G.R. No. L-18543 - OCTOBER 1968 - PHILIPPINE JURISPRUDENCE CASE NUMBERCASE TITLE G.R. No. L-18543October 31, 1968 Republic of the Philippines vs. General Sales Supply Co., Inc., et al. G.R. No. L-20398October 31, 1968 People of the Philippines vs. Juan Gil, et al. G.R. Nos. L-20960-61October 31, 1968 Commissioner of Internal Revenue, et al. vs. Philippine Ace Lines, Inc. G.R. No. L-22403October 31, 1968 Luis Buenaventura, et al. vs. Auditor General of the Philippines G.R. No. L-23309October 31, 1968 National Power Corporation vs. Francisco Arca, et al. G.R. No. L-23708October 31, 1968 People of the Philippines vs. Socorro Mongaya, et al. G.R. No. L-24530October 31, 1968 Board of Immigration Commissioners, et al. vs. Beato Go Callano, et al. G.R. No. L-24756October 31, 1968 City of Baguio vs. Fortunato De Leon G.R. No. L-26047October 30, 1968 Donato Mata vs. Delfin B. Flores, et al. G.R. No. L-26981October 30, 1968 In Re: Eulogio Imperial, et al. Gloria Gomez vs. Rufino Imperial, et al. G.R. No. L-16941October 29, 1968 People of the Philippines vs. Mateo Del Castillo, et al. G.R. No. L-17888October 29, 1968 Resins, Inc. vs. Auditor General, et al. G.R. No. L-19069October 29, 1968 People of the Philippines vs. Amadeo Peralta, et al. G.R. No. L-20563October 29, 1968 Cebu Portland Cement Co. vs. Collector of Internal Revenue G.R. No. L-21115October 29, 1968 Linkod Juane, et al. vs. Gregorio N. Garcia, et al. G.R. No. L-22046October 29, 1968 Chu Hoi Horn vs. Court of Tax Appeals, et al. G.R. No. L-22252October 29, 1968 Elpidio Marcelo vs. Reynaldo Matias, et al. G.R. No. L-23270October 29, 1968 Maria O. Sarmiento, et al. vs. Victoriano H. Endaya, et al. G.R. No. L-23645October 29, 1968 Benjamin P. Gomez vs. Enrico Palomar, et al. G.R. No. L-23657October 29, 1968 People of the Philippines vs. Juan Acosta, et al. G.R. No. L-23893October 29, 1968 Villa Rey Transit, Inc. vs. Eusebio E. Ferrer, et al. G.R. No. L-25888October 29, 1968 Tidewater Oil Co. vs. Adelaida C. Dionisio, et al. G.R. No. L-26001October 29, 1968 Philippine National Bank vs. Court of Appeals, et al. G.R. No. L-27662October 29, 1968 Manila Pest Control, Inc. vs. Workmen's Compensation Commission, et al. G.R. No. L-28469October 29, 1968 Una Kibad vs. Commission on Elections, et al. G.R. No. L-16995October 28, 1968 Julio Lucero vs. Jaime L. Loot, et al. G.R. No. L-21756October 28, 1968 People of the Philippines vs. Norman Viñas A.C. No. 501October 26, 1968 In Re: Disbarment Proceedings against Notary Public Atty. Zacarias Manigbas G.R. No. L-19857October 26, 1968 People of the Philippines vs. Damaso Atienza G.R. No. L-20973October 26, 1968 Jose Beltran vs. Nicanor Cruz G.R. No. L-24377October 26, 1968 Far Eastern Surety & Insurance Co., Inc. vs. Socorro Dancel Vda. de Misa, et al. G.R. No. L-24632October 26, 1968 Lexal Laboratories, et al. vs. National Chemical Industries Workers Union-Paflu, et al. G.R. No. L-24695October 26, 1968 B. J. Server vs. Ricardo Sikat G.R. No. L-25301October 26, 1968 Gold Star Mining Co., Inc. vs. Marta Lim-Jimena G.R. No. L-25411October 26, 1968 Martiniano P. Vivo vs. Gaudencio Cloribel, et al. G.R. No. L-26332October 26, 