G.R. No. L-29895 April 30, 1973
GENERAL INSURANCE AND SURETY CORPORATION, petitioner-appellant, vs. COMMISSIONER OF INTERNAL REVENUE, respondent-appellee.

FACTS

Petitioner General Insurance and Surety Corporation failed to file the required quarterly withholding tax returns (Form W-1) for the years 1951 to 1954 on the salaries of its employees. The Commissioner of Internal Revenue imposed a 25% surcharge amounting to P2,171.90 for this omission. The petitioner admitted the failure to file but argued it should be exempt from the surcharge under Section 72 of the National Internal Revenue Code, which provides an exception if the failure is due to a “reasonable cause.” Petitioner claimed its omission was in good faith, attributable to the novelty of the withholding tax law and the inadvertence of its accountant due to pressure of work. It also contended that by submitting a list of employees and unwithheld amounts in June 1955, it had substantially complied, and that the assessment was barred by prescription.
The Court of Tax Appeals rejected these arguments. It found that the list submitted was not a substantial compliance with the quarterly return requirement and was filed only after the Commissioner notified petitioner of its failure in May 1955. The court also held that the ten-year prescriptive period for assessment under Section 332(a) of the Tax Code had not lapsed, as the omissions were discovered in 1955 and 1956, and the petition for review was filed in 1972.

ISSUE

Whether the Court of Tax Appeals erred in: (1) not finding a “reasonable cause” to exempt petitioner from the 25% surcharge; and (2) ruling that the right to assess the surcharge had not prescribed.

RULING

The Supreme Court affirmed the decision of the Court of Tax Appeals. On the first issue, the Court held that the excuses offered by petitioner—novelty of the law and accountant’s inadvertence—do not constitute “reasonable cause” under the law. The Court emphasized that accepting such a defense would undermine tax administration, as every taxpayer could evade new statutory duties by pleading unfamiliarity. The duty to withhold and remit taxes is mandatory, and the surcharge is imposed precisely to ensure strict compliance. Good faith or lack of intent to violate the law is immaterial; the law imposes the penalty for the failure itself, absent a legally acceptable justification.
On the second issue, the Court upheld the application of the ten-year prescriptive period under Section 332(a) for the assessment of taxes collected but not paid over, which includes the surcharge. The omissions were discovered in 1955 and 1956, and the judicial action (the petition for review) was commenced in 1972, well within the ten-year period. The Court cited precedent establishing that the prescriptive period for collecting a tax, including a surcharge, begins to run only from the discovery of the omission to file the required return. Therefore, the assessment was not time-barred. The decision imposing the surcharge was thus legally sound.