Facts:
Petitioner-appellant Maria B. Castro asks for partial reconsideration of the decision of this court dated April 26, 1962, contending that the one percent (1%) monthly interest on the war profits tax due from her should be limited to a total of thirty-six per centum (36%).
This contention is made to rest on the provisions of the Internal Revenue Code on Income Tax, Section 51 (e), as amended by Republic Act No. 2343 (approved on June 29, 1959), to the effect that:
"SEC. 51 (e).Additions to the tax in case of nonpayment.— (1) Tax shown on the return. — Where the amount determined by the taxpayer as the tax imposed by this Title or any installment thereof, or any part of such amount or installment, is not paid on or before the date prescribed for its payment, there shall be collected as a part of the tax, interest upon such unpaid amount at the rate of one per centum a month from the date prescribed for its payment until it is paid: Provided, That the maximum amount that may be collected as interest on deficiency shall in no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription to the contrary notwithstanding."
Issue:
Whether or not Castro is correct
Ruling:
No. Assuming, without deciding, that this particular section is applicable to war profits taxes, we agree with the Solicitor General that there is no legal ground for applying retroactively to the delinquencies of the petitioner under the War Profits Tax Law (and which accrued since September 23, 1950, when the corresponding tax assessment was issued) the terms of a law (R.A. 2343) enacted almost nine (9) years later. It is elementary that laws are presumed to operate only prospectively, and have no retroactive effect in the absence of clear provision to the purpose. As it stood in 1950, Section 51 (e) of the Revenue Code provided for monthly interest without limitation of the number of months:
"SEC. 51 (e).Surcharge and interest in case of delinquency. — To any sum or sums due and unpaid after the dates prescribed in subsections (b), (c) and (d) for the payment of the same, there shall be added the sum of five per centum on the amount of tax unpaid and interest at the rate of one per centum a month upon said tax from the time the same became due, except from the estates of insane, deceased, or insolvent persons."
Petitioner contends that the imposition of interest amounts to a penalty, and that laws imposing lighter penalties are given retrospective effect. We disagree with the basic assumption, and hold that the imposition of 1% monthly interest is but a just compensation to the state for the delay in paying the tax, and for the concomitant use by the taxpayer of funds that rightfully should be in the government’s hands (U.S. v. Goldstein, 189 F [2d] 752; Ross v. U.S., 148 Fed. Supp. 330; U.S. v. Joffray, 97 Fed.[2d] 488). The fact that the interest charged is made proportionate to the period of delay constitutes the best evidence that such interest is not penal but compensatory.
Petitioner-appellant Maria B. Castro asks for partial reconsideration of the decision of this court dated April 26, 1962, contending that the one percent (1%) monthly interest on the war profits tax due from her should be limited to a total of thirty-six per centum (36%).
This contention is made to rest on the provisions of the Internal Revenue Code on Income Tax, Section 51 (e), as amended by Republic Act No. 2343 (approved on June 29, 1959), to the effect that:
"SEC. 51 (e).Additions to the tax in case of nonpayment.— (1) Tax shown on the return. — Where the amount determined by the taxpayer as the tax imposed by this Title or any installment thereof, or any part of such amount or installment, is not paid on or before the date prescribed for its payment, there shall be collected as a part of the tax, interest upon such unpaid amount at the rate of one per centum a month from the date prescribed for its payment until it is paid: Provided, That the maximum amount that may be collected as interest on deficiency shall in no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription to the contrary notwithstanding."
Issue:
Whether or not Castro is correct
Ruling:
No. Assuming, without deciding, that this particular section is applicable to war profits taxes, we agree with the Solicitor General that there is no legal ground for applying retroactively to the delinquencies of the petitioner under the War Profits Tax Law (and which accrued since September 23, 1950, when the corresponding tax assessment was issued) the terms of a law (R.A. 2343) enacted almost nine (9) years later. It is elementary that laws are presumed to operate only prospectively, and have no retroactive effect in the absence of clear provision to the purpose. As it stood in 1950, Section 51 (e) of the Revenue Code provided for monthly interest without limitation of the number of months:
"SEC. 51 (e).Surcharge and interest in case of delinquency. — To any sum or sums due and unpaid after the dates prescribed in subsections (b), (c) and (d) for the payment of the same, there shall be added the sum of five per centum on the amount of tax unpaid and interest at the rate of one per centum a month upon said tax from the time the same became due, except from the estates of insane, deceased, or insolvent persons."
Petitioner contends that the imposition of interest amounts to a penalty, and that laws imposing lighter penalties are given retrospective effect. We disagree with the basic assumption, and hold that the imposition of 1% monthly interest is but a just compensation to the state for the delay in paying the tax, and for the concomitant use by the taxpayer of funds that rightfully should be in the government’s hands (U.S. v. Goldstein, 189 F [2d] 752; Ross v. U.S., 148 Fed. Supp. 330; U.S. v. Joffray, 97 Fed.[2d] 488). The fact that the interest charged is made proportionate to the period of delay constitutes the best evidence that such interest is not penal but compensatory.
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