Income Tax Case of the General Paint Corporation (Philippines) Inc.

January 4, 1960 BIR RULING NO. 026-60 The Revenue Operations Executive (Assessment) Bureau of Internal Revenue M a n i l a S i r : There is returned to you herewith the entire docket bearing on the income tax case of the General Paint Corporation (Philippines) Inc., with the following information: The records of this case show that the General Paint Corporation (Philippines) Inc., filed on February 12, 1954 its income tax return for the fiscal year ended November 30, 1953. The first authority to investigate the said return was issued by the Bureau of Internal Revenue only on November 6, 1958. To date, however, no actual investigation has ever been made by this Bureau because of the claim and/or defense of prescription on the part of the taxpayer. Consequently, the government has not made any assessment based on the said return, the filing of which was well within the period covered by the extension granted by this Bureau. cdtech In resolving the question of whether or not the right of the government to assess and collect whatever taxes may be found due in this case has already prescribed, we quote hereunder pertinent provisions of the Tax Code. "Sec. 331. Period of limitation upon assessment and collection . Except as provided in the succeeding section, internal-revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period. For the purposes of this section a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day: Provided, That this limitation shall not apply to cases already investigated prior to the approval of this Code." "Sec. 332. Exceptions as to period of limitation of assessment and collection of taxes . (a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the falsity, fraud, or omission.". . . Section 331 and 332 of the Tax Code empowers the Collector (now Commissioner) of Internal Revenue to assess an internal revenue tax within five (5) years after the return was filed, and in case of a false or fraudulent return with intent to evade tax or of a failure to file a return, to assess such tax as may be found to be due at any time within ten (10) years after the discovery of the falsity, fraud or omission. Accordingly, the government must effect collection of taxes due within the period prescribed in the aforementioned provisions of law. This Office has consistently ruled that for assessments and collections of taxes to be valid, both must be made within the periods prescribed by law. In other words, sections 331 and 332 of the Tax Code must be followed punctiliously. However, we disagree with the contention of the Tax Department of Sycip, Gorres, Velayo & Co., accountants for subject taxpayer, that our examiner can no longer investigate the income tax return in question "because any assessment he may issue as a result of such an investigation is already barred by prescription". It is to be noted that our laws on prescription apply only on the right of the Government to make assessments but not on its right to examine or investigate books of accounts, accounting records and even income tax returns for that matter. This Office is, therefore, of the opinion that in this case our examiners can still conduct the necessary investigations. To bar them from so investigating would render nugatory the provision of section 332 of the Tax Code for, indeed, how could any falsity or fraud be better detected or discovered by the government than by investigating the very return filed and verifying all things stated therein? In view of the foregoing, it is hereby suggested that immediate and proper investigation should be made in accordance with section 332(a) of the National Internal Revenue Code. Very truly yours, MELECIO R. DOMINGO Commissioner of Internal Revenue