Extraordinary prescription

False return

G.R. No. L-15716 March 31, 1962

TALIGAMAN LUMBER CO., INC., petitioner,

vs.
THE COLLECTOR OF INTERNAL REVENUE, respondent.

Luis A. Dayot for petitioner.

Office of the Solicitor General for respondent.

CONCEPCION, J.:

This is an appeal from a decision of the Court of Tax Appeals sentencing petitioner, Taligaman
Lumber Co., Inc., to pay the aggregate sum of P85,790.91 as deficiency sales tax and surcharge
computed as follows:

Caloocan Branch

Sales tax assessed by respondent P68,829.79

25% surcharge 17,207.45

Total tax and surcharge . . . . . . . . . . . . . . . P86,037.24

Less: (a) Overpayment of

graduated fixed tax P 450.00

(b) Overassessment, see

pages 14-15, supra 619.90

(e) Overpayment of
forest charges P 247.58 P 1,917.48

Deficiency sales tax and surcharge . . . . . P84,119.76

==========

Butuan Branch
Sales tax and surcharge assessed
P39,527.97
by respondent . . . . . . .

Less: (a) Overassessment

on shipments
P12,334.19
valued at P197,347.03

(b) Overassessment
arising from
overvaluation of certain 3,994.66
shipments 16,328.85

Deficiency sales tax and surcharge P23,199.12

Less payments made by petitioner 21,527.97

Balance unpaid . . . . . . . . . . . . . . . . . . . . P 1,671.15

==========

SUMMARY

C
al
o
o
c
a
P84,119.76
n
B
ra
n
c
h

B
ut
u
a
n
1,671.15
B
ra
n
c
h
 T
ot
al
..
.. P85,790.91
.. =============
..
..
.

Petitioner herein, a domestic corporation with principal office in the City of Manila and branch offices
in Grace Park, Caloocan, Rizal, and Butuan City, Agusan, is a duly licensed forest and timber
concessionaire. As such, it is engaged in the business of cutting logs in its concessions and
converting said logs into lumber, as well as buying logs from other concessionaires. Most of the
lumber cut in its sawmill in Agusan were sent to its branch office in Grace Park, Caloocan, Rizal, to
be sold to different lumber dealers in Manila and suburbs.

Upon examination of the books of account of the Grace Park branch, an agent of the Bureau of
Internal Revenue recommended, on December 23, 1953, an assessment of P134,381.11 as
deficiency sales tax on the sales made in said branch for the years 1948 to 1952. Upon
reexamination of said books of account, the agent recommended a reduction of the assessment to
P93,931.86, plus 25% surcharge, or a total of P117,414.83. After a reinvestigation, made at the
request of the company, upon receipt of the corresponding assessment, dated February 12, 1954,
the amount of the assessment was further reduced, on about May 31, 1955, to P66,916.21 plus 25%
surcharge, or a total of P83,645.26, computed as follows:

1948

S
al P272,620.51
e
s

5
%
s
al
e
s
ta P 13,631.03
x
d
u
e
th
e
r
e
o
n

1949

Sales P474,821.88

5% sales tax due thereon. P 23,741.09

1950

Cash sales P 57,009.74

P605,142.35
Sales on account

Total P662,152.09

Return sales 12,527.84

Net sales P649,624.25

Lumber purchase P 38,725.60

Estimated 25% gross profit 9,681.40 48,407.00

Net taxable sales P601,217.25

Logs purchased from January

1—
P161,910.30
Sept. 21, 1950

Gross profit rate — 60% Cost

is, therefore, 40%.
Therefore sales equals cost
divided
by 40% times 100. Hence,
P161,910.30 divided 40%
equals P404,775.75

Logs purchased from Sept. 22

P569,932.25
to
P 66,062,60
Dec. 31, 1950
P66,062.60 divided by 40% x
100
P165,156.50
equals

