LIM vs. Court of Appeals

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EMILIO E. LIM, SR. and ANTONIA SUN LIM, petitioners, vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.

G.R. Nos. 48134-37. October 18, 1990. FERNAN, C.J.:

NATURE: The instant petition for review on certiorari seeks the reversal of the Court of Appeals decision which affirmed in toto the judgments of the then Court of First Instance in four (4) Criminal cases instituted by the Bureau of Internal Revenue against petitioners.

Topic: Judicial Remedies in Detail (Section 220, NIRC) > Period within which the action may be filed > Where should these cases be filed.

Doctrine: 1) The 5-year prescriptive period provided for under Sec. 354 of the Tax Code should be reckoned from the date the final notice and demand was served on the taxpayer. 2) In addition to the fact of discovery, there must be a judicial proceeding for the investigation and punishment of the tax offense before the five-year limiting period begins to run. 3) PD 69 provides that judgment in the criminal case shall not only impose the penalty but shall order payment of the taxes subject of the criminal case. This decree, however, cannot be applied to criminal cases filed prior to the effectivity thereof i.e. January 1,1973

FACTS: Petitioner spouses Lim were engaged in the dealership of various household appliances. They filed income tax returns for the years 1958 and 1959. In 1959, a raid was conducted at their business address in Manila and in their premises at Quezon City. Seized from the Lim were business and accounting records which served as bases for an investigation undertaken by the Bureau of Internal Revenue (BIR).

Senior Revenue Examiner Daet submitted a memorandum with the findings that the income tax returns filed by petitioners for the years 1958 and 1959 were false or fraudulent. On April 7, 1965, Acting Commissioner Tabios informed the couple that there deficiency income taxes are P922, 913.04.

BIR rendered a final decision holding that there was no cause for reversal of the assessment against the Lim couple. The final notice and demand for payment was served through their daughter in law on July 3, 1968 for the amount of P1,237,190.55 including interest, surcharges and penalty for late payment. BIR referred the matter to the Manila’s Fiscal’s Office for investigation and prosecution. Four 4 criminal information were filed against petitioners for violation of NIRC.

Relative to Criminal Cases Nos. 1788 and 1789 which involved petitioners' refusal to pay the deficiency income taxes due, both parties are in accord that by their nature, the violations as charged could only be committed after service of notice and demand for payment of the deficiency taxes upon the taxpayers. Petitioners maintain that the five-year period of limitation under Section 354 should be reckoned from April 7, 1965, the date of the original assessment while the Government insists that it should be counted from July 3, 1968 when the final notice and demand was served on petitioners' daughter-in-law.

RTC finds the accused spouses Lim guilty of a violation of Section 51 penalized under Section 73 of the National Internal Revenue Code and each is hereby sentenced in each case to pay a fine of P2,000.00 and to pay the government pursuant to Presidential Decree No. 69. CA affirmed RTC. 23 days later Antonio Lim, Sr. died.

ISSUE: 1.) Whether the prescriptive period commenced to run from 1965 date of 1st assessment or discovery (accdg to Lim spouses) or from final notice on 1968 (government);

2.)Whether the RTC had jurisdiction over the tax collection case;

HELD: 1) We hold for the Government. The 5-year prescriptive period provided for under Sec. 354 of the Tax Code should be reckoned from the date the final notice and demand was served on the taxpayer. Section 51 (b) of the Tax Code provides: "(b) Assessment and payment of deficiency tax.—After the return is filed, the Commissioner of Internal Revenue shall examine it and assess the correct amount of the tax. The tax or deficiency in tax so discovered shall be paid upon notice and demand from the Commissioner of lnternal Revenue." Inasmuch as the final notice and demand for payment of the deficiency taxes was served on petitioners on July 3, 1968, it was only then that the cause of action on the part of the BIR accrued. This is so because prior to the receipt of the letter-assessment, no violation has yet been committed by the taxpayers. The offense was committed only after receipt was coupled with the wilful refusal to pay the taxes due within the alloted period. The two criminal informations, having been filed on June 23, 1970, are well-within the five-year prescriptive period and are not time-barred.

In addition to the fact of discovery, there must be a judicial proceeding for the investigation and punishment of the tax offense before the five-year limiting period begins to run. Note the conjunctive word "and" between the phrases "the discovery thereof' and "the institution of judicial proceedings for its investigation and proceedings." In other words, in addition to the fact of discovery, there must be a judicial proceeding for the investigation and punishment of the tax offense before the five-year limiting period begins to run. It was on September 1,1969 that the offenses subject of Criminal Cases Nos. 1790 and1791 were indorsed to the Fiscal's Office for preliminary investigation.Inasmuch as a preliminary investigation is a proceeding for investigation and punishment of a crime, it was only on September 1,1969 that the prescriptive period commenced. x x x The Court is inclined to adopt the view of the Solicitor General. For while that particular point might have been raised in the Ching Lak case, the Court, at that time, did not give a definitive ruling which would have settled the question once and for all. As Section 354 stands in the statute book (and to this day it has remained unchanged) it would indeed seem that the tax cases,such as the present ones, are practically imprescriptible for as long as the period from the discovery and institution of judicial proceedings for its investigation and punishment, up to the filing of the information in court does not exceed five (5) years.

2) No. The petition, however, is impressed with merit insofar as it assails the inclusion in the judgment of the payment of deficiency taxes in Criminal Cases Nos. 1788-1789. The trial court had absolutely no jurisdiction in sentencing the Lim couple to indemnify the Government for the taxes unpaid. The lower court erred in applying Presidential Decree No. 69,particularly Section 316 thereof, which provides that "judgment in the criminal case shall not only impose the penalty but shall order payment of the taxes subject of the criminal case", because that decree took effect only011 January 1, 1973 whereas the criminal cases subject of this appeal were instituted on June 23, 1970. Save in two specific instances, Presidential Decree No. 69 has no retroactive application.

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