G.R. No. L-8840; February 8, 1957
THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs. JOSE C. ZULUETA and THE COURT OF TAX APPEALS, respondents.

FACTS

On February 10, 1954, respondent Jose C. Zulueta received a letter from the Collector of Internal Revenue assessing a deficiency income tax of P550,527.50 for the years 1945 to 1951, inclusive. Zulueta had not filed his income tax returns for the years 1945 to 1948 and 1950. He protested the assessment and requested a detailed statement. The Acting Collector informed him that the assessment bases were available in working sheets and gave him 30 days to verify. After Zulueta failed to submit a supporting memorandum, the Collector demanded payment of P616,630.81 by June 30, 1954. On November 10, 1954, the Collector referred the matter to the City Fiscal of Manila for possible prosecution due to Zulueta’s failure to file returns. On December 29, 1954, the City Treasurer of Manila placed under distraint and levy certain real properties of Zulueta to be sold at public auction to satisfy the deficiency taxes for 1945 to 1951. Zulueta filed a petition with the Court of Tax Appeals to review the assessment and sought to enjoin the sale. He argued that the right to collect by summary proceedings for 1945 to 1950 had prescribed, that the distraint and levy contravened Section 51(d) of the Tax Code, and that his 1951 income from war damage payments was non-taxable under Republic Act No. 227 . The Court of Tax Appeals declared the distraint and levy for 1945, 1946, 1947, 1948, and 1950 null and void but required Zulueta to post a P116,000 bond for the 1951 tax before issuing an injunction. After the bond was posted, the court enjoined the sale pending appeal.

ISSUE

Whether the Court of Tax Appeals acted in excess of jurisdiction or with grave abuse of discretion in declaring the distraint and levy for the years 1945 to 1950 null and void and in not requiring a bond for those years as a condition for the injunction.

RULING

The Supreme Court denied the petition for certiorari. It held that under Section 51(d) of the National Internal Revenue Code, the government’s right to collect income taxes by summary methods of distraint and levy prescribes three years from the date the return is due or filed. For years where no return was filed (1945 to 1948 and 1950), the period commenced from March 1 of the succeeding year when the return was due. The warrant of distraint and levy was issued on December 29, 1954, which was beyond the three-year period from March 1, 1951 (for the 1950 tax), making the summary collection void. The Court of Tax Appeals had jurisdiction under Section 7 of Republic Act No. 1125 to review the Collector’s decisions. Regarding the bond, the Court ruled that Section 11 of Republic Act No. 1125 , which requires a bond for an injunction, applies only when the collection proceedings are lawful. Since the distraint and levy for 1945 to 1950 were illegal due to prescription, no bond was necessary. The Court affirmed the Tax Court’s order requiring a bond only for the 1951 tax, as that year’s collection was not time-barred.