1968 Swedish East Asia Co., Ltd. vs. Manila Port Service, et al. G.R. No. L-26863October 26, 1968 International Harvester Macleod, Inc. vs. Co Ban Ling & Sons Co., et al. G.R. No. L-27802October 26, 1968 Republic of the Philippines vs. Central Surety & Insurance Co., et al. G.R. No. L-29648October 26, 1968 Francisco Socorro vs. Nora Vargas, et al. G.R. No. L-22290October 25, 1968 Emiliana Molo-Peckson, et al. vs. Pedro JL. Bautista, et al. G.R. No. L-23454October 25, 1968 Edilberto M. Ramos, et al. vs. Guillermo Torres, et al. G.R. No. L-26242October 25, 1968 In Re: James Y. Ng. James Y. Ng vs. Republic of the Philippines G.R. No. L-26398October 25, 1968 Elpidio Talastas vs. Clemenco Abella G.R. No. L-25726October 21, 1968 Cesar C. Altarejos vs. Teodoro K. Molo G.R. No. L-20158October 14, 1968 Candelario Almendras, et al. vs. Amado Del Rosario, et al. G.R. No. L-21488October 14, 1968 Lucila de La Paz vs. Court of Agrarian Relations, et al. G.R. No. L-21957October 14, 1968 Lauro Adamos, et al. vs. J. M. Tuason & Co., Inc., et al. G.R. No. L-22226October 14, 1968 Pacific Tug & Salvage Corp. of Panama vs. Ramon O. Nolasco, et al. G.R. No. L-22504October 14, 1968 Guardianship of Federico Garlit. Philippine National Bank vs. Erlinda G. Garlit G.R. No. L-24139October 14, 1968 Commissioner of Immigration vs. Gaudencio Cloribel, et al. G.R. No. L-24802October 14, 1968 Lim Kiah vs. Kaynee Company, et al. G.R. Nos. L-25032 and L-25037-38October 14, 1968 Cebu Portland Cement Co. vs. Cement Workers Union, et al. G.R. No. L-25332October 14, 1968 Arturo T. Ubarra, et al. vs. Biscom Employees Cooperative Association, et al. G.R. No. L-25607October 14, 1968 People of the Philippines vs. Ramon Navarra, et al. G.R. No. L-25646October 14, 1968 Gervacio Valencia vs. Carmen P. Crisologo G.R. No. L-18793October 11, 1968 People of the Philippines vs. Getulio Pantoja G.R. No. L-25328October 11, 1968 National Waterworks and Sewerage Authority vs. Kaisahan at Kapatiran ng mga Manggagawa at Kawani ng Nawasa (PAFLU), et al. G.R. No. L-25573October 11, 1968 National Waterworks and Sewerage Authority vs. Minerva I. Piguing, et al. G.R. No. L-24797October 8, 1968 Southwest Agricultural Marketing Corp. vs. Secretary of Finance, et al. G.R. No. L-25724October 8, 1968 Filipro, Inc. vs. Manila Port Service, et al. G.R. No. L-23319October 7, 1968 Luzon Glass Factory vs. Court of Industrial Relations, et al. G.R. No. L-24680October 7, 1968 Jesusa Vda. de Murga vs. Juanito Chan G.R. No. L-25153October 4, 1968 Antonio Clemente vs. Bernardino Pascua G.R. No. L-25461October 4, 1968 Dy Chun, et al. vs. Jose M. Mendoza, et al. The Lawphil Project - Arellano Law Foundation, Inc. Republic of the Philippines vs. General Sales Supply Co., Inc., et al. People of the Philippines vs. Juan Gil, et al. Commissioner of Internal Revenue, et al. vs. Philippine Ace Lines, Inc. Luis Buenaventura, et al. vs. Auditor General of the Philippines National Power Corporation vs. Francisco Arca, et al. People of the Philippines vs. Socorro Mongaya, et al. Board of Immigration Commissioners, et al. vs. Beato Go Callano, et al. City of Baguio vs. Fortunato De Leon Donato Mata