Sales from concession P 31,285.00

5% sales tax due thereon P 1,564.25

Sales from logs purchased P404,775.75

Less Cost P161,910.30

Taxable sales P242,865.45

Sales tax due thereon 12,143.27

1951

P308,522.24
Sales

Logs purchased P108,730.63

Gross profit rate - 47%

Sales therefore is P108,730.63 divided by

53% x 100 P205,152.13

Sales from concession P103,370.11

sales tax due thereon P 5,168.51

1950 & 1951

Purchase of logs from Sept. 22, 1950

to Dec. 31, 1950 P 66,062.60
Purchase of logs from 1951 108,730.63

Total P174,793.23

33-1/3 thereof P 58,264.41

5% sales tax due thereon P 2,913.22

1952

Sales P193,368.41

5% tax due thereon P 9,668.42

SUMMARY

Sales tax due for 1948 P 13,631.03

Sales tax due for 1949 23,741.09

Sales tax due for 1950 (part) 1,564.25

Sales tax due for 1950 (part) 12,143.27

Sales tax due for 1951 5,168.42

Sales tax due for 1950 & 1951 (part) 2,913.22

Sales tax due for 1952 9,668.42

Total P 68,829.79

Tax paid P1,066.00

To be refunded 847.58 P 1,913.58

Sales tax still due P 66,916.21

 25% surcharge 16,729.05

Total tax due and collectible P 83,645.25

==========

Meanwhile, another internal revenue agent had examined the records of the Butuan City branch and
as a consequence, the sum of P98,145.94 was assessed on or about June 21, 1954, as deficiency
sales tax, surcharge and penalties due on the sales made in said branch for the period from 1948 to
1953. Upon reinvestigation, the assessment was reduced, on or about November 15, 1954, to
P39,527.97, computed as follows:

F.O.B. Exports (1950-1953) P1,062,401.44

Local sales of logs 70,358.48

Local sales of Lumber 796.59

Total sales P1,135,556.51

Less: Sales not subject to tax

—
P520,515.14
Co-owners exports

Purchased Logs 80,593.87 501,109.01

Taxable sales P632,447.50

tax thereon 31,622.38

25% surcharge 7,905.59

Total amount due P39,527.97

===========

Upon receipt of this assessment on February 26, 1955, petitioner proposed — in order to avoid
distraint and levy which the Government had meanwhile sought to effect — the payment of said sum
of P39,527.97 as follows: "P3,597.97 in cash and the balance of P36,000 to be paid with in twelve
(12) months time at P3,000.00 a month, payable every end of the month", with a performance bond
in favor of the Bureau of Internal Revenue to guarantee the payment of said balance of P36,000. Of
this amount, the sum of P18,000 has already been paid.
Upon refusal of the Collector of Internal Revenue reconsider or modify either assessment, petitioner
brought the matter for review to the Court of Tax Appeals, which, as pointed out above, reduced the
amount collectible from petitioner to the aggregate sum of P85,790.91. Hence, this appeal by
petitioner, who assails the decision of said Court, upon the ground: (1) that the right of the
Government to collect deficiency taxes for the years 1948 and 1949 is already barred by the statute
of limitations; and (2) to the export sales made by petitioner's Butuan branch were consummated
abroad and, hence, not taxable in the Philippines.

With respect to the first ground, petitioner alleges to the right of the Government to collect deficiency
sales for the years 1948 and 1949 had already prescribed for, pursuant to section 331 of the
Revised Internal Revenue Law: .

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
the collection of such taxes shall be begun after the expiration of such period. For the
purposes of this section a return filed before the last day prescribed by law for the filling
thereof shall be considered as filed on such last day: Provided, That this limitation shall not
apply to cases already investigated prior to the approval of this Code.

Respondent, in turn, maintains that this case falls under action 332 (a) of the Internal Revenue code,
reading: .

In the case of a false or fraudulent return with intent to evade tax or of a failure to file a
return, the tax may be assessed, or a proceeding in court for the collection of such tax may
be begun without assessment, at any time within ten years after the discovery of the falsity,
fraud, or omission.

