G.R. No. L-10370; January 31, 1958
THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs. MATIAS H. AZNAR and THE COURT OF TAX APPEALS, respondents.

FACTS

The Collector of Internal Revenue demanded payment from Matias H. Aznar for alleged income tax deficiencies for the years 1945 to 1951. The Collector instructed the City Treasurer of Cebu to place Aznar’s properties under constructive distraint. A warrant of distraint and levy dated February 17, 1953, was allegedly served on Aznar on February 20, 1953. After a reinvestigation, the assessment was reduced. Aznar filed a petition with the Court of Tax Appeals to review the corrected assessment and sought to restrain the Collector from collecting via distraint and levy, arguing the right to use such summary methods had prescribed. The Court of Tax Appeals issued an injunction, finding the warrant of February 17, 1953, was not actually served on Aznar, a subsequent warrant of garnishment was void for lack of notice, and a levy on May 6, 1955, was beyond the three-year prescriptive period. The Collector petitioned for certiorari, contending collection cannot be restrained by injunction and that the Tax Court erred by not requiring a bond.

ISSUE

1. Whether the Collector of Internal Revenue could enforce collection of the alleged deficiency income taxes through the summary methods of distraint and levy, and consequently, whether the Court of Tax Appeals erred in issuing the injunction.
2. Granting the Court of Tax Appeals could issue an injunction, whether said tribunal erred in not requiring the taxpayer to make a deposit or file a bond.

RULING

1. The Supreme Court held that while Section 305 of the National Internal Revenue Code generally precludes injunctions against tax collection, Section 11 of Republic Act No. 1125 (creating the Court of Tax Appeals) modified this, allowing the Tax Court to issue injunctions under certain conditions. Following established doctrine, the collection of income taxes by summary administrative methods (distraint and levy) is only permissible within three years from the date the tax return was filed. After three years, collection must be through judicial proceedings. The Court of Tax Appeals found that the warrant of February 17, 1953, was not actually served, and a valid levy was only effected on May 6, 1955. For the tax years 1945, 1946, 1947, and 1948, this levy was beyond the three-year prescriptive period from the filing of the respective returns. Therefore, for those years, the Court of Tax Appeals did not err in enjoining the use of summary methods. However, for the years 1949, 1950, and 1951, the prescriptive period had not lapsed at the time of the alleged February 1953 warrant. The Supreme Court set aside the Tax Court’s resolution as it erroneously assumed the period had lapsed for all years.
2. The Supreme Court ruled that the Court of Tax Appeals did not err in not requiring a bond or deposit for the taxes for 1945-1948, as the Collector’s right to collect via summary methods for those years had prescribed. However, for the years 1949-1951, where summary collection was still potentially permissible, the Supreme Court, upon remanding the case, ordered Aznar to deposit the amount demanded for those years or furnish a surety bond pending the Tax Court’s determination of his liabilities.
The resolution of the Court of Tax Appeals was set aside. The case was remanded to determine Aznar’s income tax liabilities for the years not prescribed under Sections 331 and 332 of the National Internal Revenue Code. Aznar was ordered to deposit or file a bond for the years 1949-1951. Costs were taxed against Aznar.