 223. ' Exceptions as to period of limitation of assessment and collection of taxes. '

...

(b) If before the expiration of the time prescribed in the preceding section for the assessment of the
tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such
time the tax may be assessed within the period agreed upon. The period so agreed upon may be
extended by subsequent written agreement made before the expiration of the period previously
agreed upon.

...

(d) Any internal revenue tax which has been assessed within the period agreed upon as provided in
paragraph (b) hereinabove may be collected by distraint or levy or by a proceeding in court within
the period agreed upon in writing before the expiration of the three-year period. The period so
agreed upon may be extended by subsequent written agreements made before the expiration of
the period previously agreed upon.[27]

The agreements so described in the afore-quoted provisions are often referred to as waivers of the statute of
limitations. The waiver of the statute of limitations, whether on assessment or collection, should not be construed as a
waiver of the right to invoke the defense of prescription but, rather, an agreement between the taxpayer and the BIR
to extend the period to a date certain, within which the latter could still assess or collect taxes due. The waiver does
not mean that the taxpayer relinquishes the right to invoke prescription unequivocally.[28]

A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as
amended, must be: (1) in writing; (2) agreed to by both the Commissioner and the taxpayer; (3) before the expiration
of the ordinary prescriptive periods for assessment and collection; and (4) for a definite period beyond the ordinary
prescriptive periods for assessment and collection. The period agreed upon can still be extended by subsequent
written agreement, provided that it is executed prior to the expiration of the first period agreed upon. The BIR had
issued Revenue Memorandum Order (RMO) No. 20-90 on 04 April 1990 to lay down an even more detailed
procedure for the proper execution of such a waiver. RMO No. 20-90 mandates that the procedure for execution of
the waiver shall be strictly followed, and any revenue official who fails to comply therewith resulting in the prescription
of the right to assess and collect shall be administratively dealt with.

This Court had consistently ruled in a number of cases that a request for reconsideration or reinvestigation by the
taxpayer, without a valid waiver of the prescriptive periods for the assessment and collection of tax, as required by
the Tax Code and implementing rules, will not suspend the running thereof.[29]
In the Petition at bar, petitioner BPI executed no such waiver of the statute of limitations on the collection of the
deficiency DST per Assessment No. FAS-5-85-89-002054. In fact, an internal memorandum of the Chief of the
Legislative, Ruling & Research Division of the BIR to her counterpart in the Collection Enforcement Division, dated 15
October 1992, expressly noted that, 'The taxpayer fails to execute a Waiver of the Statute of Limitations extending
the period of collection of the said tax up to December 31, 1993 pending reconsideration of its protest. . .[30] Without
a valid waiver, the statute of limitations on collection by the BIR of the deficiency DST could not have been
suspended under paragraph (d) of Section 223 of the Tax Code of 1977, as amended.

C. The protest filed by petitioner BPI did not constitute a request for reinvestigation, granted by the respondent BIR
Commissioner, which could have suspended the running of the statute of limitations on collection of the
assessed deficiency DST under Section 224 of the Tax Code of 1977, as amended.

The Tax Code of 1977, as amended, also recognizes instances when the running of the statute of limitations on the
assessment and collection of national internal revenue taxes could be suspended, even in the absence of a waiver,
under Section 224 thereof, which reads '

SEC. 224. Suspension of running of statute. ' The running of the statute of limitation provided in
Section[s] 203 and 223 on the making of assessment and the beginning of distraint or levy or a
proceeding in court for collection, in respect of any deficiency, shall be suspended 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 a 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 and 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.[31]

Of particular importance to the present case is one of the circumstances enumerated in Section 224 of the Tax Code
of 1977, as amended, wherein the running of the statute of limitations on assessment and collection of taxes is
considered suspended 'when the taxpayer requests for a reinvestigation which is granted by the Commissioner.

This Court gives credence to the argument of petitioner BPI that there is a distinction between a request for
reconsideration and a request for reinvestigation. Revenue Regulations (RR) No. 12-85, issued on 27 November
1985 by the Secretary of Finance, upon the recommendation of the BIR Commissioner, governs the procedure for
protesting an assessment and distinguishes between the two types of protest, as follows '

PROTEST TO ASSESSMENT
SEC. 6. Protest. The taxpayer may protest administratively an assessment by filing a written
request for reconsideration or reinvestigation. . .

...

For the purpose of the protest herein '

(a) Request for reconsideration. ' refers to a plea for a re-evaluation of an assessment on the
basis of existing records without need of additional evidence. It may involve both a question of
fact or of law or both.

(b) Request for reinvestigation. ' refers to a plea for re-evaluation of an assessment on the basis
of newly-discovered or additional evidence that a taxpayer intends to present in the
reinvestigation. It may also involve a question of fact or law or both.

With the issuance of RR No. 12-85 on 27 November 1985 providing the above-quoted distinctions between a request
for reconsideration and a request for reinvestigation, the two types of protest can no longer be used interchangeably
and their differences so lightly brushed aside. It bears to emphasize that under Section 224 of the Tax Code of 1977,
as amended, the running of the prescriptive period for collection of taxes can only be suspended by a request for
reinvestigation, not a request for reconsideration. Undoubtedly, a reinvestigation, which entails the reception and
evaluation of additional evidence, will take more time than a reconsideration of a tax assessment, which will be
limited to the evidence already at hand; this justifies why the former can suspend the running of the statute of
limitations on collection of the assessed tax, while the latter can not.

The protest letter of petitioner BPI, dated 16 November 1989 and filed with the BIR the next day, on 17 November
1989, did not specifically request for either a reconsideration or reinvestigation. A close review of the contents thereof
would reveal, however, that it protested Assessment No. FAS-5-85-89-002054 based on a question of law, in
particular, whether or not petitioner BPI was liable for DST on its sales of foreign currency to the Central Bank in
taxable year 1985. The same protest letter did not raise any question of fact; neither did it offer to present any new
evidence. In its own letter to petitioner BPI, dated 10 September 1992, the BIR itself referred to the protest of
petitioner BPI as a request for reconsideration.[32] These considerations would lead this Court to deduce that the
protest letter of petitioner BPI was in the nature of a request for reconsideration, rather than a request for
reinvestigation and, consequently, Section 224 of the Tax Code of 1977, as amended, on the suspension of the
running of the statute of limitations should not apply.

Even if, for the sake of argument, this Court glosses over the distinction between a request for reconsideration and a
request for reinvestigation, and considers the protest of petitioner BPI as a request for reinvestigation, the filing
thereof could not have suspended at once the running of the statute of limitations. Article 224 of the Tax Code of
1977, as amended, very plainly requires that the request for reinvestigation had been granted by the BIR
Commissioner to suspend the running of the prescriptive periods for assessment and collection.
That the BIR Commissioner must first grant the request for reinvestigation as a requirement for suspension of the
statute of limitations is even supported by existing jurisprudence.

In the case of Republic of the Philippines v. Gancayco,[33] taxpayer Gancayco requested for a thorough
reinvestigation of the assessment against him and placed at the disposal of the Collector of Internal Revenue all the
evidences he had for such purpose; yet, the Collector ignored the request, and the records and documents were not
at all examined. Considering the given facts, this Court pronounced that '

. . .The act of requesting a reinvestigation alone does not suspend the period. The request
should first be granted, in order to effect suspension. (Collector vs. Suyoc Consolidated,
supra; also Republic vs. Ablaza, supra). Moreover, the Collector gave appellee until April 1, 1949,
within which to submit his evidence, which the latter did one day before. There were no
impediments on the part of the Collector to file the collection case from April 1, 1949. . . .[34]

In Republic of the Philippines v. Acebedo,[35] this Court similarly found that '

. . . [T]he defendant, after receiving the assessment notice of September 24, 1949, asked for a
reinvestigation thereof on October 11, 1949 (Exh. A). There is no evidence that this request was
considered or acted upon. In fact, on October 23, 1950 the then Collector of Internal Revenue
issued a warrant of distraint and levy for the full amount of the assessment (Exh. D), but there was
no follow-up of this warrant. Consequently, the request for reinvestigation did not suspend the
running of the period for filing an action for collection.

The burden of proof that the taxpayer's request for reinvestigation had been actually granted shall be on respondent
BIR Commissioner. The grant may be expressed in communications with the taxpayer or implied from the actions of
the respondent BIR Commissioner or his authorized BIR representatives in response to the request for
reinvestigation.

In Querol v. Collector of Internal Revenue,[36] the BIR, after receiving the protest letters of taxpayer Querol, sent a
tax examiner to San Fernando, Pampanga, to conduct the reinvestigation; as a result of which, the original
assessment against taxpayer Querol was revised by permitting him to deduct reasonable depreciation. In another
case, Republic of the Philippines v. Lopez,[37] taxpayer Lopez filed a total of four petitions for reconsideration and
reinvestigation. The first petition was denied by the BIR. The second and third petitions were granted by the BIR and
after each reinvestigation, the assessed amount was reduced. The fourth petition was again denied and, thereafter,
the BIR filed a collection suit against taxpayer Lopez. When the taxpayers spouses Sison, in Commissioner of
Internal Revenue v. Sison,[38] contested the assessment against them and asked for a reinvestigation, the BIR
ordered the reinvestigation resulting in the issuance of an amended assessment. Lastly, in Republic of the
Philippines v. Oquias,[39] the BIR granted taxpayer Oquias's request for reinvestigation and duly notified him of the
date when such reinvestigation would be held; only, neither taxpayer Oquias nor his counsel appeared on the given
date.

In all these cases, the request for reinvestigation of the assessment filed by the taxpayer was evidently granted and
actual reinvestigation was conducted by the BIR, which eventually resulted in the issuance of an amended
assessment. On the basis of these facts, this Court ruled in the same cases that the period between the request for
reinvestigation and the revised assessment should be subtracted from the total prescriptive period for the
assessment of the tax; and, once the assessment had been reconsidered at the taxpayer's instance, the period for
collection should begin to run from the date of the reconsidered or modified assessment.[40]

The rulings of the foregoing cases do not apply to the present Petition because: (1) the protest filed by petitioner BPI
was a request for reconsideration, not a reinvestigation, of the assessment against it; and (2) even granting that the
protest of petitioner BPI was a request for reinvestigation, there was no showing that it was granted by respondent
BIR Commissioner and that actual reinvestigation had been conducted.

