Title
Supreme Court
Commissioner of Internal Revenue vs. Bank of the Philippine Islands
Case
G.R. No. 227049
Decision Date
Sep 16, 2020
CIR issued 1986 tax assessments to Citytrust, later merged with BPI. Waivers invalid; assessments time-barred. CTA cancelled warrants; SC upheld, ruling CIR's right to assess/collect prescribed.

Case Summary (G.R. No. 180643)

Background of the Case and Key Dates

On May 6, 1991, the CIR issued deficiency tax assessments to Citytrust for the year 1986, totaling P20,865,320.29, covering various tax types: Income Tax (IT), Expanded Withholding Tax (EWT), Withholding Tax on Deposit Substitutes (WTD), Dealer’s Fixed Tax (DFT), and penalties on withholding tax on compensation (WTC). Citytrust had previously executed three waivers extending the prescriptive period for the CIR to conduct assessments. Citytrust protested the deficiency assessments in 1991 and 1992. After BPI’s merger with Citytrust in 1996, the CIR issued demands for payment and warrants of distraint and/or levy in 2011 aimed at collecting the unpaid taxes.

Separate Proceedings on Income Tax Assessment

The deficiency IT portion amounting to about P19.2 million underwent a separate legal proceeding culminating in a Supreme Court ruling in G.R. No. 224327 (2018). Despite attempts at compromise settlement, the CIR’s right to assess was found to have prescribed because the CIR failed to prove that Citytrust received the final decision letter dated February 5, 1992. The Supreme Court thus cancelled the warrant of distraint and/or levy relating to the Income Tax portion, declaring BPI not liable for deficiency IT.

Proceedings Concerning Deficiency EWT, WTD, DFT, and WTC—The Present Petition

In November 2011, BPI received another warrant of distraint and/or levy related to the other deficiency taxes amounting to P1,624,930.32. BPI filed a petition before the Court of Tax Appeals (CTA) to cancel the warrant and suspend collection, claiming prescription. The CTA Third Division and later the CTA En Banc (CTA EB) ruled in favor of BPI, cancelling the warrant and declaring portions of the assessments prescribed.

Jurisdiction of the Court of Tax Appeals

The CTA held jurisdiction over BPI’s petition because the petition questioned the propriety of the CIR’s collection measure (the warrant of distraint and/or levy) rather than directly contesting a final decision on assessments. This falls within the CTA’s exclusive appellate jurisdiction over “other matters” arising under the tax laws. The Supreme Court affirmed the CTA's jurisdiction, emphasizing that BPI did not seek to appeal a final decision but to challenge a collection remedy.

Validity of Waivers Extending the Prescriptive Period

The CIR argued that waivers validly extended the prescriptive period to assess taxes. However, the CTA, confirmed by the Supreme Court, found all three executed waivers invalid due to non-compliance with the formal requirements under Revenue Memorandum Order No. 20-90, citing specifically the absence of the CIR’s signature. This lack of mutual assent rendered the waivers ineffective to extend the period for tax assessment. Furthermore, the doctrine against estoppel applied because the defects originated from the CIR’s own failure, allowing BPI to raise the invalidity issue.

Timeliness of the Issuance of Assessments

The assessment notices were issued on May 6, 1991, which was beyond the general three-year prescriptive period for assessing deficiency EWT, WTD, and WTC, as mandated by the 1977 Tax Code and confirmed through relevant jurisprudence and regulations. For DFT, the ten-year prescriptive period for taxes with no return filed applied, making the assessment timely. However, the CIR’s demand and warrant for collection in 2011 were issued long after the prescriptive periods for both assessment and collection had expired.

Prescription on Collection and Enforceability of Warrants

Pursuant to the 1977 Tax Code, the CIR has three years from the date the assessment notice is issued, mailed, or sent to the taxpayer to collect the assessed taxes by distraint and/or levy or judicial proceedings. Here, the CIR’s attempt to collect in 2011 exceeded the three-year collection period from the latest possible assessment date of May 6, 1991 (or May 30, 1991 when the protest was filed). The Supreme Court stressed that a 20-year gap between assessment issuance and collection effort exemplifies clear prescription, barring tax collection.

Summary of the Supreme Court’s Ruling

  1. The CTA properly exercised jurisdiction because BPI challenged not the assessment per se, but the collection warrant, within the tax court’s appellate jurisdiction over ancillary tax matters.
  2. The CIR’s right to assess deficiency EWT, WTD, DFT, and WTC had prescribed due to invalid waivers and issuance of assessments beyond the valid prescriptive period.
  3. The CIR’s right to collect the unpaid taxes through distraint or levy had likewise prescribed since collection efforts commenced only in 2011, well after the three-year collection period.
  4. BPI was not estopped from raising questions on waiver validity or prescription because the defects were attributabl

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