Case Summary (G.R. No. 104171)
Key Dates
- 1961: Land acquired under Parity Amendment
- July 3, 1974: Expiration of Parity Amendment
- January 21, 1974: Sale of Basilan land for ₱500,000
- April 23, 1975: Initial BIR assessment (income tax) paid
- October 10, 1980 & March 16, 1981: BIR donor’s tax assessments issued
- March 29, 1991: Court of Tax Appeals (CTA) decision
- February 14, 1992: Court of Appeals (CA) decision
- February 24, 1999: Supreme Court decision
Applicable Law
- 1987 Philippine Constitution (due process, protection against unreasonable assessments)
- National Internal Revenue Code of 1977, as amended
• Section 331: Five-year prescription for assessment and collection
• Section 332(a): Ten-year exception for false or fraudulent returns with intent to evade tax
• Section 15: Authority to assess on best evidence if returns are false, incomplete, or erroneous - Rules of Court, Rule 45 (Petition for Review on Certiorari)
Facts
B.F. Goodrich Phils., Inc. was required by the Central Bank to develop a rubber plantation and purchased Basilan land in 1961. Foreseeing loss of American ownership rights after the Parity Amendment expired in 1974, the company sold the land to Siltown Realty on January 21, 1974, for ₱500,000, then leased it back for 25 years, renewable for another 25.
Procedural History
• The BIR examined the company’s 1974 books and assessed income tax (₱6,005.35), which was paid in April 1975.
• In October 1980 and March 1981 the BIR issued donor’s tax assessments (totaling over ₱1 million), alleging undervaluation of the sale as a taxable donation.
• The CTA modified and sustained the assessments, finding the sale false within Section 15.
• The CA reversed, holding the assessments barred by the five-year prescription under Section 331 and not saved by Section 332’s exceptions.
Issue
Whether the BIR’s donor’s tax assessments issued in 1980 and 1981 against the 1974 sale are valid despite being beyond the five-year prescriptive period.
Supreme Court Ruling
The petition is denied. Assessments issued more than five years after the 1974 return filing are barred by Section 331. The CA correctly applied the law: Section 15 authorizes initial assessments on best evidence but does not toll the five-year limit for subsequent assessments. The exception in Section 332(a) for false or fraudulent returns requires proof of intent to evade tax and a fraudulent filing. Here, the sale was disclosed, no fraudulent return was shown, and the BIR failed to demonstrate intent to evade.
Analysis on Prescription and Exceptions
- Prescription: Tax assessments must be made within five years from filing—April 1975 to April 1980. The October 1980 and March 1981 noti
Case Syllabus (G.R. No. 104171)
Facts
- Private Respondent B.F. Goodrich Phils., Inc. (an American-owned corporation until July 3, 1974) was required by the Central Bank to develop a rubber plantation as a condition to manufacture tires and rubber products in the Philippines.
- In 1961, under the Public Land Act and the Parity Amendment, it acquired land in Tumajubong, Basilan and developed a rubber plantation.
- A Justice Secretary opinion of August 2, 1973 advised that American ownership rights over public agricultural land would expire on July 3, 1974, prompting Private Respondent to sell its Basilan lands to Siltown Realty Philippines, Inc. on January 21, 1974 for ₱500,000, payable in installments.
- Under the sale’s terms, Siltown leased the land back to Private Respondent for 25 years, renewable for another 25.
- On April 14, 1975, the BIR issued Letter of Authority No. 10115 to examine Private Respondent’s books for taxable year 1974, resulting in an April 23, 1975 deficiency income tax assessment of ₱6,005.35, which was paid.
- Subsequent BIR examinations of Siltown’s business under LOAs Nos. 074420 RR and 074421 RR and Memorandum Authority No. 749157 led to a deficiency donor’s tax assessment against Private Respondent dated October 10, 1980 for ₱1,020,850.
- Private Respondent protested in writing on November 24, 1980; a further assessment dated March 16, 1981 increased the demand to ₱1,092,949 (including surcharge, interest, compromise penalty).
- Private Respondent appealed these donor’s tax assessments to the Court of Tax Appeals (CTA).
Procedural History
- CTA rendered Decision on March 29, 1