Going back to the administrative records of the present case, it would seem that the BIR, after receiving a copy of the
protest letter of petitioner BPI on 17 November 1989, did not attempt to communicate at all with the latter until 10
September 1992, less than a month before the prescriptive period for collection on Assessment No. FAS-5-85-89-
002054 was due to expire. There were internal communications, mostly indorsements of the docket of the case from
one BIR division to another; but these hardly fall within the same sort of acts in the previously discussed cases that
satisfactorily demonstrated the grant of the taxpayer's request for reinvestigation. Petitioner BPI, in the meantime,
was left in the dark as to the status of its protest in the absence of any word from the BIR. Besides, in its letter to
petitioner BPI, dated 10 September 1992, the BIR unwittingly admitted that it had not yet acted on the protest of the
former '

This refers to your protest against and/or request for reconsideration of the assessment/s of this
Office against you involving the amount of P28,020.00 under FAS-5-85-89-002054 dated October
23, 1989 as deficiency documentary stamp tax inclusive of compromise penalty for the year 1985.

In this connection, it is requested that the enclosed waiver of the statute of limitations extending the
period of collection of the said tax/es to December 31, 1993 be executed by you as a condition
precedent of our giving due course to your protest[41]

When the BIR stated in its letter, dated 10 September 1992, that the waiver of the statute of limitations on collection
was a condition precedent to its giving due course to the request for reconsideration of petitioner BPI, then it was
understood that the grant of such request for reconsideration was being held off until compliance with the given
condition. When petitioner BPI failed to comply with the condition precedent, which was the execution of the waiver,
the logical inference would be that the request was not granted and was not given due course at all.
III

The suspension of the statute of limitations on collection of the assessed deficiency DST from
petitioner BPI does not find support in jurisprudence.

It is the position of respondent BIR Commissioner, affirmed by the CTA and the Court of Appeals, that the three-year
prescriptive period for collecting on Assessment No. FAS-5-85-89-002054 had not yet prescribed, because the said
prescriptive period was suspended, invoking the case of Commissioner of Internal Revenue v. Wyeth Suaco
Laboratories, Inc.[42] It was in this case in which this Court ruled that the prescriptive period provided by law to make
a collection is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment.

Petitioner BPI, on the other hand, is requesting this Court to revisit the Wyeth Suaco case contending that it had
unjustifiably expanded the grounds for suspending the prescriptive period for collection of national internal revenue
taxes.

This Court finds that although there is no compelling reason to abandon its decision in the Wyeth Suaco case, the
said case cannot be applied to the particular facts of the Petition at bar.

A. The only exception to the statute of limitations on collection of taxes, other than those already provided in the Tax
Code, was recognized in the Suyoc case.

As had been previously discussed herein, the statute of limitations on assessment and collection of national internal
revenue taxes may be suspended if the taxpayer executes a valid waiver thereof, as provided in paragraphs (b) and
(d) of Section 223 of the Tax Code of 1977, as amended; and in specific instances enumerated in Section 224 of the
same Code, which include a request for reinvestigation granted by the BIR Commissioner. Outside of these statutory
provisions, however, this Court also recognized one other exception to the statute of limitations on collection of taxes
in the case of Collector of Internal Revenue v. Suyoc Consolidated Mining Co.[43]

In the said case, the Collector of Internal Revenue issued an assessment against taxpayer Suyoc Consolidated
Mining Co. on 11 February 1947 for deficiency income tax for the taxable year 1941. Taxpayer Suyoc requested for
at least a year within which to pay the amount assessed, but at the same time, reserving its right to question the
correctness of the assessment before actual payment. The Collector granted taxpayer Suyoc an extension of only
three months to pay the assessed tax. When taxpayer Suyoc failed to pay the assessed tax within the extended
period, the Collector sent it a demand letter, dated 28 November 1950. Upon receipt of the demand letter, taxpayer
Suyoc asked for a reinvestigation and reconsideration of the assessment, but the Collector denied the request.
Taxpayer Suyoc reiterated its request for reconsideration on 25 April 1952, which was denied again by the Collector
on 06 May 1953. Taxpayer Suyoc then appealed the denial to the Conference Staff. The Conference Staff heard the
appeal from 02 September 1952 to 16 July 1955, and the negotiations resulted in the reduction of the assessment on
26 July 1955. It was the collection of the reduced assessment that was questioned before this Court for being
enforced beyond the prescriptive period.[44]
In resolving the issue on prescription, this Court ratiocinated thus '

It is obvious from the foregoing that petitioner refrained from collecting the tax by distraint or levy or
by proceeding in court within the 5-year period from the filing of the second amended final return
due to the several requests of respondent for extension to which petitioner yielded to give it every
opportunity to prove its claim regarding the correctness of the assessment. Because of such
requests, several reinvestigations were made and a hearing was even held by the Conference Staff
organized in the collection office to consider claims of such nature which, as the record shows,
lasted for several months. After inducing petitioner to delay collection as he in fact did, it is most
unfair for respondent to now take advantage of such desistance to elude his deficiency income tax
liability to the prejudice of the Government invoking the technical ground of prescription.

While we may agree with the Court of Tax Appeals that a mere request for reexamination or
reinvestigation may not have the effect of suspending the running of the period of limitation for in
such case there is need of a written agreement to extend the period between the Collector and the
taxpayer, there are cases however where a taxpayer may be prevented from setting up the defense
of prescription even if he has not previously waived it in writing as when by his repeated requests
or positive acts the Government has been, for good reasons, persuaded to postpone
collection to make him feel that the demand was not unreasonable or that no harassment or
injustice is meant by the Government. And when such situation comes to pass there are
authorities that hold, based on weighty reasons, that such an attitude or behavior should not be
countenanced if only to protect the interest of the Government.[45]

By the principle of estoppel, taxpayer Suyoc was not allowed to raise the defense of prescription against the efforts of
the Government to collect the tax assessed against it. This Court adopted the following principle from American
jurisprudence: 'He who prevents a thing from being done may not avail himself of the nonperformance which he has
himself occasioned, for the law says to him in effect 'this is your own act, and therefore you are not damnified.[46]

In the Suyoc case, this Court expressly conceded that a mere request for reconsideration or reinvestigation of an
assessment may not suspend the running of the statute of limitations. It affirmed the need for a waiver of the
prescriptive period in order to effect suspension thereof. However, even without such waiver, the taxpayer may be
estopped from raising the defense of prescription because by his repeated requests or positive acts, he had induced
Government authorities to delay collection of the assessed tax.

Based on the foregoing, petitioner BPI contends that the declaration made in the later case of Wyeth Suaco, that the
statute of limitations on collection is suspended once the taxpayer files a request for reconsideration or
reinvestigation, runs counter to the ruling made by this Court in the Suyoc case.

B. Although this Court is not compelled to abandon its decision in the Wyeth Suaco case, it finds that Wyeth Suaco is
not applicable to the Petition at bar because of the distinct facts involved herein.
In the case of Wyeth Suaco, taxpayer Wyeth Suaco was assessed for failing to remit withholding taxes on royalties
and dividend declarations, as well as, for deficiency sales tax. The BIR issued two assessments, dated 16 December
1974 and 17 December 1974, both received by taxpayer Wyeth Suaco on 19 December 1974. Taxpayer Wyeth
Suaco, through its tax consultant, SGV & Co., sent to the BIR two letters, dated 17 January 1975 and 08 February
1975, protesting the assessments and requesting their cancellation or withdrawal on the ground that said
assessments lacked factual or legal basis. On 12 September 1975, the BIR Commissioner advised taxpayer Wyeth
Suaco to avail itself of the compromise settlement being offered under Letter of Instruction No. 308. Taxpayer Wyeth
Suaco manifested its conformity to paying a compromise amount, but subject to certain conditions; though,
apparently, the said compromise amount was never paid. On 10 December 1979, the BIR Commissioner rendered a
decision reducing the assessment for deficiency withholding tax against taxpayer Wyeth Suaco, but maintaining the
assessment for deficiency sales tax. It was at this point when taxpayer Wyeth Suaco brought its case before the CTA
to enjoin the BIR from enforcing the assessments by reason of prescription. Although the CTA decided in favor of
taxpayer Wyeth Suaco, it was reversed by this Court when the case was brought before it on appeal. According to
the decision of this Court '

Settled is the rule that the prescriptive period provided by law to make a collection by distraint or
levy or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or
reconsideration of the assessment. . .

...

Although the protest letters prepared by SGV & Co. in behalf of private respondent did not
categorically state or use the words reinvestigation and 'reconsideration, the same are to be treated
as letters of reinvestigation and reconsideration

These letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to collect
the deficiency taxes. The Bureau of Internal Revenue, after having reviewed the records of
Wyeth Suaco, in accordance with its request for reinvestigation, rendered a final
assessment It was only upon receipt by Wyeth Suaco of this final assessment that the five-year
prescriptive period started to run again.[47]

The foremost criticism of petitioner BPI of the Wyeth Suaco decision is directed at the statement made therein that,
'settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or by a
proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment.
[48] It would seem that both petitioner BPI and respondent BIR Commissioner, as well as, the CTA and Court of
Appeals, take the statement to mean that the filing alone of the request for reconsideration or reinvestigation can
already interrupt or suspend the running of the prescriptive period on collection. This Court therefore takes this
opportunity to clarify and qualify this statement made in the Wyeth Suaco case. While it is true that, by itself, such
statement would appear to be a generalization of the exceptions to the statute of limitations on collection, it is best
interpreted in consideration of the particular facts of the Wyeth Suaco case and previous jurisprudence.

