Republic of the Philippines
G.R. No. L-29485 November 21, 1980
COMMISSIONER OF INTERNAL REVENUE, petitioner,
AYALA SECURITIES CORPORATION and THE HONORABLE COURT OF TAX APPEALS, respondents.
Before the Court is petitioner Commissioner of Internal Revenue's motion for reconsideration of the Court's decision of April 8, 1976 wherein the Court affirmed in toto the appealed decision of respondent Court of Tax Appeals, the dispositive portion of which provides as follows: WHEREFORE, the decision of the respondent Commissioner of Internal Revenue assessing petitioner the amount of P758,687.04 as 25% surtax and interest is reversed. Accordingly, said assessment of respondent for 1955 is hereby cancelled and declared of no force and effect, Without pronouncement as to costs. This Court's decision under reconsideration held that the assessment made on February 21, 1961 by petitioner against respondent corporation (and received by the latter on March 22, 1961) in the sum of P758,687.04 on its surplus of P2,758,442.37 for its fiscal year ending September 30, 1955 fell under the five-year prescriptive period provided in section 331 of the National Internal Revenue Code and that the assessment had, therefore, been made after the expiration of the said five-year prescriptive period and was of no binding force and effect . Petitioner has urged that
A perusal of Sections 331 and 332(a) will reveal that they refer to a tax, the basis of which is required by law to be reported in a return such as for example, income tax or sales tax. However, the surtax imposed by Section 25 of the Tax Code is not one such tax. Accumulated surplus are never returned for tax purposes, as there is no law requiring that such surplus be reported in a return for purposes of the 25% surtax. In fact, taxpayers resort to all means and devices to cover up the fact that they have unreasonably accumulated surplus. Petitioner, therefore, submits that
As there is no law requiring taxpayers to file returns of their accumulated surplus, it is obvious that neither Section 33 nor Section 332(a) of the Tax Code applies in a case involving the 25% surtax imposed by Section 25 of the Tax Code. ... Petitioner cites the Court of Tax Appeals' ruling in the earlier case of United Equipment & Supply Company vs. Commissioner of Internal Revenue (CTA Case No. 1795, October 30, 1971) which was appealed by petitioner taxpayer to this Court in G. R. No. L-35653 bearing the same title, which appeal was denied by this Court en banc for lack of merit as per its Resolution of October 25, 1972, In said case, the tax court squarely ruled that the provisions of sections 331 and 332 of the National Internal Revenue Code for prescriptive periods of five 5 and ten (10) years after the filing of the return do not apply to the tax on the taxpayer's unreasonably accumulated surplus under section 25 of the Tax Code since no return is required to be filed by law or by regulation on such unduly ac cumulated surplus on earnings, reasoning as follows: In resisting the assessment amounting to P10,864.26 as accumulated earnings tax for 1957, petitioner also invoked the defense of prescription against the right of respondent to assess the said tax. It is contended that since its income tax return for 1957 was filed in 1958, and with the clarification by respondent in his letter dated May 14, 1963, that the amount sought to be collected was petitioner's surtax liability under Section 25 rather than deficiency corporate income tax under Section 24 of the National Internal Revenue Code, the assessment has already prescribed under Section 331 of the same Code. Section 331 of the Revenue Code provides:
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...
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