Commissioner of Internal Revenue v. Wyeth Suaco Laboratories
REITERATIONFacts
The Antecedents: Private respondent Wyeth Suaco Laboratories, Inc. (Wyeth Suaco), a domestic corporation with a fiscal year ending October 31, was investigated by the Bureau of Internal Revenue (BIR) under Letter of Authority No. 52415. The investigation revealed alleged deficiencies in withholding tax at source for the fourth quarter of 1973 on royalties, technical services, and cash dividends, amounting to P3,178,994.15. Additionally, deficiencies in advance sales tax for periods November 1, 1972, to October 31, 1973, and a short payment on an importation, totaling P61,155.21, were found. The BIR issued assessment notices on December 16 and 17, 1974, which Wyeth Suaco received on December 19, 1974. Procedural History: Wyeth Suaco protested these assessments on January 17, 1975, and February 8, 1975, requesting their cancellation or withdrawal due to alleged lack of factual or legal basis. The BIR, through the acting Commissioner, issued a decision on December 10, 1979, reducing the withholding tax assessment to P1,973,112.86 but maintaining the sales tax assessment at P61,155.21. Wyeth Suaco filed a petition for review with the Court of Tax Appeals (CTA) on January 18, 1980, seeking to enjoin the collection due to prescription and to declare the assessments void. The BIR issued warrants of distraint and levy on February 7, 1980, which were served on March 12, 1980, but the CTA enjoined their enforcement. The CTA, on August 29, 1986, reversed the BIR's decision and enjoined the collection of both deficiency taxes, ruling that the right to collect had prescribed under Section 319(c) of the Tax Code of 1977. The Petition: The Commissioner of Internal Revenue filed a petition for review on certiorari, arguing that the prescriptive period for collection was interrupted by Wyeth Suaco's protest letters, which he contended were requests for reinvestigation or reconsideration.
Issue(s)
Whether the right of the Commissioner of Internal Revenue to collect deficiency withholding tax at source and sales tax liabilities from Wyeth Suaco Laboratories, Inc. is barred by prescription. Whether Wyeth Suaco's protest letters constituted a request for reinvestigation or reconsideration that would interrupt the prescriptive period for collection.
Ruling
The petition is GRANTED. Wyeth Suaco Laboratories, Inc. is ordered to pay the Bureau of Internal Revenue P1,973,112.86 as deficiency withholding tax at source, with interest and surcharge, and P60,855.21 as deficiency sales tax, with interest and surcharge. Costs are against private respondent.
Ratio Decidendi
On the issue of prescription: The Court held that the prescriptive period for collection of internal revenue taxes is interrupted when a taxpayer requests a reinvestigation or reconsideration of an assessment. The prescriptive period begins to run again when such request is denied or after a final assessment is made following the reinvestigation. In this case, Wyeth Suaco's protest letters dated January 17, 1975, and February 8, 1975, although not explicitly using the words "reinvestigation" or "reconsideration," were treated as such because they prompted the BIR to conduct a review and reinvestigation of the assessments by its Manufacturing Audit Division. This action by the BIR, in response to Wyeth Suaco's protest, interrupted the five-year prescriptive period for collection. The prescriptive period started to run anew only upon the issuance of the final assessment by the Acting Commissioner on December 10, 1979, which was received by Wyeth Suaco on January 2, 1980. Since the warrants of distraint and levy were served on March 12, 1980, only about four months of the five-year period had elapsed after the final assessment, thus, the collection was not yet barred by prescription. On the nature of Wyeth Suaco's protest: The Court found that Wyeth Suaco's protest letters, despite not explicitly using the terms "reinvestigation" or "reconsideration," effectively served as requests for these actions. This was evidenced by Wyeth Suaco's subsequent letter dated April 28, 1975, which stated they were "seeking reconsideration" of the assessments. Furthermore, the BIR's subsequent review and consideration of the matter by its Manufacturing Audit Division confirmed that the protest was treated as a request for reinvestigation or reconsideration. Therefore, the Court concluded that the protest letters did interrupt the running of the prescriptive period for collection.
Main Doctrine
The filing of a protest letter by a taxpayer requesting cancellation or withdrawal of a tax assessment, which prompts the Bureau of Internal Revenue to conduct a review or reinvestigation, effectively interrupts the prescriptive period for collection. The prescriptive period begins to run anew only from the date of the final assessment after such reinvestigation.