RP vs Lim LianTeng Sons L-21731 – March 31, 1966

Facts:
Lim Tian Teng Sons & Co., Inc. (LTT), a domestic corporation with principal office in Cebu City, engaged in 1951 and 1952, among others, in the exportation of copra. Lim Tian then filed its income tax return for 1952 based on accrued income and expenses. Its return showed a loss of P56,109.98. CIR assessed Lim Tian of deficiency income tax and 50% surcharge thereon amounting to P5,037.00 and demanded payment thereof not later than February 15, 1957. Lim Tian requested reinvestigation of its income tax liability. CIR did NOT reply but instead referred the case to the SolGen for collection by judicial action. SolGen demanded from Lim Tian payment w/in 5 days, stating that otherwise judicial action would be instituted without further notice. Lim Tian thus wrote CIR and SolGen, reiterating its request for reinvestigation. It requested that it be allowed to present its explanation together w/ supporting papers relative to its income tax liability.

Deputy Collector of CIR informed the taxpayer that its request for reinvestigation would be granted provided it executed within 10 days a WAIVER of the statute of limitations as required in General Circular V-258 dated August 20, 1957. The Deputy Collector extended the period within which to execute and file with him the waiver of the statute of limitations to December 31, 1957, but advised that if no waiver is forthcoming on or before said date, judicial action for collection would be instituted without further notice. HOWEVER, Lim Tian failed to file a waiver.

CIR thus instituted 8 months after an action in the CFI of Cebu for the collection of deficiency income tax. CFI declared the CIR's assessment as valid, final and executory, condemning Lim Tian to pay CIR w/ interest at 1% monthly until fully paid.

Issues:

1. WON lower court has jurisdiction to entertain the case given that CIR has NOT yet issued its final decision on request for reinvestigation
   
2. WON court erred in considering as final and executory the assessment contained in the letter of the CIR dated January 16, 1957.
   
3. WON the assessment was correct
   

Ruling:

1. Yes. Nowhere in the Tax Code is the CIR required to rule first on a taxpayer's request for reinvestigation before he can go to court for the purpose of collecting the tax assessed. On the contrary, Section 305 of the same Code withholds from all courts, except the CTA under Section 11 of Republic Act 1125, the authority to restrain the collection of any national internal-revenue tax, fee or charge, thereby indicating the legislative policy to allow the CIR much latitude in the speedy and prompt collection of taxes. The reason is obvious. It is upon taxation that the government chiefly relies to obtain the means the carry on its operations, Section 11 of Republic Act 1125 states in part: No appeal taken to the Court of Tax Appeals from the decision of the Collector of Internal Revenue ... shall suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law EXCEPT if it may jeopardize interest of the gov and/or taxpayer.
   
   
2. No. In this case, Lim Tian received said assessment on January 30, 1957 and on the following day requested reinvestigation of its tax liability. The CIR however did NOT reply to the request for reinvestigation. Instead, he referred the case to the Solicitor General for collection of the tax. The lower court interpreted this action of the Collector of Internal Revenue as a denial of defendant's request for reinvestigation.Instead of appealing to the Tax Court, however, Lim Tian reiterated its request for reinvestigation.Even if we do not count the period from October 8, 1957 (the date when taxpayer received notice of the denial of its request for reinvestigation) to December 31, 1957 (the deadline for the submission of the written waiver of the statute of limitations) in reckoning the 30-day period within which the taxpayer may appeal to the CTA, said period had long lapsed when the CIR filed the complaint in this case on September 2, 1958.Taxpayer’s failure to appeal to the CTA in due time made the assessment in question final, executory and demandable. And when the action was instituted on September 2, 1958 to enforce the deficiency assessment in question, it was already barred from disputing the correctness of the assessment or invoking any defense that would reopen the question of his tax liability on merits. Otherwise, the period of 30 days for appeal to the Court of Tax Appeals would make little sense.
   
   
3. Yes. From what appeared in the 1952 return the accounting method used by LTT was the accrual method of accounting. As such the copra outturn in the amount of P95K should have been treated as accrued income of 1951 instead of stock on hand of 1952. There if every indication that the 1952 income was fraudulent. That the beginning inventory for 1952 considered the copra outturn on hand but as of Dec 31 1951 it was not in its bodega anymore. It was in transit to a foreign port and they no longer owned the copra as it was already paid for. They did not follow their own system of accounting. This deviation was made to lessen its tax liability. Therefore the surcharge of 50% was correct.