The Wyeth Suaco case cannot be in conflict with the Suyoc case because there are substantial differences in the
factual backgrounds of the two cases. The Suyoc case refers to a situation where there were repeated requests or
positive acts performed by the taxpayer that convinced the BIR to delay collection of the assessed tax. This Court
pronounced therein that the repeated requests or positive acts of the taxpayer prevented or estopped it from setting
up the defense of prescription against the Government when the latter attempted to collect the assessed tax. In the
Wyeth Suaco case, taxpayer Wyeth Suaco filed a request for reinvestigation, which was apparently granted by the
BIR and, consequently, the prescriptive period was indeed suspended as provided under Section 224 of the Tax
Code of 1977, as amended.[49]

To reiterate, Section 224 of the Tax Code of 1977, as amended, identifies specific circumstances when the statute of
limitations on assessment and collection may be interrupted or suspended, among which is a request for
reinvestigation that is granted by the BIR Commissioner. The act of filing a request for reinvestigation alone does not
suspend the period; such request must be granted.[50] The grant need not be express, but may be implied from the
acts of the BIR Commissioner or authorized BIR officials in response to the request for reinvestigation.[51]

This Court found in the Wyeth Suaco case that the BIR actually conducted a reinvestigation, in accordance with the
request of the taxpayer Wyeth Suaco, which resulted in the reduction of the assessment originally issued against it.
Taxpayer Wyeth Suaco was also aware that its request for reinvestigation was granted, as written by its Finance
Manager in a letter dated 01 July 1975, addressed to the Chief of the Tax Accounts Division, wherein he admitted
that, '[a]s we understand, the matter is now undergoing review and consideration by your Manufacturing Audit
Division The statute of limitations on collection, then, started to run only upon the issuance and release of the
reduced assessment.

The Wyeth Suaco case, therefore, is correct in declaring that the prescriptive period for collection is interrupted or
suspended when the taxpayer files a request for reinvestigation, provided that, as clarified and qualified herein, such
request is granted by the BIR Commissioner.

Thus, this Court finds no compelling reason to abandon its decision in the Wyeth Suaco case. It also now rules that
the said case is not applicable to the Petition at bar because of the distinct facts involved herein. As already
heretofore determined by this Court, the protest filed by petitioner BPI was a request for reconsideration, which
merely required a review of existing evidence and the legal basis for the assessment. Respondent BIR Commissioner
did not require, neither did petitioner BPI offer, additional evidence on the matter. After petitioner BPI filed its request
for reconsideration, there was no other communication between it and respondent BIR Commissioner or any of the
authorized representatives of the latter. There was no showing that petitioner BPI was informed or aware that its
request for reconsideration was granted or acted upon by the BIR.

IV

Conclusion

To summarize all the foregoing discussion, this Court lays down the following rules on the exceptions to the statute of
limitations on collection.
The statute of limitations on collection may only be interrupted or suspended by a valid waiver executed in
accordance with paragraph (d) of Section 223 of the Tax Code of 1977, as amended, and the existence of the
circumstances enumerated in Section 224 of the same Code, which include a request for reinvestigation granted by
the BIR Commissioner.

Even when the request for reconsideration or reinvestigation is not accompanied by a valid waiver or there is no
request for reinvestigation that had been granted by the BIR Commissioner, the taxpayer may still be held in estoppel
and be prevented from setting up the defense of prescription of the statute of limitations on collection when, by his
own repeated requests or positive acts, the Government had been, for good reasons, persuaded to postpone
collection to make the taxpayer feel that the demand is not unreasonable or that no harassment or injustice is meant
by the Government, as laid down by this Court in the Suyoc case.

Applying the given rules to the present Petition, this Court finds that '

(a) The statute of limitations for collection of the deficiency DST in Assessment No. FAS-5-85-89-002054, issued
against petitioner BPI, had already expired; and

(b) None of the conditions and requirements for exception from the statute of limitations on collection exists herein:
Petitioner BPI did not execute any waiver of the prescriptive period on collection as mandated by paragraph (d) of
Section 223 of the Tax Code of 1977, as amended; the protest filed by petitioner BPI was a request for
reconsideration, not a request for reinvestigation that was granted by respondent BIR Commissioner which could
have suspended the prescriptive period for collection under Section 224 of the Tax Code of 1977, as amended; and,
petitioner BPI, other than filing a request for reconsideration of Assessment No. FAS-5-85-89-002054, did not make
repeated requests or performed positive acts that could have persuaded the respondent BIR Commissioner to delay
collection, and that would have prevented or estopped petitioner BPI from setting up the defense of prescription
against collection of the tax assessed, as required in the Suyoc case.

This is a simple case wherein respondent BIR Commissioner and other BIR officials failed to act promptly in resolving
and denying the request for reconsideration filed by petitioner BPI and in enforcing collection on the assessment.
They presented no reason or explanation as to why it took them almost eight years to address the protest of
petitioner BPI. The statute on limitations imposed by the Tax Code precisely intends to protect the taxpayer from such
prolonged and unreasonable assessment and investigation by the BIR.

Considering that the right of the respondent BIR Commissioner to collect from petitioner BPI the deficiency DST in
Assessment No. FAS-5-85-89-002054 had already prescribed, then, there is no more need for this Court to make a
determination on the validity and correctness of the said Assessment for the latter would only be unenforceable.

WHEREFORE, based on the foregoing, the instant Petition is GRANTED. The Decision of the Court of Appeals in
CA-G.R. SP No. 51271, dated 11 August 1999, which reinstated Assessment No. FAS-5-85-89-002054 requiring
petitioner BPI to pay the amount of P28,020.00 as deficiency documentary stamp tax for the taxable year 1985,
inclusive of the compromise penalty, is REVERSED and SET ASIDE. Assessment No. FAS-5-85-89-002054 is
hereby ordered CANCELED.
G.R. No. 76281 September 30, 1991
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
WYETH SUACO LABORATORIES, INC. and THE COURT OF TAX APPEALS, respondents.

