G.R. No. L-27752-53 August 30, 1971
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. CONNEL BROS. COMPANY (PHIL.) and COURT OF TAX APPEALS, respondents.

FACTS

The Commissioner of Internal Revenue assessed Connel Bros. Company (Phil.) for deficiency income taxes for the years 1954 and 1955. The assessments became due and payable on August 2, 1956, and August 20, 1957, respectively. The taxpayer contested these assessments before the Court of Tax Appeals (CTA). In its 1966 joint decision, the CTA upheld the 1955 assessment and modified the 1954 assessment. In a subsequent 1967 resolution clarifying the imposition of interest and surcharges, the CTA applied the amended provisions of Section 51(d) and (e) of the National Internal Revenue Code, as revised by Republic Act No. 2343, which took effect on June 20, 1959. This amended law prescribed a lower interest rate and capped the total interest collectible to a maximum period of three years.
The Commissioner appealed, contesting only the CTA’s application of the amended law to compute the delinquency increments. The Commissioner argued that the original, unamended Section 51(e) in force at the time the tax liabilities originally fell due should govern. Under that old law, a delinquent taxpayer was liable for a 5% surcharge and interest at 1% per month on the unpaid tax from the date it became due, without any statutory cap on the total interest period.

ISSUE

Whether the Court of Tax Appeals erred in applying the amended provisions of Section 51 of the Tax Code (Republic Act No. 2343) to determine the interest and surcharges on deficiency taxes that were assessed and became due prior to the effectivity of said amendments on June 20, 1959.

RULING

The Supreme Court ruled in favor of the Commissioner and modified the CTA’s decision. The Court held that the law in force at the time the tax obligation accrued governs the determination of a taxpayer’s liability, including the applicable surcharges and interest for delinquency. The deficiency taxes for 1954 and 1955 became due and collectible in 1956 and 1957, respectively, long before Republic Act No. 2343 took effect in 1959. Consequently, the taxpayer’s liability for delinquency increments must be computed under the original Section 51(e).
The Court rejected the argument that the amended law, being more favorable, should be applied retroactively. It emphasized that tax laws are generally prospective unless the legislative intent for retroactivity is expressly stated or clearly implied. Section 13 of Republic Act No. 2343 explicitly provided that its new rates would apply only to income received from January 1, 1959, and fiscal periods ending after June 30, 1959. Since the incomes subject to the deficiency assessments in this case were received in 1954 and 1955, the amended provisions were clearly inapplicable. The period for payment of the tax and the accrual of interest are fixed by law and are not subject to the discretion of the Commissioner or dependent on the final outcome of a tax protest. Therefore, Connel Bros. was ordered to pay the deficiency taxes plus a 5% surcharge and interest at 1% per month, computed from the original due dates in 1956 and 1957 until fully paid.