Commissioner of Internal Revenue v. Court of Tax Appeals Second Division and QL Development, Inc.

 Commissioner of Internal Revenue v.  Court of Tax Appeals Second Division and QL Development, Inc. 

GR No. 258947

March 29, 2022  


 

Whether the CIR’s right to collect taxes had already prescribed. 

 

The CIR’s right to collect taxes had prescribed. The three-year and not the fiveyear period applies to this case. The CTA Division held that when an assessment is timely issued, the CIR has five years within which to collect the assessed tax. 

Considering that the collection letters were issued beyond five years, the CIR’s right to collect from QLDI the assessed deficiency taxes had already prescribed. The five-year period for collection of taxes only applies to assessments issued within the extraordinary period of 10 years in cases of false or fraudulent return or failure to file a return. In this case, given that the subject assessment was issued within the three-year prescriptive period to assess, the CIR had another three years to initiate the collection of taxes by distraint or levy or court proceeding. 

 

The CTA has authority to enjoin the collection of taxes if such will jeopardize the interest of the government or the taxpayer. It has ample authority to issue injunctive writs to restrain the collection of tax especially in cases where prescription has set in. 

 

The five (5)-year period to collect taxes applies only to assessments issued within the extraordinary period of 10 years in cases of false or fraudulent return or failure to file a return. 

 

In the assailed resolutions, the CTA Division ruled that the BIR's Collection Letter was already barred by prescription and emphasized that when an assessment is timely issued, the CIR has five years to collect the assessed tax. Since the CIR sent out the FAN on December 12, 2014, he has until December 12, 2019 to collect the assessed tax. In an attempt to convince the Court that its right to collect the deficiency taxes has not yet prescribed, the CIR avers that the FDDA dated March 3, 2015 effectively operated as a collection letter. 

 

The SC partially affirmed the CTA resolution. It held that indeed the CIR's right to collect has already prescribed, however, it ruled that the CTA Division erred in applying the 5 -year prescriptive period to collect taxes. It emphasized that the five (5)year period to collect taxes applies only to assessments issued within the extraordinary period of 10 years in cases of false or fraudulent return or failure to file a return. It reiterated its ruling in CIR vs United Salvage and Towage, which provides that in cases of assessments issued within the 3-year ordinary period, the CIR has another 3 years within which to collect taxes. Furthermore, the Court reiterate that the CIR's collection efforts are initiated by distraint, levy, or court proceeding and not by the issuance of FDDA. In this case, no warrant of distraint or levy was served on the taxpayer and no judicial proceedings were initiated by the CIR within the prescriptive period to collect. 

 

The CTA has authority to enjoin collection of taxes if when in the opinion of the Court it may jeopardize the interest of the taxpayer, i.e. CIR's right to collect the assessed deficiency taxes had already lapsed, and require the taxpayer to file surety bond. 

 

In this case, the Court also ruled that while an injunction is not available to restrain the collection of taxes, it admits of an exception under Section 11 of RA 1125, which allows the suspension of collection of taxes if, in the 

Court's opinion, the collection may jeopardize the interest of the government and/or taxpayer. In this instant case, the Court ruled that the CTA Division's act of enjoining the CIR from collecting deficiency taxes had sufficient basis, as it was centered on the finding that the CIR's right to collect the assessed deficiency taxes had already lapsed to the prejudice of the taxpayer. Moreover, taxpayer posted a surety bond, which the CTA division approved. 


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