FERNAN, C.J.:p
The sole issue in this petition for review on certiorari is whether or not petitioner's right to collect deficiency
withholding tax at source and sales tax liabilities from private respondent is barred by prescription.
The antecedent facts are as follows:
Private respondent Wyeth Suaco Laboratories, Inc. (Wyeth Suaco for brevity) is a domestic corporation engaged in
the manufacture and sale of assorted pharmaceutical and nutritional products. Its accounting period is on a fiscal
year basis ending October 31 of every year.
By virtue of Letter of Authority No. 52415 dated June 17, 1974 issued by then Commissioner of Internal Revenue
Misael P. Vera, Revenue Examiner Dante Kabigting conducted an investigation and examination of the books of
accounts of Wyeth Suaco. 1 On October 15, 1974, he submitted a report containing the result of his investigation. The
report disclosed that Wyeth Suaco was paying royalties to its foreign licensors as well as remuneration for technical
services to Wyeth International Laboratories of London. Wyeth Suaco was also found to have declared cash
dividends on September 27, 1973 and these were paid on October 31, 1973. However, it allegedly failed to remit
withholding tax at source for the fourth (4th) quarter of 1973 on accrued royalties, remuneration for technical services
and cash dividends, resulting in a deficiency withholding tax at source in the aggregate amount of P3,178,994.15. 2
Moreover, it was reported that during the periods from November 1, 1972 to December 31, 1972 and January 1, 1973
to October 31, 1973, Wyeth Suaco deducted the cost of non-deductible raw materials, resulting in its alleged failure to
pay the correct amount of advance sales tax. There was reportedly also a short payment of advance sales tax in its
importation of "Mega Polymycin D" on October 3, 1972. All these resulted in a deficiency sales tax in the amount of
P60,855.21 and compromise penalty in the amount of P300.00 or a total amount of P61,155.21. 3
Consequently, the Bureau of Internal Revenue assessed Wyeth Suaco on the aforesaid tax liabilities in two (2)
notices dated December 16, 1974 and December 17, 1974. These assessment notices were both received by Wyeth
Suaco on December 19, 1974. 4
Thereafter, Wyeth Suaco through its tax consultant SGV &Co., sent the Bureau of Intemal Revenue two (2) letters
dated January 17, 1975 and February 8, 1975, protesting the assessments and requesting their cancellation or
withdrawal on the ground that said assessments lacked factual or legal basis.
Wyeth Suaco argued that it was not liable to pay withholding tax at source on the accrued royalties and dividends
because they have yet to be remitted or paid abroad. It claimed that it was not able to remit the balance of fifty
percent (50%) of the accrued royalties to its foreign licensors because of Central Bank Circular No. 289 allowing
remittance of royalties up to fifty percent (50%) only. With regard to what the Bureau of Internal Revenue claimed as
the amount of P2,952,391.00 forming part of the cash dividends declared in 1973, Wyeth Suaco alleged that the
same was due its foreign stockholders. Again, Wyeth Suaco was not able to remit these dividends because of the
restriction of the Central Bank in a memorandum implementing CB Circular No. 289 dated February 21, 1970. Thus,
Wyeth Suaco's contention was that a withholding tax at source on royalties and dividends becomes due and payable
only upon their actual payment or remittance.
On the matter of the withholding tax at source on remuneration for technical services, Wyeth Suaco insisted that it
was up-to-date in remitting the corresponding withholding tax on this income to the Bureau of Internal Revenue.
As to the assessed deficiency sales tax, Wyeth Suaco maintained that the difference between its landed cost figure
(which is the basis for computing the advancesales tax) and that of the revenue examiner, was due to the use of
estimated amounts by the Bureau of Customs and to foreign exchange differential.
Wyeth Suaco however, admitted liability with respect to the short payment of advance sales tax in the amount of
P1,000.00 on its importation of "Mega Polymycin D." 5
On September 12, 1975, the Commissioner of Internal Revenue asked Wyeth Suaco to avail itself of the compromise
settlement under LOI 308. In its answer, Wyeth Suaco manifested its conformity to a 10% compromise provided it be
applied only to the basic sales tax, excluding surcharge and interest. As to the deficiency withholding tax at source,
Wyeth took exception on the ground that it involves purely a legal question and some of the amounts included in the
assessment have already bee paid.
On December 10, 1979, petitioner, thru then acting Commissioner of Internal Revenue Ruben B. Ancheta, rendered a
decision reducing the assessment of the withholding tax at source for 1973 to P1,973,112.86. However, the amount
of P61,155.21 as deficiency sales tax remained the same. 6
Thereafter, Wyeth Suaco filed a petition for review in Court of Tax Appeals on January 18, 1980, praying that lpeti
tioner be enjoined from enforcing the assessments by reason of prescription and that the assessments be declared
null and void for lack of legal and factual basis. 7
On February 7, 1980, petitioner issued a warrant of distrain of personal property and warrant of levy of real property
again private respondent to enforce collection of the deficiency taxes. These were served on private respondent on
March 12, 1980. 8 However, collection of the deficiency taxes by virtue of warrants of distraint and levy was enjoined
by respondent court upon motion of Wyeth Suaco in a resolution dated May 22, 1980. 9
On May 30, 1980, petitioner filed his answer to Wyeth Suaco's petition for review praying, among others, that private
respondent be declared liable to pay the amount of P61,155.21 as deficiency sales tax for the periods November 1,
1972 to December 31, 1972 and January 1, 1973 to October 31, 1973, plus 14% annual interest thereon from
December 17, 1974 until payment thereof pursuant to Section 183 (now Section 193) of the Tax Code, and the
amount of P1,973,112.86 as deficie withholding tax at source for the 4th quarter of 1973 plus 5% surcharge and 14%
per annum interest thereon from December 16, 1974 to December 16, 1977, pursuant to Section 51 (e) of the Tax
Code of 1977, as amended. 10
On August 29, 1986, the Court of Tax Appeals rendered a decision enjoining the Commissioner of Internal Revenue
from collecting the deficiency taxes, the dispositive portion of which reads as follows:
WHEREFORE, the decision appealed from is hereby reversed and respondent Commissioner of
Internal Revenue is hereby enjoined from collecting the deficiency withholding tax at source for the
fourth quarter of 1973 as well as the deficiency sales tax assessed against petitioner (Wyeth
Suaco). Without pronouncement as to costs. 11
The basis of the above decision was the finding of the Tax Court that while the assessments for the deficiency taxes
were made within the five-year period of limitation, the right of petitioner to collect the same has already prescribed, in
accordance with Section 319 (c) of the Tax Code of 1977. The said law provides that an assessment of any internal
revenue tax within the five-year period of limitation may be collected by distraint or levy or by a proceeding in court,
but only if begun within five (5) years after the assessment of the tax.
Hence, this recourse by petitioner.
The applicable laws in the instant case are Sections 318 and 319 (c) of the National Internal Revenue Code of 1977
(now Sections 203 and 224 of the National Internal Revenue Code of 1986), to wit:
SEC. 318. Period of limitation upon assessment and collection — Except as provided in the
succeeding section, internal revenue taxes shall be assessed within five years after the return was
filed, and no proceeding in court without assessment for the collection of such taxes shall be begun
after the expiration of such period. ...
SEC. 319. Exceptions as to period of limitations 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 by a proceeding in court, but only if
begun (1) within five years after the assessment of the tax, or (2) prior the expiration of any period
for collection agreed upon in writing by the Commissioner 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. (emphasis supplied)
The main thrust of petitioner for the allowance of this petition is that the five-year prescriptive period provided by law
to mak a collection by distraint or levy or by a proceeding in court has not yet prescribed. Although he admits that
more than five (5) years have already lapsed from the time the assessment notices were received by private
respondent on December 19, 1974 up to the time the warrants of distraint and levy were served on March 12, 1980,
he avers that the running of the prescriptive period was stayed or interrupted when Wyeth Suaco protested the
assessments. Petitioner argues that the protest letters sent by SGV & Co. in behalf of Wyeth Suaco dated January
17, 1975 and February 8, 1975, requesting for withdrawal and cancellation of the assessments were actually
requests for reinvestigation or reconsideration, which could interrupt the running of the five-year prescriptive period.
Wyeth Suaco, on the other hand, maintains the position that it never asked for a reinvestigation nor reconsideration of
th assessments. What it requested was the cancellation and with drawal of the assessments for lack of legal and
factual basis. Thus, its protest letters dated January 17, 1975 and February 8, 1975 did not suspend or interrupt the
running of the five-year prescriptive period.
Settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or by a
proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment.
In the case of Commissioner of Internal Revenue vs. Capitol Subdivision, Inc., 12 this Court held:
The period of prescription of action to collect a taxpayer's deficiency income tax assessment is
interrupted when the taxpayer request for a review or reconsideration of said assessment, and
starts to run again when said request is denied.
In another case, this Court stated that the statutory period of limitation for collection may be interrupted if by the
taxpayer's repeated requests or positive acts the Government has been, for good reasons, persuaded to postpone
collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant by the
Goverrument. 13 Also in the case of Cordero vs. Gonda, 14 we held:
Partial payment would not prevent the government from suing the taxpayer. Because, by such act
of payment, the government is not thereby "persuaded to postpone collection to make him feel that
the demand was not unreasonable or that no harassment or injustice is meant." This is the
underlying reason behind the rule that the prescriptive period is arrested by the taxpayer's request
for re-examination or reinvestigation — even if he "has not previously waived it (prescription in
writing)". ... (emphasis supplied)
Thus, the pivotal issue in this case is whether or not Wyeth Suaco sought reinvestigation or reconsideration of the
deficiency tax assessments issued by the Bureau of Internal Revenue.
After carefully examining the records of the case, we find that Wyeth Suaco admitted that it was seeking
reconsideration of the tax assessments as shown in a letter of James A. Gump, its President and General Manager,
dated April 28, 1975, the relevant portion of which is quoted hereunder, to wit:
We submit this letter as a follow-up to our protest filed with your office, through our tax advisers,
Sycip, Gorres, Velayo & Co., on January 20 and February 10, 1975 regarding alleged deficiency on
withholding tax at source of P3,178,994.15 and on percentage tax of P60,855.21, including interest
and surcharges, on which we are seeking reconsideration. 15 (emphasis supplied)
Furthermore, when Wyeth Suaco thru its tax consultant SGV & Co. sent the letters protesting the assessments, the
Bureau of Internal Revenue, Manufacturing Audit Division, conducted a review and reinvestigation of the
assessments. This fact was admitted by Wyeth Suaco thru its Finance Manager in a letter dated July 1, 1975
addressed to the Chief, Tax Accounts Division. The pertinent portion of said letter reads as follows:
This will acknowledge receipt of your letter dated May 22, 1975 regarding our alleged income and
business tax deficiencies for fiscal year 1972/73.
xxx xxx xxx
Nevertheless, please be advised that the deficiency tax stated in your letter is what we are
protesting on pursuant to the letters we filed with the Bureau of Internal Revenue on January 20,
1975 and on February 10, 1975.
xxx xxx xxx
As we understand, the matter is now undergoing review and consideration by your Manufacturing
Audit Division. Pending the outcome of their decision, we regret our inability to make settlement. ...
16
(Emphasis supplied)
Although the protest letters prepared by SGV & Co. in behalf of private respondent did not categorically state or use
th words "reinvestigation" and "reconsideration," the same are to be treated as letters of reinvestigation and
reconsideration. By virtue of these letters, the Bureau of Internal Revenue ordered its Manufacturing Audit Division to
review the assessment made. Furthermore, private respondent's claim that it did not seek reinvestigation or
reconsideration of the assessments is belied by the subsequent correspondence or letters written by its officers, as
shown above.
These letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to collect the deficiency
taxes. The Bureau of Internal Revenue, after having reviewed the record of Wyeth Suaco, in accordance with its
request for reinvestigation, rendered a final assessment. This final assessment issue by then Acting Commissioner
Ruben B. Ancheta was date December 10, 1979 and received by private respondent on January 2, 1980, fixed its tax
liability at P1,973,112.86 as deficiency withholding tax at source and P61,155.21 as deficiency sales tax. It was only
upon receipt by Wyeth Suaco of this final assessment that the five-year prescriptive period started to run again.
Verily, the original assessments dated December 16 and 17, 1974 were both received by Wyeth Suaco on December
19, 1974. However, when Wyeth Suaco protested the assessments and sought its reconsideration in two (2) letters
received by the Bureau of Internal Revenue on January 20 and February 10, 1975, the prescriptive period was
interrupted. This period started to run again when the Bureau of Internal Revenue served the final assessment to
Wyeth Suaco on January 2, 1980. Since the warrants of distraint and levy were served on Wyeth Suaco on March 12,
1980, then, only about four (4) months of the five-year prescriptive period was used.
Having resolved the issue of prescription, we now come to the merits of the case.
Wyeth Suaco questions the legality of the regulation imposed by the Bureau of Intemal Revenue of requiring a
withholding agent or taxpayer to remit the taxes deducted and withheld at source on incomes which have not yet
been paid. It maintains the stand that withholding tax at source should only be remitted to the Bureau of Internal
Revenue once the incomes subject to withholding tax at source have actually been paid. Thus, private respondent
avers that it was not liable to remit the taxes withheld at source on royalties and dividends unless these incomes have
been actually paid to its foreign licensors and stockholders.
It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack
of the motive power to activate and operate it. ... It is the lifeblood of the government and so should be collected
without unnecessary hindrance ... 17
In line with this principle, the Tax Code, particularly Section 54 (a) [now Section 51 (a)] provides that "the
Commissioner of Internal Revenue may, with the approval of the Secretary of Finance, require the withholding agents
to pay or deposit the taxes deducted and withheld at more frequent intervals when necessary to protect the interest of
the government. The return shall be filed and the payment made within 25 days from the close of each calendar
quarter". Presently, Revenue Regulation No. 6-85 effective July 1, 1985, requires the filing of monthly return and
payment of taxes withheld at source within (10) days after the end of each month.
Moreover, the records show that Wyeth Suaco adopted the accrual method of accounting wherein the effect of
transactions and other events on assets and liabilities are recognized and reported in the time periods to which they
relate rather than only when cash is received or paid. The "Report of Investigation" submitted by the tax examiner
indicated that accrual was the basis of the taxpayer's return. 18 Thus, private respondent recorded accrued royalties
and dividends payable as well as the withholding tax at source payable on these incomes. Having deducted and
withheld the tax at source and having recorded the withholding tax at source payable in its books of accounts, private
respondent was obligated to remit the same to the Bureau of Internal Revenue.
With regard to the accuracy of the assessment on deficiency sales tax, we rule that the examiner's assessment
should be given full weight and credit, in the absence of proof submitted by Wyeth Suaco to the contrary. This is in
line with our ruling in several cases wherein we said that tax assessments by tax examiners are presumed correct
and made in good faith. The taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities in
the performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his
superior officers will not be disturbed. All presumptions are in favor of the correctness of tax assessments. 19 The
case of Commissioner of Internal Revenue vs. Construction Resources of Asia, Inc., 20 where this Court cited 51 Am.
Jur. pp. 620-621, states the principle in detail, thus:
All presumptions are in favor of the correctness of tax assessments. The good faith of tax
assessors and the validity of their actions are presumed. They will be presumed to have taken into
consideration all the facts to which their attention was called. No presumption can be indulged that
all of the public officials of the State in the various counties who have to do with the assessment of
property for taxation will knowingly violate the duties imposed upon them by law.
The final assessment issued by the Bureau of Internal Revenue declared the issuance of deficiency sales tax
assessments to be legal and valid. It was ascertained that during the investigation, Wyeth Suaco deducted non-
deductible raw materials which were not subjected to advance sales tax thereby resulting in its failure to pay the
correct amount of sales tax under Section 183, in relation to Section 186 and 186-B of the Tax Code, prior to and
after amendment by Presidential Decree No. 69. Wyeth Suaco was not able to refute this by submitting supporting
documents. 21
WHEREFORE, the petition is GRANTED. Wyeth Suaco Laboratories, Inc, is hereby ordered to pay the Bureau of
Internal Revenue the amount of P1,973,112.86 as deficiency withholding tax at source, with interest and surcharge in
accordance with law, without prejudice to any reduction brought about by payments or remittance made. Wyeth
Suaco Laboratories, Inc. is also ordered to pay the Bureau of Internal Revenue the amount of P60,855.21 as
deficiency sales tax with interest and surcharge in accordance with law. Costs against private respondent.
SO ORDERED.
G.R. No. 162852 December 16, 2004

