Case Summary (G.R. No. 169225)
Relevant Timeline and Facts
- February 15, 1993: Respondent notified the BIR-West Makati of its change of business address, which the BIR received on February 18, 1993.
- January 8, 1993: The BIR sent the tax assessment notice to respondent's old address, which predated the notified address change.
- November 4, 1993: Respondent received a tracer letter from the BIR demanding payment of deficiency taxes for 1989 amounting to P2,936,560.87.
- December 3, 1993: Respondent, via its external auditors, protested the assessment and requested reinvestigation.
- October 27, 2001: The CIR issued a final decision denying the protest on grounds of late filing beyond the 30-day period provided by law.
- December 6, 2001: Respondent filed a Petition for Review before the Court of Tax Appeals (CTA).
- September 24, 2004: CTA Original Division ruled the assessment valid but ruled the CIR failed to collect within the prescriptive period, ordering cancellation of the assessment.
- August 12, 2005: CTA En Banc denied CIR’s petition for review.
- November 17, 2010: The Supreme Court affirmed the CTA’s decision.
Applicable Law
- 1986 National Internal Revenue Code (NIRC), specifically Sections 223, 224, and related provisions.
- Republic Act No. 1125 (Act Creating the Court of Tax Appeals), as amended by Republic Act No. 9282.
- Rules of Court, Rule 45 (Petition for Review on Certiorari).
Jurisdiction of the Court of Tax Appeals (CTA)
Section 7 of Republic Act No. 1125 grants the CTA exclusive appellate jurisdiction to review decisions of the CIR involving disputed assessments, refunds, penalties, and other matters arising under the NIRC. The Court clarified that "other matters" is not limited by whether the tax assessment has become final or unappealable. Hence, the issue concerning the prescriptive period for the collection of taxes includes jurisdiction over the CIR's right to collect, which the CTA may review. The mere finality of the assessment’s validity does not oust the jurisdiction of the CTA regarding other issues such as the prescription of collection rights.
Distinction Between Finality of Assessment and Prescription of Collection
Finality of the assessment due to failure to timely protest bars the reconsideration of the assessment’s correctness. However, this does not equate to extinguishment of the right to collect the tax. The right of the CIR to collect assessed taxes is subject to a separate prescriptive period and may be contested independently. The CTA’s jurisdiction extends to determining whether the CIR’s right to collect the tax has prescribed under the law.
Prescription on the Right to Collect Taxes
Under Section 223(c) of the 1986 NIRC, the CIR must collect assessed taxes within three years from the date of assessment. If not collected within this period, the right to enforce collection is barred by prescription.
Suspension of the Prescription Period
Section 224 of the 1986 NIRC provides grounds for suspension of the running of the prescriptive period for assessment and collection. Specifically, suspension occurs if the taxpayer requests a reinvestigation and the CIR grants said request. Both conditions must be satisfied for suspension to apply.
In this case, respondent filed a protest with a request for reinvestigation on December 3, 1993; however, the CIR did not act on or grant the request
Case Syllabus (G.R. No. 169225)
Nature and Procedural Background of the Case
- This case involves a Petition for Review on Certiorari filed under Rule 45 of the Rules of Court by the Commissioner of Internal Revenue (CIR), seeking to set aside the Decision dated August 12, 2005 of the Court of Tax Appeals (CTA) En Banc.
- The CTA En Banc affirmed the Decision dated September 24, 2004 by the CTA Original Division which canceled the assessment issued against respondent Hambrecht & Quist Philippines, Inc. for deficiency income and expanded withholding tax for the year 1989.
- The cancellation was based on the ground that the CIR failed to enforce collection within the legally allowed prescriptive period.
- The controversy thus centers on two key issues: (1) the jurisdiction of the CTA to rule on the prescription of the government’s tax collection right, and (2) whether the collection period had prescribed.
Facts of the Case
- Respondent notified the Bureau of Internal Revenue (BIR) through a letter dated February 15, 1993, of its change of business address, which the BIR received on February 18, 1993.
- Prior to this, on January 8, 1993, the BIR had sent an assessment notice by registered mail to the respondent’s former address; respondent only formally informed the new address months later.
- On November 4, 1993, respondent received a tracer letter dated October 11, 1993 from the BIR’s National Office demanding payment for alleged deficiency income and expanded withholding taxes for 1989 totaling ₱2,936,560.87.
- On December 3, 1993, respondent, through external auditors, filed a protest letter against the deficiency tax assessment, disputing disallowances of various expenses including professional fees, donations, repairs, salaries, and primarily management fees, which were the basis for the withholding tax assessment.
- The CIR, on October 27, 2001, issued a final decision denying the protest, citing that the protest was allegedly filed beyond the allowed 30-day period under Section 229 of the National Internal Revenue Code (NIRC).
- Subsequently, respondent filed a Petition for Review before the CTA on December 6, 2001, challenging the final CIR decision.
- The CTA Original Division upheld the validity of the assessment notice given the late formal change of address but ruled that the CIR did not collect the tax within the prescriptive period and thus canceled the assessment.
- Petitioner’s motions for reconsideration were denied and its Petition for Review with the CTA En Banc was also dismissed for lack of merit.
Issues Presented for Resolution
- Whether the Court of Tax Appeals has jurisdiction to determine that the government’s right to collect the assessed tax has prescribed.
- Whether the prescriptive period for the collection of the tax assessment has already elapsed, barring