G.R. No. 197525 - Visayas Geothermal Power Co. vs. Commissioner of Internal Revenue

On February 21, 1961, the Commissioner of Internal Revenue (CIR) assessed Ayala Securities Corporation the amount of ₱758,687.04 as 25% surtax on its accumulated surplus of ₱2,758,442.37 for its fiscal year ending September 30, 1955; the assessment was received by the corporation on March 22, 1961.
The Court of Tax Appeals (CTA) canceled the assessment, holding it barred by the five-year prescriptive period under Section 331 of the National Internal Revenue Code; on April 8, 1976, the Supreme Court affirmed that judgment in toto.

The CIR moved for reconsideration, contending that Sections 331 and 332(a) apply only to taxes the basis of which must be reported in a return (e.g., income tax, sales tax). The 25% surtax under Section 25 is not based on any required return of accumulated surplus.
The CIR cited the CTA’s ruling in United Equipment & Supply Co. v. CIR (CTA Case No. 1795, Oct. 30, 1971; G.R. No. L-35653, Oct. 25, 1972), where it was held that no prescriptive period applies to the surtax on surplus because no return is mandated by law.
Emphasizing the principle that limitations on the government’s right to assess taxes must be expressly provided by statute, the CIR argued that, in the absence of such a provision for the Section 25 surtax, the right to assess is imprescriptible.

Testimony by Ayala Securities’ accountant and legal secretary established that Ayala Securities was a mere holding company of Ayala & Company, sharing officers, employees, and premises, and that over 99% of its shares were owned by the same family.
Pursuant to Revenue Regulation No. 2, this status gives rise to a prima facie presumption under Section 25(b) and (c) that the corporation accumulated surplus to avoid dividend taxation.

Whether the 25% surtax on unreasonably accumulated surplus under Section 25 of the Tax Code is subject to the five-year limitation for assessment in Section 331.
Whether the ten-year prescriptive period of Section 332(a) applies by reason of a supposed false or fraudulent return.
Whether, in the absence of any express statutory prescription for the Section 25 surtax, the right to assess is imprescriptible.