BIR Ruling

July 16, 1969 MEMORANDUM FOR: The Revenue Operations Head (Collection) This refers to the internal revenue tax case of Mr. Gaudencio S. Manalac, Sr., of Davao City, involving the sums of P11,927.60 and P49,535.60 as deficiency income tax for the years 1955 and 1956, respectively. The records show that subject taxpayer filed his income tax returns for the years 1955 and 1956; that upon investigation, he was assessed a deficiency income tax in the amounts of P11,927.60 and P49,535.60 for the years 1955 and 1956, respectively; that he requested an extension of time to pay the said assessment for which he executed a waiver of the statute of limitations dated October 2, 1958 and effective until September 15, 1959 only; that taxpayer failed to settle the said tax liabilities; but that instead on January 14, 1963, he requested for a reinvestigation of his case for which he accomplished another waiver of the statute of limitations which was indefinite as to time and had only the year 1965 as the date of its execution. This case was referred for investigation. However, no reinvestigation could be conducted for the reason that the report on the original investigation was missing. A warrant of distraint and levy was issued on June 1, 1961 but was not served because the taxpayer's request for reinvestigation was to have been given due course. On April 23, 1968, taxpayer thru his accountant asseted that he did not have any unsettled tax liabilities and that the right of the government to collect his aforesaid tax liability has already prescribed. The sole issue to be resolved in this case is whether or not the right of the government to collect the abovementioned tax deficiencies has already prescribed. The income tax liabilities herein involved covers the years 1955 and 1956. The records do not show that fraud was resorted to as a means of effecting a reduction of the taxpayer's liabilities. Moreover, there is no clear and convincing evidence to substantiate a charge of fraud against the taxpayer. The fact that the assessments did not impose the 50% surcharge in itself negates any finding of fraud. There being no fraud, the government has only five (5) years, from the issuance of the assessments in question, within which to collect the deficiency income tax assessment issued against the taxpayer. Under Section 332(c) of the Tax Code, where the assessment of any internal revenue tax has been made within the period of limitation prescribed by law, such tax may be collected by distraint or levy or by a proceeding in court, but only if begun (1) within five years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Commissioner of Internal Revenue and the taxpayer before the expiration of such five-year period. prcd Assessment No. 90-1-15056-55-6 involving the amount of P11,927.60 was issued on July 17, 1956. The records do not show whether Assessment No. 90-1-23603-56 which involved the amount of P49,535.60 was duly served to the taxpayer. However, the said assessment number is noted on some of the communication letters bearing on the same tax liabilities. The contents of said letters indicate that such assessment was issued and duly served in the same manner as that of Assessment No. 90-1-15056-55-6 which was regularly issued and duly served on July 17, 1956. Thus, it can be safely assumed that Assessment No. 90-1-23603-56 was also regularly served to the taxpayer in July, 1957. It should be noted that the taxpayer requested an extension of time within which to pay the tax liabilities involved, and for that matter he executed and filed a waiver of the statute of limitations dated October 2, 1958, which was supposed to be effective until September 15, 1959. The five-year period within which the government has the right to collect the amount involved in Assessment Nos. 90-1-15056-55-6 and 90-1-23603-56 has been running for two years, two months and fifteen days, and one year, two months and fifteen days, respectively, before the said prescriptive period was suspended on October 2, 1958 to September 15, 1959 which is the stipulated period in the waiver. In other words, the prescriptive period started running from the date of issuance of the assessments and was subsequently suspended on October 2, 1958 to September 15, 1959, and thereafter the prescriptive period continued running again. Therefore, the government, from September 16, 1969 had still two years, nine months and fifteen days and three years, nine months and fifteen days within which to collect Assessment Nos. 90-1-15056-55-6 and 90-1-23603-56, respectively. That is, barring all other circumstances, the right of the government to collect the amount involved in the aforesaid assessments would have prescribed on June 30, 1962 and June 30 1963, respectively. In this connection, it is argued that for a written agreement extending the prescriptive period to be valid, it is necessary that the same be made before the period to be extended has expired. Said rule should not, however, apply in this case, where the taxpayer's waiver was executed in 1965 after such prescriptive dates as June 30, 1962 and June 30, 1963. In effect, and on the part of the taxpayer, the said waiver is not just an extension of the period of limitations, but a renunciation of his right to invoke the defense of prescription which was then already available to him. There is nothing unlawful for immoral about this kind of waiver; just like any other right, the right to avail of the defense of prescription is waivable (Sinforosa Alca vs. CTA and Commissioner of Internal Revenue, G.R. No. L-24624, November 27, 1968; Sembrano vs. CTA (1967) 101 Phil. 1; Rep. vs. Arcache L-15447, February 29, 1964). Consequently, the right of the government to collect from subject taxpayer the deficiency income tax in the amounts of P11,927.60 and P49,535.60 for the years 1955 and 1956, respectively, has not yet prescribed, his aforementioned waiver having estopped him from interposing the defense of prescription. In view of all the foregoing, that Office is hereby instructed to enforce immediately the collection of the 1955 and 1956 deficiency income tax liabilities of Mr. Gaudencio s. Manalac, Sr. involving the respective amounts of P11,927.60 and P49,535.60 thru the summary remedies prescribed by law. (SGD.) MISAEL P. VERA Commissioner of Internal Revenue