GR L 12174; (December, 1962) (Digest)
G.R. No. L-12174. December 28, 1962.
MARIA B. CASTRO, petitioner, vs. COLLECTOR OF INTERNAL REVENUE, respondent.
FACTS
Petitioner Maria B. Castro sought partial reconsideration of a prior Supreme Court decision concerning her liability for war profits tax. The tax assessment against her was issued on September 23, 1950. The dispute centered on the applicable interest rate on the delinquent tax. The Collector of Internal Revenue imposed a one percent monthly interest on the unpaid amount, calculated from the date the tax became due.
Castro contended that a subsequent law, Republic Act No. 2343 , which amended the Internal Revenue Code, should apply. This amendment, enacted on June 29, 1959, specifically limited the total interest that could be collected on a deficiency to an amount corresponding to a maximum period of three years, or 36%. She argued that this limitation should be applied to her case, thereby capping the interest accrued since 1950.
ISSUE
Whether Republic Act No. 2343 , which imposes a three-year cap on the accrual of delinquency interest, should be applied retroactively to a tax assessment that became due in 1950.
RULING
The Supreme Court denied the petition for reconsideration, holding that the 1959 law could not be applied retroactively. The Court affirmed the fundamental statutory construction principle that laws are presumed to operate prospectively only, unless the legislature expressly provides for retroactive application. No such clear provision existed in Republic Act No. 2343 .
The Court rejected the petitioner’s argument that the interest was a “penalty” and that laws imposing lighter penalties should be given retroactive effect. It clarified that the one percent monthly interest was not a penalty but compensatory in nature. It constituted just compensation to the state for the delay in payment and for the taxpayer’s use of public funds during the period of delinquency. The fact that the interest accrued proportionally with the time of delay evidenced its compensatory, not penal, character. Consequently, the interest due from the petitioner must be computed under the law in force at the time her obligation arose in 1950, which imposed the monthly interest without any temporal limitation. The 1959 amendment, being prospective, did not extinguish her pre-existing liability for interest accrued over the many years of delinquency.