vs. Delfin B. Flores, et al. In Re: Eulogio Imperial, et al. Gloria Gomez vs. Rufino Imperial, et al. People of the Philippines vs. Mateo Del Castillo, et al. Resins, Inc. vs. Auditor General, et al. People of the Philippines vs. Amadeo Peralta, et al. Cebu Portland Cement Co. vs. Collector of Internal Revenue Linkod Juane, et al. vs. Gregorio N. Garcia, et al. Chu Hoi Horn vs. Court of Tax Appeals, et al. Elpidio Marcelo vs. Reynaldo Matias, et al. Maria O. Sarmiento, et al. vs. Victoriano H. Endaya, et al. Benjamin P. Gomez vs. Enrico Palomar, et al. People of the Philippines vs. Juan Acosta, et al. Villa Rey Transit, Inc. vs. Eusebio E. Ferrer, et al. Tidewater Oil Co. vs. Adelaida C. Dionisio, et al. Philippine National Bank vs. Court of Appeals, et al. Manila Pest Control, Inc. vs. Workmen's Compensation Commission, et al. Una Kibad vs. Commission on Elections, et al. Julio Lucero vs. Jaime L. Loot, et al. People of the Philippines vs. Norman Viñas In Re: Disbarment Proceedings against Notary Public Atty. Zacarias Manigbas People of the Philippines vs. Damaso Atienza Jose Beltran vs. Nicanor Cruz Far Eastern Surety & Insurance Co., Inc. vs. Socorro Dancel Vda. de Misa, et al. Lexal Laboratories, et al. vs. National Chemical Industries Workers Union-Paflu, et al. B. J. Server vs. Ricardo Sikat Gold Star Mining Co., Inc. vs. Marta Lim-Jimena Martiniano P. Vivo vs. Gaudencio Cloribel, et al. Swedish East Asia Co., Ltd. vs. Manila Port Service, et al. International Harvester Macleod, Inc. vs. Co Ban Ling & Sons Co., et al. Republic of the Philippines vs. Central Surety & Insurance Co., et al. Francisco Socorro vs. Nora Vargas, et al. Emiliana Molo-Peckson, et al. vs. Pedro JL. Bautista, et al. Edilberto M. Ramos, et al. vs. Guillermo Torres, et al. In Re: James Y. Ng. James Y. Ng vs. Republic of the Philippines Elpidio Talastas vs. Clemenco Abella Cesar C. Altarejos vs. Teodoro K. Molo Candelario Almendras, et al. vs. Amado Del Rosario, et al. Lucila de La Paz vs. Court of Agrarian Relations, et al. Lauro Adamos, et al. vs. J. M. Tuason & Co., Inc., et al. Pacific Tug & Salvage Corp. of Panama vs. Ramon O. Nolasco, et al. Guardianship of Federico Garlit. Philippine National Bank vs. Erlinda G. Garlit Commissioner of Immigration vs. Gaudencio Cloribel, et al. Lim Kiah vs. Kaynee Company, et al. Cebu Portland Cement Co. vs. Cement Workers Union, et al. Arturo T. Ubarra, et al. vs. Biscom Employees Cooperative Association, et al. People of the Philippines vs. Ramon Navarra, et al. Gervacio Valencia vs. Carmen P. Crisologo People of the Philippines vs. Getulio Pantoja National Waterworks and Sewerage Authority vs. Kaisahan at Kapatiran ng mga Manggagawa at Kawani ng Nawasa (PAFLU), et al. National Waterworks and Sewerage Authority vs. Minerva I. Piguing, et al. Southwest Agricultural Marketing Corp. vs. Secretary of Finance, et al. Filipro, Inc. vs. Manila Port Service, et al. Luzon Glass Factory vs. Court of Industrial Relations, et al. Jesusa Vda. de Murga vs. Juanito Chan Antonio Clemente vs. Bernardino Pascua Dy Chun, et al. vs. Jose M. Mendoza, et al. The Lawphil Project - Arellano Law Foundation, Inc.

Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-18543            October 31, 1968

REPUBLIC OF THE PHILIPPINES,plaintiff-appellee,
vs.
GENERAL SALES SUPPLY CO., INC., GERARDO SAMSON and RESTITUTO SAMSON,defendants-appellants.

Assistant Solicitor General Jose P. Alejandro for plaintiff-appellee.
Jose G. Mendoza, Erasmo Cruz and Herminigildo V. Lopez for defendants-appellants.

CAPISTRANO,J.:

Appeal from the judgment of the Court of First Instance of Manila ordering the defendants to pay the plaintiff the sum of P79,379.69 as deficiency income taxes for the years 1946 to 1949 plus 5% surcharge and 1% monthly interest from April 15, 1955 until fully paid.

The General Sales Company was engaged in the purchase and sale of school and office supplies and equipment. Gerardo Samson and Restituto Samson were President and General Manager, respectively, of the corporation. For the taxable years 1946 to 1949 the defendant corporation filed its income tax returns and paid the income taxes due on the net incomes reported therein.

In an investigation conducted by the Senate Blue Ribbon Committee, anomalous sales of school supplies and equipment to the government were unearthed. In view thereof, on November 17, 1950, the Commissioner of Internal Revenue assigned examiner Valeriano Robles to investigate the income tax returns of all dealers in school supplies and equipment, including the General Sales Supply Co., Inc.

In due course of investigation, examiner Robles found out that the records and books of account of the General Sales Supply Co., Inc., showed that the purchases reported in its income tax returns had been padded and did not correctly state the taxes due the government in the total sum of P108,577.90 including the 5% surcharge. On the basis of the aforesaid findings of examiner Robles, the Commissioner of Internal Revenue, on February 28, 1951, sent a letter of demand to the corporation requiring it to pay the deficiency income taxes for the taxable years 1946 to 1949. Proper assessment notices were issued to corporation on March 8, 1951.

On April 14, 1951, the corporation protested the assessment and requested for a reinvestigation. The request was granted and on May 22, 1952, the Commissioner of Internal Revenue notified the defendant corporation to submit within 20 days from notice a list of all its general and miscellaneous expenses as well as the various local purchases duly supported by vouchers. The corporation requested further extensions of time within which to submit vouchers and other records to substantiate its allegation that the deficiency tax assessment was incorrect. These requests for extensions were dated June 10, August 9, September 9, October 9 and November 8, 1952.

On December 15, 1952, the corporation submitted a detailed statement of merchandise purchased for the years 1946 to 1949 without the vouchers and invoices. In view of the repeated failure on the part of the General Sales Supply Company to submit the required vouchers and invoices, the Commissioner of Internal Revenue, on February 12, 1954, wrote the corporation a letter reiterating the demand for the payment of the original assessment dated March 8, 1951, including the accrued interests.

On April 20, 1954, the corporation again requested for a reconsideration of the assessment, which request was granted, and a reassessment was conducted. Based on the evidence submitted during the reassessment, the Commissioner of Internal Revenue modified his assessment against the corporation by reducing the previous total assessment of P108,557.90 to P79,379.69. Assessment notice was duly served upon the corporation on March 12, 1955. Still, the corporation was not satisfied with the reduction and on June 25, 1956, it protested anew the latest assessment. Finally, on March 15, 1957, the corporation reiterated its protest and interposed the defense of prescription under Sec. 51 (d) of the Tax Code. The Commissioner of Internal Revenue replied, advising the corporation that the applicable provision of law was that provided for in Section 332 (a) of the Tax Code and not Section 51 (d) of the same. The Commissioner insisted on the payment of the assessment of March 12, 1955.

In view of the refusal of the corporation to pay, the present suit was filed in the Court of First Instance of Manila in the name of the Republic of the Philippines as plaintiff, to recover from the defendant corporation the amount of P79,379.69 as deficiency income taxes due from defendant corporation, as follows:

The complaint also alleged that the defendant corporation was liable for the payment of 5% surcharge (fraud penalty) under Section 72 of the National Internal Revenue Code because it overstated its purchases and manipulated its books of accounts purposely to evade the payment of taxes due from it.

Instead of answering the complaint the defendant corporation filed a motion to dismiss solely based on the ground that the deficiency income taxes sought to be collected were assessed beyond the 3-year period prescribed by law (Sec. 51[d], Tax Code). The motion was denied for lack of merit. Consequently, defendants filed their answer which was subsequently amended. After the issues were joined, the parties proceeded to trial. The plaintiff presented its evidence, oral and documentary. No evidence was presented by the defendants.

On March 17, 1961, the lower court rendered judgment holding that the right of the appellee to assess and collect the deficiency taxes from the appellants for the years 1946 to 1949 has not prescribed. The court ordered the defendants to pay the total amount of P79,379.69 plus 5% surcharge and 1% monthly interests from April 15, 1955, until fully paid. The defendants filed a motion for reconsideration and for a new trial alleging that they were deprived of their day in court and that the lower court erroneously admitted some exhibits presented during the hearing. The motion for reconsideration and new trial was denied. Defendants appealed to the Supreme Court on questions of law.

There is no question that the tax imposed upon the appellant corporation in the amount of P79,379.69 is correct, final and conclusive. Indeed, the appellant questioned the assessment. Nevertheless, they did not appeal the decision of the Commissioner of Internal Revenue to the Court of Tax Appeals to assail the correctness of the assessment. It is the Court of Tax Appeals which has the original and exclusive jurisdiction to entertain cases involving disputed assessments. (Sec. 7, Rep. Act No. 1125.) Having failed to appeal the tax assessment to the Court of Tax Appeals within the time provided by law, the same became final and collectible. It is only cases involving the collection of taxes which fall within the jurisdiction of the regular courts.