Petitioner objects to the application of this section 332(a) upon the ground that there is no affirmative
evidence that it had not filed the corresponding returns for the years 1948-1949. Thus the issue boils
down to which of the two parties had the burden of proving such failure to file said returns. It is,
however, clear that since prescription is one of the affirmative defenses set up by petitioner herein, it
was incumbent upon the latter, if it wanted to avail itself of the benefits of section 331, to prove that it
had submitted said returns, and that, having failed to do so, the conclusion must be that no such
returns had been filed and that the Government had ten (10) years within which to make the
corresponding assessments, as it did in this case.

It is urged that in alleging, in its amended answer to the amended petition filed with the Court of Tax
Appeals, that "petitioner had failed to declare its correct taxable receipts during the years in
question", the Government had admitted impliedly that petitioner had declared its receipts, though
not correctly, thus relieving petitioner of the burden of proving that it had filed the corresponding
returns. That the conclusion thus drawn from the above quoted averment is unwarranted becomes
patent when we consider that petitioner omitted the clause following said allegation, namely: "hence,
the assessment and collection of said taxes are authorized under the provisions of section 332 of the
National Internal Revenue Code." In short, the Government relied upon the "failure to file a return",
referred to in said section 332, not to mere inaccuracies in the return filed, which fall under section
331.

The second question raised by petitioner hinges on whether the export sales made by the Butuan
City branch to Japanese buyers were consummated in the Philippines, as held by the lower court, or
abroad, as petitioner would have us believe. In this connection, petitioner's president testified that
the real intent of the parties to the aforementioned sales was to effect the transfer of title to buyers in
Japan. However, petitioner did not introduce in evidence the corresponding contracts of sale. Upon
the other hand, it is admitted that the agreed price was "F.O.B. Agusan", thus indicating, although
prima facie, that the parties intended the title to pass to the buyer upon delivery of the logs in
Agusan, on board the vessels that took the goods to Japan. Moreover, said prima facie proof was
bolstered up by the following circumstances, namely: .

1. Irrevocable letters of credit were opened by the January Japanese buyers in favor of the
petitioners.

2. Payment of freight charges of every shipment by the Japanese buyers. 1äwphï1.ñët

3. The Japanese buyers chartered the ships that carried the logs they purchased from the
Philippines to Japan.

4. The Japanese buyers insured the shipment of logs and collected the insurance coverage
in case of loss in transit.

5. The petitioner collected the purchase price of every shipment of logs by surrendering the
covering letter of credit, bill of lading, which was indorsed in blank, tally sheet, invoice and
export entry, to the corresponding bank in Manila of the Japanese agent bank with whom the
Japanese buyers opened letters of credit.

6. In case of natural defects in logs shipped to the buyers discovered in Japan, the latter,
instead of returning such defective logs, accepted them, but were granted a corresponding
credit based on the contract price.

7. The logs purchased by the Japanese buyers were measured by a representative of the
Director of Forestry and such measurement was final, thereby making the Government of the
Philippines a sort of agent of the Japanese buyers.

Upon the foregoing facts and the authority of Bislig Lumber Co. vs. Collector of Internal
Revenue, G.R. No. L-13186 (January 28, 1961), Misamis Lumber Co., Inc. vs. Collector of Internal
Revenue (56 Off. Gaz., 517) and Western Mindanao Lumber Development Co., Inc. vs. Court of Tax
Appeals, et al. (G.R. No. L-11710, June 30, 1958), it is clear that said export sales had been
consummated in the Philippines and were, accordingly, subject to sales tax therein.

WHEREFORE, the decision appealed from is hereby affirmed, with costs against the petitioner. It is
so ordered.

Bengzon, C.J., Padilla, Labrador, Barrera, Paredes, Dizon and De Leon, JJ., concur.

The Lawphil Project - Arellano Law Foundation

G.R. No. L-20477 March 29, 1968

REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,

vs.
FELIX B. ACEBEDO, defendant-appellee.

Office of the Solicitor General for plaintiff-appellant.

