In Commissioner of Internal Revenue v. Bank of the Philippine Islands, the Supreme Court affirmed the Court of Tax Appeals’ (CTA) decision, emphasizing the importance of adhering to the statutory periods for tax assessment and collection. The Court ruled that the Commissioner of Internal Revenue (CIR) failed to prove that a final assessment notice was received by Bank of the Philippine Islands (BPI), and that the right to assess and collect deficiency income tax for the taxable year 1986 had already prescribed. This decision reinforces the taxpayer’s right to a timely assessment and protects against prolonged uncertainty regarding tax liabilities, highlighting the strict requirements for waivers of the statute of limitations and the government’s duty to act within prescribed periods.

Taxing Time: Did the BIR’s Assessment of BPI Miss the Deadline?

This case revolves around a deficiency income tax assessment issued by the CIR against Citytrust Banking Corporation (CBC) for the taxable year 1986, which BPI inherited following a merger. The CIR contended that BPI failed to contest the assessments within the prescribed period and was estopped from raising the defense of prescription due to prior waivers of the statute of limitations. BPI, however, argued that the right to assess and collect had prescribed under the Tax Code of 1977 and that the waivers were invalid. The core legal question is whether the CIR complied with the statutory requirements for assessment and collection, and whether BPI was properly notified of the deficiency tax.

The CTA ruled in favor of BPI, finding that the assessment notices were issued beyond the three-year prescriptive period and that the waivers of the statute of limitations were not executed in accordance with Revenue Memorandum Order (RMO) No. 20-90. The Supreme Court affirmed this decision, emphasizing the significance of adhering to the statutory periods for tax assessment and collection. The Court reiterated that the CTA has jurisdiction over cases involving the cancellation of a warrant of distraint and/or levy, as provided under Section 7 of Republic Act (R.A.) No. 9282:

Sec. 7 Jurisdiction. – The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. x x x

2. Inaction by the Commissioner of the Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matter arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial;

An assessment becomes final and unappealable if the taxpayer fails to file a protest within thirty (30) days from receipt of the assessment, requesting for reconsideration or reinvestigation as provided in Section 229 of the NIRC:

SECTION 229. Protesting of assessment. – When the Commissioner of Internal Revenue or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings within a period to be prescribed by implementing regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner shall issue an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation in such form and manner as may be prescribed by implementing regulations within thirty (30) days from receipt of the assessment; otherwise, the assessment shall become final and unappealable.

If the protest is denied in whole and in part, the individual, association or corporation adversely affected by the decision on the protest may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision; otherwise, the decision shall become final, executory and demandable.

The Court highlighted the importance of proving the release, mailing, or sending of the notice. In Nava v. Commissioner of Internal Revenue, the Supreme Court explained:

While we have held that an assessment is made when sent within the prescribed period, even if received by the taxpayer after its expiration (Coll. Of Int. Rev. vs. Bautista, L-12250 and L-12259, May 27, 1959), this ruling makes it the more imperative that the release, mailing, or sending of the notice be clearly and satisfactorily proved. Mere notations made without the taxpayer’s intervention, notice, or control, without adequate supporting evidence, cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense.

The CIR’s failure to prove the receipt of the assessment by BPI led to the conclusion that no assessment was validly issued. Moreover, the Court rejected the CIR’s argument that BPI was estopped from raising the defense of prescription. The Supreme Court, citing Commissioner of Internal Revenue v. Kudos Metal Corporation, stated that:

The doctrine of estoppel cannot be applied in this case as an exception to the statute of limitations on the assessment of taxes considering that there is a detailed procedure for the proper execution of the waiver, which the BIR must strictly follow. xxx As such, the doctrine of estoppel cannot give validity to an act that is prohibited by law or one that is against public policy. xxx

Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO 20-90 and RDAO 05-01, which the BIR itself issued. xxx Having caused the defects in the waivers, the BIR must bear the consequence. It cannot shift the blame to the taxpayer. To stress, a waiver of the statute of limitations, being a derogation of the taxpayer’s right to security against prolonged and unscrupulous investigations, must be carefully and strictly construed.

This ruling underscores the principle that tax assessments and collections must adhere strictly to the law. It reinforces the importance of taxpayers being informed about their liabilities and being afforded due process in tax proceedings. It also serves as a reminder to the BIR to comply with the established procedures and regulations in assessing and collecting taxes.

FAQs

What was the key issue in this case?	The key issue was whether the CIR’s right to assess and collect deficiency income tax from BPI for the taxable year 1986 had already prescribed. The court also looked at the validity of the warrant of distraint and levy.
What is the prescriptive period for tax assessment?	Under the relevant provisions of the Tax Code, the CIR generally has three years from the date of filing of the tax return to assess a deficiency tax. Failure to assess within this period generally bars the government from collecting the tax.
What are waivers of the statute of limitations?	Waivers are agreements by the taxpayer to extend the period within which the CIR can assess and collect taxes beyond the standard three-year period. These waivers must comply with specific procedural requirements to be valid.
What makes a waiver of the statute of limitations invalid?	A waiver can be deemed invalid if it does not conform to the requirements set forth in revenue regulations, such as RMO No. 20-90. This includes requirements regarding the form and content of the waiver.
What is the significance of RMO No. 20-90?	RMO No. 20-90 prescribes the proper form and procedure for executing valid waivers of the statute of limitations. Compliance with this order is crucial for the validity of the waiver.
What happens if the assessment is not made within the prescriptive period?	If the assessment is not made within the prescriptive period, the taxpayer is no longer legally obligated to pay the assessed tax. The government loses its right to collect the tax.
Can the government invoke estoppel to collect taxes beyond the prescriptive period?	The government cannot invoke estoppel to circumvent the statute of limitations on tax assessments, especially if the defects in the waiver were caused by the BIR itself. The detailed procedure for executing waivers must be strictly followed.
What are the implications of this ruling for taxpayers?	This ruling reinforces the importance of taxpayers being aware of their rights and the prescriptive periods for tax assessments. It provides taxpayers with protection against indefinite tax liabilities.
What is a warrant of distraint and levy?	A warrant of distraint and levy is a legal remedy available to the government to enforce the collection of delinquent taxes. It involves seizing and selling the taxpayer’s property to satisfy the tax liability.
Why was the warrant of distraint and levy cancelled in this case?	The warrant was cancelled because the right to collect the deficiency tax had already prescribed. The government’s attempt to collect the tax through this means was therefore invalid.

The Supreme Court’s decision in Commissioner of Internal Revenue v. Bank of the Philippine Islands reaffirms the importance of strict compliance with statutory deadlines in tax assessment and collection. It emphasizes that the government must adhere to established procedures and regulations, and that taxpayers have the right to a timely and valid assessment. This case highlights the need for careful attention to detail in tax matters and the protection afforded to taxpayers under the law.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Commissioner of Internal Revenue v. Bank of the Philippine Islands, G.R. No. 224327, June 11, 2018