PHILIPPINE JOURNALISTS, INC., petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

DECISION

YNARES-SANTIAGO, J.:
This is a petition for review filed by Philippine Journalists, Incorporated (PJI) assailing the Decision1 of the Court of
Appeals dated August 5, 2003,2 which ordered petitioner to pay the assessed tax liability of P111,291,214.46 and the
Resolution3 dated March 31, 2004 which denied the Motion for Reconsideration.
The case arose from the Annual Income Tax Return filed by petitioner for the calendar year ended December 31,
1994 which presented a net income of P30,877,387.00 and the tax due of P10,807,086.00. After deducting tax credits
for the year, petitioner paid the amount of P10,247,384.00.
On August 10, 1995, Revenue District Office No. 33 of the Bureau of Internal Revenue (BIR) issued Letter of
Authority No. 871204 for Revenue Officer Federico de Vera, Jr. and Group Supervisor Vivencio Gapasin to examine
petitioner’s books of account and other accounting records for internal revenue taxes for the period January 1, 1994
to December 31, 1994.
From the examination, the petitioner was told that there were deficiency taxes, inclusive of surcharges, interest and
compromise penalty in the following amounts:

Value Added Tax P 229,527.90

Income Tax 125,002,892.95

Withholding Tax 2,748,012.35

Total P 127,980,433.20

In a letter dated August 29, 1997, Revenue District Officer Jaime Concepcion invited petitioner to send a
representative to an informal conference on September 15, 1997 for an opportunity to object and present
documentary evidence relative to the proposed assessment. On September 22, 1997, petitioner’s Comptroller,
Lorenza Tolentino, executed a "Waiver of the Statute of Limitation Under the National Internal Revenue Code
(NIRC)".5 The document "waive[d] the running of the prescriptive period provided by Sections 223 and 224 and other
relevant provisions of the NIRC and consent[ed] to the assessment and collection of taxes which may be found due
after the examination at any time after the lapse of the period of limitations fixed by said Sections 223 and 224 and
other relevant provisions of the NIRC, until the completion of the investigation".6
On July 2, 1998, Revenue Officer De Vera submitted his audit report recommending the issuance of an assessment
and finding that petitioner had deficiency taxes in the total amount of P136,952,408.97. On October 5, 1998, the
Assessment Division of the BIR issued Pre-Assessment Notices which informed petitioner of the results of the
investigation. Thus, BIR Revenue Region No. 6, Assessment Division/Billing Section, issued Assessment/Demand
No. 33-1-000757-947 on December 9, 1998 stating the following deficiency taxes, inclusive of interest and
compromise penalty:

Income Tax P108,743,694.88

Value Added Tax 184,299.20

Expanded Withholding Tax 2,363,220.38

Total P111,291,214.46

On March 16, 1999, a Preliminary Collection Letter was sent by Deputy Commissioner Romeo S. Panganiban to the
petitioner to pay the assessment within ten (10) days from receipt of the letter. On November 10, 1999, a Final Notice
Before Seizure8 was issued by the same deputy commissioner giving the petitioner ten (10) days from receipt to pay.
Petitioner received a copy of the final notice on November 24, 1999. By letters dated November 26, 1999, petitioner
asked to be clarified how the tax liability of P111,291,214.46 was reached and requested an extension of thirty (30)
days from receipt of the clarification within which to reply.9
The BIR received a follow-up letter from the petitioner asserting that its (PJI) records do not show receipt of Tax
Assessment/Demand No. 33-1-000757-94.10 Petitioner also contested that the assessment had no factual and legal
basis. On March 28, 2000, a Warrant of Distraint and/or Levy No. 33-06-04611 signed by Deputy Commissioner
Romeo Panganiban for the BIR was received by the petitioner.
Petitioner filed a Petition for Review12 with the Court of Tax Appeals (CTA) which was amended on May 12, 2000.
Petitioner complains: (a) that no assessment or demand was received from the BIR; (b) that the warrant of distraint
and/or levy was without factual and legal bases as its issuance was premature; (c) that the assessment, having been
made beyond the 3-year prescriptive period, is null and void; (d) that the issuance of the warrant without being given
the opportunity to dispute the same violates its right to due process; and (e) that the grave prejudice that will be
sustained if the warrant is enforced is enough basis for the issuance of the writ of preliminary injunction.
On May 14, 2002, the CTA rendered its decision,13 to wit:
As to whether or not the assessment notices were received by the petitioner, this Court rules in the
affirmative.
To disprove petitioner’s allegation of non-receipt of the aforesaid assessment notices, respondent presented
a certification issued by the Post Master of the Central Post Office, Manila to the effect that Registered
Letter No. 76134 sent by the BIR, Region No. 6, Manila on December 15, 1998 addressed to Phil.
Journalists, Inc. at Journal Bldg., Railroad St., Manila was duly delivered to and received by a certain
Alfonso Sanchez, Jr. (Authorized Representative) on January 8, 1999. Respondent also showed proof that
in claiming Registered Letter No. 76134, Mr. Sanchez presented three identification cards, one of which is
his company ID with herein petitioner.

However, as to whether or not the Waiver of the Statute of Limitations is valid and binding on the petitioner
is another question. Since the subject assessments were issued beyond the three-year prescriptive period, it
becomes imperative on our part to rule first on the validity of the waiver allegedly executed on September
22, 1997, for if this court finds the same to be ineffective, then the assessments must necessarily fail.

After carefully examining the questioned Waiver of the Statute of Limitations, this Court considers the same
to be without any binding effect on the petitioner for the following reasons:
The waiver is an unlimited waiver. It does not contain a definite expiration date. Under RMO No. 20-90, the
phrase indicating the expiry date of the period agreed upon to assess/collect the tax after the regular three-
year period of prescription should be filled up…

Secondly, the waiver failed to state the date of acceptance by the Bureau which under the aforequoted RMO
should likewise be indicated…

Finally, petitioner was not furnished a copy of the waiver. It is to be noted that under RMO No. 20-90, the
waiver must be executed in three (3) copies, the second copy of which is for the taxpayer. It is likewise
required that the fact of receipt by the taxpayer of his/her file copy be indicated in the original copy. Again,
respondent failed to comply.
It bears stressing that RMO No. 20-90 is directed to all concerned internal revenue officers. The said RMO
even provides that the procedures found therein should be strictly followed, under pain of being
administratively dealt with should non-compliance result to prescription of the right to assess/collect…
Thus, finding the waiver executed by the petitioner on September 22, 1997 to be suffering from legal
infirmities, rendering the same invalid and ineffective, the Court finds Assessment/Demand No. 33-1-
000757-94 issued on December 5, 1998 to be time-barred. Consequently, the Warrant of Distraint and/or
Levy issued pursuant thereto is considered null and void.
WHEREFORE, in view of all the foregoing, the instant Petition for Review is hereby GRANTED. Accordingly,
the deficiency income, value-added and expanded withholding tax assessments issued by the respondent
against the petitioner on December 9, 1998, in the total amount of P111,291,214.46 for the year 1994 are
hereby declared CANCELLED, WITHDRAWN and WITH NO FORCE AND EFFECT. Likewise, Warrant of
Distraint and/or Levy No. 33-06-046 is hereby declared NULL and VOID.
SO ORDERED.14
After the motion for reconsideration of the Commissioner of Internal Revenue was denied by the CTA in a Resolution
dated August 2, 2002, an appeal was filed with the Court of Appeals on August 12, 2002.
In its decision dated August 5, 2003, the Court of Appeals disagreed with the ruling of the CTA, to wit:
… The petition for review filed on 26 April 2000 with CTA was neither timely filed nor the proper remedy.
Only decisions of the BIR, denying the request for reconsideration or reinvestigation may be appealed to the
CTA. Mere assessment notices which have become final after the lapse of the thirty (30)-day reglementary
period are not appealable. Thus, the CTA should not have entertained the petition at all.

