G.R. No. L-18759 February 28, 1967
Republic of the Philippines, plaintiff-appellant, vs. Manuel Ledesma, defendant-appellee.

FACTS

The Republic of the Philippines sued Manuel Ledesma in the Court of First Instance of Iloilo to recover a deficiency income tax for 1951, including a 50% surcharge, totaling P16,212.00. Ledesma denied liability, claiming the income from the sale of 3,000 piculs of sugar belonged to his son-in-law, Raul Poblador, who had already paid the tax. He also pleaded prescription. The trial court dismissed the complaint based solely on the plea of prescription. The Republic appealed directly to the Supreme Court. The last day for filing the 1951 tax return was March 1, 1952. The Bureau of Internal Revenue issued the deficiency assessment on February 25, 1957. Ledesma received it and requested a reinvestigation via counsel’s letter dated May 10, 1957. The Bureau replied on June 14, 1957, asking for specific sworn grounds for protest, payment of half the assessed amount, and a bond for the balance. Ledesma did not comply or respond further. The civil action for collection was filed on July 21, 1958.

ISSUE

Whether the action for collection of the deficiency income tax had prescribed.

RULING

No, the action had not prescribed. The Supreme Court reversed the trial court’s decision. The applicable prescriptive periods are found in Sections 331 and 332 of the National Internal Revenue Code. Under Section 331, taxes must be assessed within five years after the return was filed (or was due), and a court proceeding for collection without assessment must begin within the same period. Under Section 332(c), if an assessment is made within the prescribed period, the tax may be collected by a court proceeding begun within five years after the assessment. Here, the assessment was issued on February 25, 1957, which was within five years from the last day for filing the return (March 1, 1952). The court action was filed on July 21, 1958, which was well within five years from the date of assessment. The Court rejected Ledesma’s argument that the three-year period for assessment under Section 51(d) of the Code (for purposes of summary collection by distraint and levy) also applied to judicial actions. It held that Sections 331 and 332 govern the limitation for judicial collection. Since Ledesma failed to effectively dispute the assessment by complying with the Bureau’s requirements, the assessment became final and collectible. The defense of payment by another person was unsupported by competent evidence. The Court ordered Ledesma to pay the deficiency tax, plus surcharges, interest, and costs.