GR 41731; (December, 1935) (Digest)
G.R. No. 41731 , December 21, 1935
MARGARITA ROXAS Y AYALA VIUDA DE SORIANO, ET AL., plaintiffs-appellees, vs. JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.
FACTS
The plaintiffs, partners in the general partnership Roxas y Cia., received dividends from various corporations. The partnership paid the 3% normal income tax on these dividends at the source (i.e., by the corporations). The plaintiffs, in their individual income tax returns, included these dividends as part of their net profits from the partnership and paid the corresponding income tax on them. They later sought a refund from the Collector of Internal Revenue, claiming the dividends were taxed twice. The Collector refused, and the plaintiffs filed an action for recovery. The trial court ordered the refund. The Collector appealed, arguing the action was barred because the tax was not paid under protest and the claim had prescribed.
ISSUE
1. Whether the plaintiffs’ action for refund lies despite their failure to pay the tax under protest.
2. Whether the action has prescribed.
RULING
The Supreme Court reversed the trial court’s decision and absolved the defendant Collector.
1. The action does not lie due to lack of protest. Following prior jurisprudence (Filipinas Compania de Seguros v. Posadas and Philippine Sugar Estate Development Co. v. Posadas), the Court held that the refund provision in Section 14(a) of the Income Tax Law ( Act No. 2833 ) is subject to the prerequisite in Section 1579 of the Revised Administrative Code, as amended, requiring payment under protest when the tax’s validity, amount, or liability is questioned. Section 19 of Act No. 2833 extends all existing internal revenue procedural laws, including the protest requirement, to income tax cases. Since the plaintiffs paid the tax without protest, they lost their right to recover it.
2. The action has prescribed. The last tax payment was made on June 15, 1930, and the action was filed on June 13, 1933, which is beyond the two-year prescriptive period for filing such actions provided under Section 1579. This prescriptive period is equally applicable to income tax refund cases under Section 19 of Act No. 2833 .
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