G.R. No. L-23236 - Central Azucarera Don Pedro vs. Court of Tax Appeals

Central Azucarera Don Pedro, a domestic corporation based in Nasugbu, Batangas, filed its income tax returns on a fiscal year basis ending August 31 annually.

For the fiscal year ending August 31, 1954, the petitioner filed its return on October 24, 1954, and paid an income tax amounting to P491,038.00 as computed on the basis of that return.

On October 15, 1959, the Commissioner of Internal Revenue assessed a deficiency income tax of P167,935.00 for the 1954 fiscal year; no interest was initially imposed.

The petitioner, in response, filed a protest on October 26, 1959, requesting the cancellation of the assessed deficiency tax.

Acting on the protest, the Commissioner issued a revised assessment on December 20, 1961, recalculating the deficiency tax at P10,062.00 and adding interest computed at 1/2% monthly (6% per annum) amounting to P1,509.30, with interest computed from June 20, 1959 (the effectivity date of the amendment) to December 20, 1961.

Although the petitioner paid the revised deficiency tax on January 16, 1962, it subsequently objected—in a letter dated January 18, 1962—to the demand and imposition of the interest portion.

The case was elevated to the Tax Court, where the sole issue was held to be purely legal, and on June 15, 1964, the Tax Court rendered its decision upholding the imposition of interest by the Commissioner.

The same petitioner, Central Azucarera Don Pedro, filed its income tax returns for the succeeding fiscal years ending August 31, 1955; 1956; 1957; and 1958, paying the corresponding income taxes on the basis of its returns.

After verifying the returns for these fiscal years, the Commissioner ascertained and assessed deficiency income taxes aggregating P21,330.00 and imposed interests totaling P2,307.10 on the same basis as in the earlier case—i.e., under Section 51(d) of the Internal Revenue Code as amended by Republic Act No. 2343.

The petitioner paid these amounts within the prescribed period; however, on January 19, 1962, it filed a claim for refund or tax credit of the interest amounting to P2,307.10, asserting that the interest imposition was erroneous and illegal because it was levied on income earned before the effectivity of Republic Act No. 2343.

With the two-year prescriptive period nearing its end, the petitioner then filed a petition for review with the Court of Tax Appeals on October 23, 1962, challenging the legality of imposing interest on taxes earned prior to the enactment of the new law but assessed afterward.

The case was heard, with both parties submitting documentary evidence, and on June 29, 1964, the Court of Tax Appeals rendered its decision sustaining the Commissioner’s ruling on the imposition of interest.

Whether the imposition of interest at a rate of 1/2% monthly (6% per annum) under Section 51(d) of the National Internal Revenue Code, as amended by Republic Act No. 2343 (effective June 20, 1959), on deficiency income tax due on income earned prior to the effectivity of the new law—but assessed afterward—is legally valid.
Whether applying the amended interest provision constitutes retroactive application of law, thus violating the constitutional prohibition on ex post facto laws, particularly when the petitioner contends that interest should accrue only if the tax is not paid within the prescribed period.