… [T]he CTA found the waiver executed by Phil. Journalists to be invalid for the following reasons: (1) it
does not indicate a definite expiration date; (2) it does not state the date of acceptance by the BIR; and (3)
Phil. Journalist, the taxpayer, was not furnished a copy of the waiver. These grounds are merely formal in
nature. The date of acceptance by the BIR does not categorically appear in the document but it states at the
bottom page that the BIR "accepted and agreed to:"…, followed by the signature of the BIR’s authorized
representative. Although the date of acceptance was not stated, the document was dated 22 September
1997. This date could reasonably be understood as the same date of acceptance by the BIR since a
different date was not otherwise indicated. As to the allegation that Phil. Journalists was not furnished a
copy of the waiver, this requirement appears ridiculous. Phil. Journalists, through its comptroller, Lorenza
Tolentino, signed the waiver. Why would it need a copy of the document it knowingly executed when the
reason why copies are furnished to a party is to notify it of the existence of a document, event or
proceeding? …
As regards the need for a definite expiration date, this is the biggest flaw of the decision. The period of
prescription for the assessment of taxes may be extended provided that the extension be made in writing
and that it be made prior to the expiration of the period of prescription. These are the requirements for a
valid extension of the prescriptive period. To these requirements provided by law, the memorandum order
adds that the length of the extension be specified by indicating its expiration date. This requirement could be
reasonably construed from the rule on extension of the prescriptive period. But this requirement does not
apply in the instant case because what we have here is not an extension of the prescriptive period but a
waiver thereof. These are two (2) very different things. What Phil. Journalists executed was a renunciation of
its right to invoke the defense of prescription. This is a valid waiver. When one waives the prescriptive
period, it is no longer necessary to indicate the length of the extension of the prescriptive period since the
person waiving may no longer use this defense.
WHEREFORE, the 02 August 2002 resolution and 14 May 2002 decision of the CTA are hereby SET
ASIDE. Respondent Phil. Journalists is ordered [to] pay its assessed tax liability of P111,291,214.46.
SO ORDERED.15
Petitioner’s Motion for Reconsideration was denied in a Resolution dated March 31, 2004. Hence, this appeal on the
following assignment of errors:
I.
The Honorable Court of Appeals committed grave error in ruling that it is outside the jurisdiction of the Court
of Tax Appeals to entertain the Petition for Review filed by the herein Petitioner at the CTA despite the fact
that such case inevitably rests upon the validity of the issuance by the BIR of warrants of distraint and levy
contrary to the provisions of Section 7(1) of Republic Act No. 1125.
II.
The Honorable Court of Appeals gravely erred when it ruled that failure to comply with the provisions of
Revenue Memorandum Order (RMO) No. 20-90 is merely a formal defect that does not invalidate the waiver
of the statute of limitations without stating the legal justification for such conclusion. Such ruling totally
disregarded the mandatory requirements of Section 222(b) of the Tax Code and its implementing regulation,
RMO No. 20-90 which are substantive in nature. The RMO provides that violation thereof subjects the erring
officer to administrative sanction. This directive shows that the RMO is not merely cover forms.
III.
The Honorable Court of Appeals gravely erred when it ruled that the assessment notices became final and
unappealable. The assessment issued is void and legally non-existent because the BIR has no power to
issue an assessment beyond the three-year prescriptive period where there is no valid and binding waiver of
the statute of limitation.
IV.
The Honorable Court of Appeals gravely erred when it held that the assessment in question has became
final and executory due to the failure of the Petitioner to protest the same. Respondent had no power to
issue an assessment beyond the three year period under the mandatory provisions of Section 203 of the
NIRC. Such assessment should be held void and non-existent, otherwise, Section 203, an expression of a
public policy, would be rendered useless and nugatory. Besides, such right to assess cannot be validly
granted after three years since it would arise from a violation of the mandatory provisions of Section 203 and
would go against the vested right of the Petitioner to claim prescription of assessment.
V.
The Honorable Court of Appeals committed grave error when it HELD valid a defective waiver by
considering the latter a waiver of the right to invoke the defense of prescription rather than an extension of
the three year period of prescription (to make an assessment) as provided under Section 222 in relation to
Section 203 of the Tax Code, an interpretation that is contrary to law, existing jurisprudence and outside of
the purpose and intent for which they were enacted.16
We find merit in the appeal.
The first assigned error relates to the jurisdiction of the CTA over the issues in this case. The Court of Appeals ruled
that only decisions of the BIR denying a request for reconsideration or reinvestigation may be appealed to the CTA.
Since the petitioner did not file a request for reinvestigation or reconsideration within thirty (30) days, the assessment
notices became final and unappealable. The petitioner now argue that the case was brought to the CTA because the
warrant of distraint or levy was illegally issued and that no assessment was issued because it was based on an
invalid waiver of the statutes of limitations.
We agree with petitioner. Section 7(1) of Republic Act No. 1125, the Act Creating the Court of Tax Appeals, provides
for the jurisdiction of that special court:
SEC. 7. Jurisdiction. – The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by
appeal, as herein provided –
(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters
arising under the National Internal Revenue Code or other laws or part of law administered by the
Bureau of Internal Revenue; (Emphasis supplied).
The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the Commissioner of Internal
Revenue on matters relating to assessments or refunds. The second part of the provision covers other cases that
arise out of the NIRC or related laws administered by the Bureau of Internal Revenue. The wording of the provision is
clear and simple. It gives the CTA the jurisdiction to determine if the warrant of distraint and levy issued by the BIR is
valid and to rule if the Waiver of Statute of Limitations was validly effected.
This is not the first case where the CTA validly ruled on issues that did not relate directly to a disputed assessment or
a claim for refund. In Pantoja v. David,17 we upheld the jurisdiction of the CTA to act on a petition to invalidate and
annul the distraint orders of the Commissioner of Internal Revenue. Also, in Commissioner of Internal Revenue v.
Court of Appeals,18 the decision of the CTA declaring several waivers executed by the taxpayer as null and void, thus
invalidating the assessments issued by the BIR, was upheld by this Court.
The second and fifth assigned errors both focus on Revenue Memorandum Circular No. 20-90 (RMO No. 20-90) on
the requisites of a valid waiver of the statute of limitations. The Court of Appeals held that the requirements and
procedures laid down in the RMO are only formal in nature and did not invalidate the waiver that was signed even if
the requirements were not strictly observed.
The NIRC, under Sections 203 and 222,19 provides for a statute of limitations on the assessment and collection of
internal revenue taxes in order to safeguard the interest of the taxpayer against unreasonable investigation.20
Unreasonable investigation contemplates cases where the period for assessment extends indefinitely because this
deprives the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after the
expiration of a reasonable period of time. As was held in Republic of the Phils. v. Ablaza:21
The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the
Government and to its citizens; to the Government because tax officers would be obliged to act promptly in
the making of assessment, and to citizens because after the lapse of the period of prescription citizens
would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect
the books of taxpayers, not to determine the latter’s real liability, but to take advantage of every opportunity
to molest peaceful, law-abiding citizens. Without such a legal defense taxpayers would furthermore be under
obligation to always keep their books and keep them open for inspection subject to harassment by
unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a
way conducive to bringing about the beneficent purpose of affording protection to the taxpayer
within the contemplation of the Commission which recommend the approval of the law. (Emphasis
supplied)
RMO No. 20-90 implements these provisions of the NIRC relating to the period of prescription for the assessment
and collection of taxes. A cursory reading of the Order supports petitioner’s argument that the RMO must be strictly
followed, thus:
In the execution of said waiver, the following procedures should be followed:
1. The waiver must be in the form identified hereof. This form may be reproduced by the Office concerned
but there should be no deviation from such form. The phrase "but not after __________ 19___"
should be filled up…
2. …
Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or the revenue
official authorized by him, as hereinafter provided, shall sign the waiver indicating that the Bureau
has accepted and agreed to the waiver. The date of such acceptance by the Bureau should be
indicated…
3. The following revenue officials are authorized to sign the waiver.
A. In the National Office

3. Commissioner For tax cases involving
more than P1M

B. In the Regional Offices


1. The Revenue District Officer with respect to tax cases still pending investigation and the
period to assess is about to prescribe regardless of amount.

5. The foregoing procedures shall be strictly followed. Any revenue official found
not to have complied with this Order resulting in prescription of the right to
assess/collect shall be administratively dealt with. (Emphasis supplied)22
A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the taxpayers’ right to
security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed.23
The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously
held by the Court of Appeals. It is an agreement between the taxpayer and the BIR that the period to issue an
assessment and collect the taxes due is extended to a date certain. The waiver does not mean that the taxpayer
relinquishes the right to invoke prescription unequivocally particularly where the language of the document is
equivocal. For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or
assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription,
being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the
exceptions to the law on prescription should perforce be strictly construed.24 RMO No. 20-90 explains the rationale of
a waiver:
... The phrase "but not after _________ 19___" should be filled up. This indicates the expiry date of the
period agreed upon to assess/collect the tax after the regular three-year period of prescription. The period
agreed upon shall constitute the time within which to effect the assessment/collection of the tax in
addition to the ordinary prescriptive period. (Emphasis supplied)
As found by the CTA, the Waiver of Statute of Limitations, signed by petitioner’s comptroller on September 22, 1997
is not valid and binding because it does not conform with the provisions of RMO No. 20-90. It did not specify a
definite agreed date between the BIR and petitioner, within which the former may assess and collect revenue taxes.
Thus, petitioner’s waiver became unlimited in time, violating Section 222(b) of the NIRC.
The waiver is also defective from the government side because it was signed only by a revenue district officer, not the
Commissioner, as mandated by the NIRC and RMO No. 20-90. The waiver is not a unilateral act by the taxpayer or
the BIR, but is a bilateral agreement between two parties to extend the period to a date certain. The conformity of the
BIR must be made by either the Commissioner or the Revenue District Officer. This case involves taxes amounting to
more than One Million Pesos (P1,000,000.00) and executed almost seven months before the expiration of the three-
year prescription period. For this, RMO No. 20-90 requires the Commissioner of Internal Revenue to sign for the BIR.
The case of Commissioner of Internal Revenue v. Court of Appeals,25 dealt with waivers that were not signed by the
Commissioner but were argued to have been given implied consent by the BIR. We invalidated the subject waivers
and ruled:
Petitioner’s submission is inaccurate…

The Court of Appeals itself also passed upon the validity of the waivers executed by Carnation, observing
thus:
We cannot go along with the petitioner’s theory. Section 319 of the Tax Code earlier quoted is clear
and explicit that the waiver of the five-year26 prescriptive period must be in writing and signed by
both the BIR Commissioner and the taxpayer.
Here, the three waivers signed by Carnation do not bear the written consent of the BIR
Commissioner as required by law.
We agree with the CTA in holding "these ‘waivers’ to be invalid and without any binding effect on
petitioner (Carnation) for the reason that there was no consent by the respondent (Commissioner of
Internal Revenue)."

For sure, no such written agreement concerning the said three waivers exists between the
petitioner and private respondent Carnation.