Angel C. Facundo for defendant-appellee,.
MAKALINTAL, J.:

This is a suit for collection of deficiency income tax for the year 1948 in the amount of
P5,962.83. The corresponding notice of assessment was issued on September 24, 1949. The
complaint was filed on December 27, 1961. After the defendant filed his answer but before trial
started he moved to dismiss on the ground of prescription. The court received evidence on the
motion, and on September 1, 1962 issued an order finding the same meritorious and hence
dismissing the complaint. The case is before us on appeal by the plaintiff from the order of dismissal.

The statute of limitations which governs this case is Section 332, subsection (c), of the
National Internal Revenue Code, which reads:

SEC. 332. Exemptions as to period of limitation of assessment and collection of taxes.

—

xxx xxx xxx

xxx xxx xxx

(c) Where the assessment of any internal-revenue tax has been made with the period
of limitation above prescribed such tax may be collected by distraint or levy or by a
proceeding in court, but only if begun (1) within five years after the assessment of the tax, or
(2) prior to the expiration of any period for collection agreed upon in writing by the Collector
of Internal Revenue and the taxpayer before the expiration of such five-year period. The
period so agreed upon may be extended by subsequent agreements in writing made before
the expiration of the period previously agreed upon.

The present suit was not begun within five years after the assessment of the tax, which was in
1949. Was it, however, begun prior to the expiration of any period for collection agreed upon in
writing by the Commissioner of Internal Revenue and the defendant before the expiration of such
five-year period? The only evidence of such written agreement, in the form of a "waiver of the statute
of limitations" signed by the defendant, is Exhibit U (also Exh. 4), dated December 17, 1959. But this
waiver was ineffective because it was executed beyond the original five-year limitation.

The plaintiff contends that the period of prescription was suspended by the defendant's
various requests for reinvestigation or reconsideration of the tax assessment. The trial court rejected
this contention, saying that a mere request for reinvestigation or reconsideration of an assessment
does not have the effect of such suspension. The ruling is logical, otherwise there would be no point
to the legal requirement that the extension of the original period be agreed upon in writing.

To be sure, this legal provision, according to some, decisions of this Court, does not rule out a
situation where the taxpayer may be in estoppel to claim prescription. Thus we said in Commissioner
of Internal Revenue, vs. Consolidated Mining Co., L-11527, Nov. 25, 1958:

... 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. (Emphasis supplied.)
 Likewise, when a taxpayer asks for a reinvestigation of the tax assessment issued to him and
such reinvestigation is made, on the basis of which the Government makes another assessment, the
five-year period with which an action for collection may be commenced should be counted from this
last assessment. (Republic vs. Lopez, L-18007, March 30, 1963; Commissioner v. Sison, et al., L-
13739, April 30, 1963.)

In the case at bar, the 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 at (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 next communication of record is a letter signed for the defendant by one Troadio Concha
and dated October 6, 1951, again requesting a reinvestigation of his tax liability (Exh. B). Nothing
came of this request either. Then on February 9, 1954, the defendant's lawyers wrote the Collector
of Internal Revenue informing him that the books of their client were ready at their office for
examination (Exh. C). The reply was dated more than a year later, or on October 4, 1955, when the
Collector bestirred himself for the first time in connection with the reinvestigation sought, and
required that the defendants specify his objections to the assessment and execute "the enclosed
forms for waiver, of the statute of limitations." (Exh. E). The last part of the letter was a warning that
unless the waiver "was accomplished and submitted within 10 days the collection of the deficiency
taxes would be enforced by means of the remedies provided for by law."

It will be noted that up to October 4, 1955 the delay in collection could not be attributed to the
defendant at all. His requests in fact had been unheeded until then, and there was nothing to impede
enforcement of the tax liability by any of the means provided by law. By October 4, 1955, more than
five years had elapsed since assessment in question was made, and hence prescription had already
set in, making subsequent events in connection with the said assessment entirely immaterial. Even
the written waiver of the statute signed by the defendant on December 17, 1959 could no longer
revive the right of action, for under the law such waiver must be executed within the original five-year
period within which suit could be commenced.

The order appealed from is affirmed, without pronouncement as to costs. 1äw phï1.ñë