The remaining interrelated issues may be crystallized into two main problems: First, had the action for collection of the deficiency income taxes prescribed; second, were the defendants deprived of their day in court?

1. Appellants contend that the deficiency income tax assessment for 1946 to 1949, inclusive, having been issued on March 19, 1955, is illegal on two grounds: (a) It was made beyond the three-year period prescribed in Section 51 (d) of the Internal Revenue Code, and (b) the action was not instituted within five years as provided by Section 331 of the same Code.

Section 51 (d) of the Tax Code prior to its amendment by Republic Act No. 2343, provided that:

The Supreme Court has repeatedly held that the prescriptive period of three years in the aforequoted provision of the Internal Revenue Code refers to summary collection of taxes by distraint and levy. (Collector of Internal Revenue vs. Villegas, 56 Phil. 554, citing Holmes, Fed. Income Tax, 2d, p. 581; Collector of Internal Revenue vs. Haygood, 65 Phil. 520; and Juan de la Viña vs. El Gubierno de las Islas Filipinas, G.R. No. 42669, Jan. 29, 1938; Philippine Sugar Estate Development Co., Inc. vs. Posadas, 68 Phil. 215; The Collector of Internal Revenue vs Aurelio P. Reyes, et al., G.R. No. L-8685, January 31, 1957.)

It is to be observed that Section 51 (d) of the Tax Code provides: "... and the assessment made by the Collector of Internal Revenue thereonshall be paidby such person or corporationimmediatelyupon notification of the amount of such assessment. In the case ofRepublic of the Philippines vs. Ernesto Gamboa, G.R. No. L-16504, October 27, 1961, this Court said:

The manner by which the Republic proceeded to collect the deficiency tax in the instant case was by judicial action, not by summary proceedings; hence, Section 51 (d) of the Tax Code relied upon by the appellants is not applicable. Neither will Section 331 of the Internal Revenne Code apply. The opening clause of said section itself warrants the institution of the present suit. It provides:

We stress the first statement which reads "Except as provided in the succeeding section," and the succeeding section clearly provides:

There is no doubt that the income tax returns filed by the appellant corporation were false and fraudulent with the intent to evade payment of taxes. Hence, under Section 332 of the Tax Code, the 10-year prescriptive period within which to file action in court shall commence not from the filing of the income tax returns nor from the assessment of the tax but from the "discovery of the falsity, fraud or omission." We said so in the case ofCollector of Intemal Revenue vs. Aurelio P. Reyes, G.R. Nos. L-11534 and L-11558, November 25, 1958:

The padded and fraudulent income tax returns filed by the General Sales Supply Co., Inc., defendant below and appellant here, were discovered and made known to the Commissioner of Internal Revenue on February 3, 1951, when examiner Valeriano Robles of the Bureau of Internal Revenue filed a report of his investigation of the tax liability of the appellant corporation. The instant suit was commenced in the court below on February 27, 1959. The action was filed within the 10-year limit prescribed by law. It is clear, therefore, that the present action for collection of the deficiency taxes in question had not yet prescribed when the action was commenced. (Republic of the Philippines vs. Damian P. Ret, G.R. No. L-13754, March 31, 1952.)

The other issue raised in this appeal is whether the appellants had been deprived of their day in court. There is no merit in appellants' contention in the affirmative. We agree with the observation of the lower court on this point, to wit:

Undoubtedly, the trial court acted correctly when it considered the case submitted for decisionsansthe evidence for the defendants-appellants. Although a defendant who answered the complaint but fails to appear at the scheduled trial cannot be declared in default, the trial, however, may proceed without his presence. (Go Changjo vs. Roldan Sy-Changjo, 18 Phil. 405.) And if the absence of a party during the hearing was due to his own fault, he cannot later on complain that he was deprived of his day in court. (Sandejas vs. Robles, 81 Phil. 421; Siojo vs. Tecson, G.R. No. L-2807, April 23, 1951.)

PREMISES CONSIDERED, the judgment appealed from is affirmed, with double costs against appellants. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and Fernando, JJ.,concur.
Zaldivar, J.,took no part.