What is more, the waivers in question reveal that they are in no wise unequivocal, and therefore
necessitates for its binding effect the concurrence of the Commissioner of Internal Revenue…. On this
basis neither implied consent can be presumed nor can it be contended that the waiver required
under Sec. 319 of the Tax Code is one which is unilateral nor can it be said that concurrence to such
an agreement is a mere formality because it is the very signatures of both the Commissioner of
Internal Revenue and the taxpayer which give birth to such a valid agreement.27 (Emphasis supplied)
The other defect noted in this case is the date of acceptance which makes it difficult to fix with certainty if the waiver
was actually agreed before the expiration of the three-year prescriptive period. The Court of Appeals held that the
date of the execution of the waiver on September 22, 1997 could reasonably be understood as the same date of
acceptance by the BIR. Petitioner points out however that Revenue District Officer Sarmiento could not have
accepted the waiver yet because she was not the Revenue District Officer of RDO No. 33 on such date. Ms.
Sarmiento’s transfer and assignment to RDO No. 33 was only signed by the BIR Commissioner on January 16, 1998
as shown by the Revenue Travel Assignment Order No. 14-98.28 The Court of Tax Appeals noted in its decision that it
is unlikely as well that Ms. Sarmiento made the acceptance on January 16, 1998 because "Revenue Officials
normally have to conduct first an inventory of their pending papers and property responsibilities."29
Finally, the records show that petitioner was not furnished a copy of the waiver. Under RMO No. 20-90, the waiver
must be executed in three copies with the second copy for the taxpayer. The Court of Appeals did not think this was
important because the petitioner need not have a copy of the document it knowingly executed. It stated that the
reason copies are furnished is for a party to be notified of the existence of a document, event or proceeding.
The flaw in the appellate court’s reasoning stems from its assumption that the waiver is a unilateral act of the
taxpayer when it is in fact and in law an agreement between the taxpayer and the BIR. When the petitioner’s
comptroller signed the waiver on September 22, 1997, it was not yet complete and final because the BIR had not
assented. There is compliance with the provision of RMO No. 20-90 only after the taxpayer received a copy of the
waiver accepted by the BIR. The requirement to furnish the taxpayer with a copy of the waiver is not only to give
notice of the existence of the document but of the acceptance by the BIR and the perfection of the agreement.
The waiver document is incomplete and defective and thus the three-year prescriptive period was not tolled or
extended and continued to run until April 17, 1998. Consequently, the Assessment/Demand No. 33-1-000757-94
issued on December 9, 1998 was invalid because it was issued beyond the three (3) year period. In the same
manner, Warrant of Distraint and/or Levy No. 33-06-046 which petitioner received on March 28, 2000 is also null and
void for having been issued pursuant to an invalid assessment.
WHEREFORE, premises considered, the instant petition for review is GRANTED. The Decision of the Court of
Appeals dated August 5, 2003 and its Resolution dated March 31, 2004 are REVERSED and SET ASIDE. The
Decision of the Court of Tax Appeals in CTA Case No. 6108 dated May 14, 2002, declaring Warrant of Distraint
and/or Levy No. 33-06-046 null and void, is REINSTATED.
SO ORDERED.
G.R. No. 159694 January 27, 2006
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
AZUCENA T. REYES, Respondent.
x -- -- -- -- -- -- -- -- -- -- -- -- -- x
G.R. No. 163581 January 27, 2006
AZUCENA T. REYES, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
PANGANIBAN, CJ.:
Under the present provisions of the Tax Code and pursuant to elementary due process, taxpayers must be informed
in writing of the law and the facts upon which a tax assessment is based; otherwise, the assessment is void. Being
invalid, the assessment cannot in turn be used as a basis for the perfection of a tax compromise.
The Case
Before us are two consolidated1 Petitions for Review2 filed under Rule 45 of the Rules of Court, assailing the August
8, 2003 Decision3 of the Court of Appeals (CA) in CA-GR SP No. 71392. The dispositive portion of the assailed
Decision reads as follows:
"WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Tax Appeals is ANNULLED and SET
ASIDE without prejudice to the action of the National Evaluation Board on the proposed compromise settlement of
the Maria C. Tancinco estate’s tax liability."4
The Facts
The CA narrated the facts as follows:
"On July 8, 1993, Maria C. Tancinco (or ‘decedent’) died, leaving a 1,292 square-meter residential lot and an old
house thereon (or ‘subject property’) located at 4931 Pasay Road, Dasmariñas Village, Makati City.
"On the basis of a sworn information-for-reward filed on February 17, 1997 by a certain Raymond Abad (or ‘Abad’),
Revenue District Office No. 50 (South Makati) conducted an investigation on the decedent’s estate (or ‘estate’).
Subsequently, it issued a Return Verification Order. But without the required preliminary findings being submitted, it
issued Letter of Authority No. 132963 for the regular investigation of the estate tax case. Azucena T. Reyes (or
‘[Reyes]’), one of the decedent’s heirs, received the Letter of Authority on March 14, 1997.
"On February 12, 1998, the Chief, Assessment Division, Bureau of Internal Revenue (or ‘BIR’), issued a preliminary
assessment notice against the estate in the amount of P14,580,618.67. On May 10, 1998, the heirs of the decedent
(or ‘heirs’) received a final estate tax assessment notice and a demand letter, both dated April 22, 1998, for the
amount of P14,912,205.47, inclusive of surcharge and interest.
"On June 1, 1998, a certain Felix M. Sumbillo (or ‘Sumbillo’) protested the assessment [o]n behalf of the heirs on the
ground that the subject property had already been sold by the decedent sometime in 1990.
"On November 12, 1998, the Commissioner of Internal Revenue (or ‘[CIR]’) issued a preliminary collection letter to
[Reyes], followed by a Final Notice Before Seizure dated December 4, 1998.
"On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the estate, followed on February 11, 1999
by Notices of Levy on Real Property and Tax Lien against it.
"On March 2, 1999, [Reyes] protested the notice of levy. However, on March 11, 1999, the heirs proposed a
compromise settlement of P1,000,000.00.
"In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to pay 50% of the basic tax due, citing the heirs’
inability to pay the tax assessment. On March 20, 2000, [the CIR] rejected [Reyes’s] offer, pointing out that since the
estate tax is a charge on the estate and not on the heirs, the latter’s financial incapacity is immaterial as, in fact, the
gross value of the estate amounting to P32,420,360.00 is more than sufficient to settle the tax liability. Thus, [the CIR]
demanded payment of the amount of P18,034,382.13 on or before April 15, 2000[;] otherwise, the notice of sale of
the subject property would be published.
"On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to pay 100% of the basic tax due in the
amount of P5,313,891.00. She reiterated the proposal in a letter dated May 18, 2000.
"As the estate failed to pay its tax liability within the April 15, 2000 deadline, the Chief, Collection Enforcement
Division, BIR, notified [Reyes] on June 6, 2000 that the subject property would be sold at public auction on August 8,
2000.
"On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division. Assailing the scheduled auction sale, she
asserted that x x x the assessment, letter of demand[,] and the whole tax proceedings against the estate are void ab
initio. She offered to file the corresponding estate tax return and pay the correct amount of tax without surcharge [or]
interest.
"Without acting on [Reyes’s] protest and offer, [the CIR] instructed the Collection Enforcement Division to proceed
with the August 8, 2000 auction sale. Consequently, on June 28, 2000, [Reyes] filed a [P]etition for [R]eview with the
Court of Tax Appeals (or ‘CTA’), docketed as CTA Case No. 6124.
"On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary Injunction or Status Quo Order,
which was granted by the CTA on July 26, 2000. Upon [Reyes’s] filing of a surety bond in the amount of
P27,000,000.00, the CTA issued a [R]esolution dated August 16, 2000 ordering [the CIR] to desist and refrain from
proceeding with the auction sale of the subject property or from issuing a [W]arrant of [D]istraint or [G]arnishment of
[B]ank [A]ccount[,] pending determination of the case and/or unless a contrary order is issued.
"[The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the CTA no longer has jurisdiction over the
case[,] because the assessment against the estate is already final and executory; and (ii) that the petition was filed
out of time. In a [R]esolution dated November 23, 2000, the CTA denied [the CIR’s] motion.
"During the pendency of the [P]etition for [R]eview with the CTA, however, the BIR issued Revenue Regulation (or
‘RR’) No. 6-2000 and Revenue Memorandum Order (or ‘RMO’) No. 42-2000 offering certain taxpayers with
delinquent accounts and disputed assessments an opportunity to compromise their tax liability.
"On November 25, 2000, [Reyes] filed an application with the BIR for the compromise settlement (or ‘compromise’) of
the assessment against the estate pursuant to Sec. 204(A) of the Tax Code, as implemented by RR No. 6-2000 and
RMO No. 42-2000.
"On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement of the hearing before the CTA
scheduled on January 9, 2001, citing her pending application for compromise with the BIR. The motion was granted
and the hearing was reset to February 6, 2001.
"On January 29, 2001, [Reyes] moved for postponement of the hearing set on February 6, 2001, this time on the
ground that she had already paid the compromise amount of P1,062,778.20 but was still awaiting approval of the
National Evaluation Board (or ‘NEB’). The CTA granted the motion and reset the hearing to February 27, 2001.
"On February 19, 2001, [Reyes] filed a Motion to Declare Application for the Settlement of Disputed Assessment as a
Perfected Compromise. In said motion, she alleged that [the CIR] had not yet signed the compromise[,] because of
procedural red tape requiring the initials of four Deputy Commissioners on relevant documents before the
compromise is signed by the [CIR]. [Reyes] posited that the absence of the requisite initials and signature[s] on said
documents does not vitiate the perfected compromise.
"Commenting on the motion, [the CIR] countered that[,] without the approval of the NEB, [Reyes’s] application for
compromise with the BIR cannot be considered a perfected or consummated compromise.
"On March 9, 2001, the CTA denied [Reyes’s] motion, prompting her to file a Motion for Reconsideration Ad
Cautelam. In a [R]esolution dated April 10, 2001, the CTA denied the [M]otion for [R]econsideration with the
suggestion that[,] for an orderly presentation of her case and to prevent piecemeal resolutions of different issues,
[Reyes] should file a [S]upplemental [P]etition for [R]eview[,] setting forth the new issue of whether there was already
a perfected compromise.
"On May 2, 2001, [Reyes] filed a Supplemental Petition for Review with the CTA, followed on June 4, 2001 by its
Amplificatory Arguments (for the Supplemental Petition for Review), raising the following issues:
‘1. Whether or not an offer to compromise by the [CIR], with the acquiescence by the Secretary of Finance, of a tax
liability pending in court, that was accepted and paid by the taxpayer, is a perfected and consummated compromise.
‘2. Whether this compromise is covered by the provisions of Section 204 of the Tax Code (CTRP) that requires
approval by the BIR [NEB].’
"Answering the Supplemental Petition, [the CIR] averred that an application for compromise of a tax liability under RR
No. 6-2000 and RMO No. 42-2000 requires the evaluation and approval of either the NEB or the Regional Evaluation
Board (or ‘REB’), as the case may be.
"On June 14, 2001, [Reyes] filed a Motion for Judgment on the Pleadings; the motion was granted on July 11, 2001.
After submission of memoranda, the case was submitted for [D]ecision.
"On June 19, 2002, the CTA rendered a [D]ecision, the decretal portion of which pertinently reads:
