G.R. No. L-17406 November 29, 1965
FINLEY J. GIBBS and DIANE P. GIBBS, petitioners, vs. COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

FACTS

On February 6, 1956, the Commissioner of Internal Revenue issued a deficiency income tax assessment against petitioners Finley J. Gibbs and Diane P. Gibbs for P16,873.00 for the tax year 1950. Allison J. Gibbs, acting as attorney-in-fact for his brother Finley, received the notice, protested the assessment, and requested its correction on March 14, 1956. The Commissioner denied the request on August 28, 1956. On October 3, 1956, Allison J. Gibbs, considering the August 28 letter as the Commissioner’s “final decision,” paid the assessment under protest and simultaneously demanded an immediate refund, threatening to file a petition with the Court of Tax Appeals if not refunded by October 4, 1956. The Commissioner denied the refund demand by letter dated October 26, 1956, which was received by Allison J. Gibbs’ office on November 14, 1956. On September 29, 1958, Allison J. Gibbs, now signing as counsel, wrote another letter reiterating the demand for refund and asserting claims for tax credits from alleged overpayments. The Commissioner did not reply. On October 1, 1958, petitioners filed a Petition for Review and Refund with the Court of Tax Appeals. The Commissioner filed an Answer asserting the court lacked jurisdiction because the petition was filed beyond the 30-day period from receipt of the October 26, 1956 denial and that the claims for tax credit were filed beyond the two-year prescriptive period. The Court of Tax Appeals, after a preliminary hearing, sustained the Commissioner’s objections and dismissed the petition for lack of jurisdiction via Resolutions dated June 18, 1960 and August 23, 1960.

ISSUE

1. Whether the Court of Tax Appeals correctly ruled that it lacked jurisdiction over the petition for refund because it was filed beyond the 30-day period from receipt of the Commissioner’s decision denying the claim.
2. Whether the Court of Tax Appeals correctly ruled that it lacked jurisdiction over the claim for tax credit because it was filed beyond the two-year prescriptive period from the date of payment.

RULING

1. Yes. The Court of Tax Appeals correctly ruled it lacked jurisdiction over the refund claim. The 30-day period to appeal to the Court of Tax Appeals under Section 11 of Republic Act No. 1125 began to run from November 14, 1956, when Allison J. Gibbs, as petitioners’ legal counsel, received the Commissioner’s letter of October 26, 1956, which constituted a clear denial of the refund request. The petition filed on October 1, 1958 was therefore filed beyond the prescribed period. The Supreme Court found ample evidence of a lawyer-client relationship between petitioners and Allison J. Gibbs, noting he had represented them since 1952, handled all correspondence and payment regarding the assessment, and even mentioned charging “attorney’s fees” in his October 3, 1956 letter. His receipt of the denial was receipt by the petitioners.
2. Yes. The Court of Tax Appeals correctly ruled it lacked jurisdiction over the tax credit claim. The claims pertained to tax payments made through the withholding tax system in 1951. The Supreme Court held that payment through withholding extinguishes the tax obligation when the tax liability falls due at the end of the tax year. The two-year prescriptive period under Section 306 of the Internal Revenue Code for filing a claim for refund or credit therefore started to run from that time (1951), not from a later date when the Commissioner resolved a claim for refund of the withheld amount. The claim made in 1958 was filed beyond the two-year period. The Court cited the doctrine that a taxpayer must file a claim with the Commissioner within two years from payment and, if the Commissioner delays, must start proceedings in the Court of Tax Appeals before the two-year period ends.
WHEREFORE, the petition for review was dismissed.