‘WHEREFORE, in view of all the foregoing, the instant [P]etition for [R]eview is hereby DENIED. Accordingly, [Reyes]
is hereby ORDERED to PAY deficiency estate tax in the amount of Nineteen Million Five Hundred Twenty Four
Thousand Nine Hundred Nine and 78/100 (P19,524,909.78), computed as follows:
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‘[Reyes] is likewise ORDERED to PAY 20% delinquency interest on deficiency estate tax due of P17,934,382.13 from
January 11, 2001 until full payment thereof pursuant to Section 249(c) of the Tax Code, as amended.’
"In arriving at its decision, the CTA ratiocinated that there can only be a perfected and consummated compromise of
the estate’s tax liability[,] if the NEB has approved [Reyes’s] application for compromise in accordance with RR No. 6-
2000, as implemented by RMO No. 42-2000.
"Anent the validity of the assessment notice and letter of demand against the estate, the CTA stated that ‘at the time
the questioned assessment notice and letter of demand were issued, the heirs knew very well the law and the facts
on which the same were based.’ It also observed that the petition was not filed within the 30-day reglementary period
provided under Sec. 11 of Rep. Act No. 1125 and Sec. 228 of the Tax Code."5
Ruling of the Court of Appeals
In partly granting the Petition, the CA said that Section 228 of the Tax Code and RR 12-99 were mandatory and
unequivocal in their requirement. The assessment notice and the demand letter should have stated the facts and the
law on which they were based; otherwise, they were deemed void.6 The appellate court held that while administrative
agencies, like the BIR, were not bound by procedural requirements, they were still required by law and equity to
observe substantive due process. The reason behind this requirement, said the CA, was to ensure that taxpayers
would be duly apprised of -- and could effectively protest -- the basis of tax assessments against them.7 Since the
assessment and the demand were void, the proceedings emanating from them were likewise void, and any order
emanating from them could never attain finality.
The appellate court added, however, that it was premature to declare as perfected and consummated the
compromise of the estate’s tax liability. It explained that, where the basic tax assessed exceeded P1 million, or where
the settlement offer was less than the prescribed minimum rates, the National Evaluation Board’s (NEB) prior
evaluation and approval were the conditio sine qua non to the perfection and consummation of any compromise.8
Besides, the CA pointed out, Section 204(A) of the Tax Code applied to all compromises, whether government-
initiated or not.9 Where the law did not distinguish, courts too should not distinguish.
Hence, this Petition.10
The Issues
In GR No. 159694, petitioner raises the following issues for the Court’s consideration:
"I.
Whether petitioner’s assessment against the estate is valid.
"II.
Whether respondent can validly argue that she, as well as the other heirs, was not aware of the facts and the law on
which the assessment in question is based, after she had opted to propose several compromises on the estate tax
due, and even prematurely acting on such proposal by paying 20% of the basic estate tax due."11
The foregoing issues can be simplified as follows: first, whether the assessment against the estate is valid; and,
second, whether the compromise entered into is also valid.
The Court’s Ruling
The Petition is unmeritorious.
First Issue:
Validity of the Assessment Against the Estate
The second paragraph of Section 228 of the Tax Code12 is clear and mandatory. It provides as follows:
"Sec. 228. Protesting of Assessment. --
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"The taxpayers shall be informed in writing of the law and the facts on which the assessment is made: otherwise, the
assessment shall be void."
In the present case, Reyes was not informed in writing of the law and the facts on which the assessment of estate
taxes had been made. She was merely notified of the findings by the CIR, who had simply relied upon the provisions
of former Section 22913 prior to its amendment by Republic Act (RA) No. 8424, otherwise known as the Tax Reform
Act of 1997.
First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old requirement
of merely notifying the taxpayer of the CIR’s findings was changed in 1998 to informing the taxpayer of not only the
law, but also of the facts on which an assessment would be made; otherwise, the assessment itself would be invalid.
It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On April 22, 1998,
the final estate tax assessment notice, as well as demand letter, was also issued. During those dates, RA 8424 was
already in effect. The notice required under the old law was no longer sufficient under the new law.
To be simply informed in writing of the investigation being conducted and of the recommendation for the assessment
of the estate taxes due is nothing but a perfunctory discharge of the tax function of correctly assessing a taxpayer.
The act cannot be taken to mean that Reyes already knew the law and the facts on which the assessment was
based. It does not at all conform to the compulsory requirement under Section 228. Moreover, the Letter of Authority
received by respondent on March 14, 1997 was for the sheer purpose of investigation and was not even the requisite
notice under the law.
The procedure for protesting an assessment under the Tax Code is found in Chapter III of Title VIII, which deals with
remedies. Being procedural in nature, can its provision then be applied retroactively? The answer is yes.
The general rule is that statutes are prospective. However, statutes that are remedial, or that do not create new or
take away vested rights, do not fall under the general rule against the retroactive operation of statutes.14 Clearly,
Section 228 provides for the procedure in case an assessment is protested. The provision does not create new or
take away vested rights. In both instances, it can surely be applied retroactively. Moreover, RA 8424 does not state,
either expressly or by necessary implication, that pending actions are excepted from the operation of Section 228, or
that applying it to pending proceedings would impair vested rights.
Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment, considering that it
merely implements the law.
A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax Code.15 While it is
desirable for the government authority or administrative agency to have one immediately issued after a law is passed,
the absence of the regulation does not automatically mean that the law itself would become inoperative.
At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that the taxpayer must be
informed of both the law and facts on which the assessment was based. Thus, the CIR should have required the
assessment officers of the Bureau of Internal Revenue (BIR) to follow the clear mandate of the new law. The old
regulation governing the issuance of estate tax assessment notices ran afoul of the rule that tax regulations -- old as
they were -- should be in harmony with, and not supplant or modify, the law.16
It may be argued that the Tax Code provisions are not self-executory. It would be too wide a stretch of the
imagination, though, to still issue a regulation that would simply require tax officials to inform the taxpayer, in any
manner, of the law and the facts on which an assessment was based. That requirement is neither difficult to make nor
its desired results hard to achieve.
Moreover, an administrative rule interpretive of a statute, and not declarative of certain rights and corresponding
obligations, is given retroactive effect as of the date of the effectivity of the statute.17 RR 12-99 is one such rule. Being
interpretive of the provisions of the Tax Code, even if it was issued only on September 6, 1999, this regulation was to
retroact to January 1, 1998 -- a date prior to the issuance of the preliminary assessment notice and demand letter.
Third, neither Section 229 nor RR 12-85 can prevail over Section 228 of the Tax Code.
No doubt, Section 228 has replaced Section 229. The provision on protesting an assessment has been amended.
Furthermore, in case of discrepancy between the law as amended and its implementing but old regulation, the former
necessarily prevails.18 Thus, between Section 228 of the Tax Code and the pertinent provisions of RR 12-85, the
latter cannot stand because it cannot go beyond the provision of the law. The law must still be followed, even though
the existing tax regulation at that time provided for a different procedure. The regulation then simply provided that
notice be sent to the respondent in the form prescribed, and that no consequence would ensue for failure to comply
with that form.
Fourth, petitioner violated the cardinal rule in administrative law that the taxpayer be accorded due process. Not only
was the law here disregarded, but no valid notice was sent, either. A void assessment bears no valid fruit.
The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without
first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations: that
taxpayers should be able to present their case and adduce supporting evidence.19 In the instant case, respondent has
not been informed of the basis of the estate tax liability. Without complying with the unequivocal mandate of first
informing the taxpayer of the government’s claim, there can be no deprivation of property, because no effective
protest can be made.20 The haphazard shot at slapping an assessment, supposedly based on estate taxation’s
general provisions that are expected to be known by the taxpayer, is utter chicanery.
Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals the lack of
basis for -- not to mention the insufficiency of -- the gross figures and details of the itemized deductions indicated in
the notice and the letter. This Court cannot countenance an assessment based on estimates that appear to have
been arbitrarily or capriciously arrived at. Although taxes are the lifeblood of the government, their assessment and
collection "should be made in accordance with law as any arbitrariness will negate the very reason for government
itself."21
Fifth, the rule against estoppel does not apply. Although the government cannot be estopped by the negligence or
omission of its agents, the obligatory provision on protesting a tax assessment cannot be rendered nugatory by a
mere act of the CIR .
Tax laws are civil in nature.22 Under our Civil Code, acts executed against the mandatory provisions of law are void,
except when the law itself authorizes the validity of those acts.23 Failure to comply with Section 228 does not only
render the assessment void, but also finds no validation in any provision in the Tax Code. We cannot condone errant
or enterprising tax officials, as they are expected to be vigilant and law-abiding.
Second Issue:
Validity of Compromise
It would be premature for this Court to declare that the compromise on the estate tax liability has been perfected and
consummated, considering the earlier determination that the assessment against the estate was void. Nothing has
been settled or finalized. Under Section 204(A) of the Tax Code, where the basic tax involved exceeds one million
pesos or the settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the
approval of the NEB composed of the petitioner and four deputy commissioners.
Finally, as correctly held by the appellate court, this provision applies to all compromises, whether government-
initiated or not. Ubi lex non distinguit, nec nos distinguere debemos. Where the law does not distinguish, we should
not distinguish.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. No pronouncement as to costs.
SO ORDERED.

Revenue Regulation No. 12-99


Issued September 14, 1999 implements the provisions of the Tax Code of 1997
relative to the rules on assessment of national internal revenue taxes, fees and
charges, as well as provides the rules for the extra-judicial settlement of a
taxpayer's criminal violation of the said Code or any of its implementing Regulations
through payment of a suggested compromise penalty. As a general principle, in
case the tax due from the taxpayer is paid on a partial or installment basis, the
interest on the deficiency tax or on the delinquency tax liability of the taxpayer will
be imposed from due date of the tax until full payment thereof. The interest will be
computed based on the diminishing balance of the tax, inclusive of interests.