G.R. No. L-13099 and L-13462; April 29, 1960
COLLECTOR OF INTERNAL REVENUE, petitioner, vs. BOHOL LAND TRANSPORTATION CO., respondent.

BOHOL LAND TRANSPORTATION CO., petitioner, vs. COLLECTOR OF INTERNAL REVENUE, respondent.

FACTS

The Bohol Land Transportation Co. (the company), a domestic corporation, filed its income tax returns and paid the corresponding taxes for the years 1945 to 1951. Subsequently, the Bureau of Internal Revenue conducted a verification and issued deficiency income tax assessments against the company on August 4 and 5, 1953, covering the years 1945 to 1951. Due to the company’s failure to settle, the Collector of Internal Revenue issued a warrant of distraint and levy on December 23, 1954, and garnished the company’s bank deposits on March 8, 1956. The company appealed to the Court of Tax Appeals, contesting the assessments and the warrant. During proceedings, the Collector admitted he could not collect by summary methods (distraint/levy) the taxes for 1945-1950, as the warrants were issued beyond the three-year period from the filing of the returns. The parties entered an agreement whereby the Collector withdrew the warrants against most properties but maintained a garnishment on a cash deposit to guarantee the assessment for 1951. At the hearing on the merits, the company presented no evidence to controvert the correctness of the deficiency assessments for 1945-1950. The Court of Tax Appeals held the company liable for deficiency taxes for 1948, 1949, and 1950 but ruled that the right to collect taxes for 1945-1947 had prescribed, as the assessments were made beyond the five-year period from the filing of the returns. Both parties appealed.

ISSUE

1. Whether the right of the Government to assess and collect deficiency income taxes for the years 1945, 1946, and 1947 by judicial action has prescribed.
2. Whether the deficiency income tax assessments for 1948, 1949, and 1950 are valid and collectible.

RULING

1. On Prescription for 1945-1947: The Supreme Court affirmed the Court of Tax Appeals, holding that the Government’s right to collect the deficiency income taxes for 1945, 1946, and 1947 by judicial action had prescribed. The Court rejected the Collector’s argument, based on Collector of Internal Revenue vs. Avelino, that the right to collect income taxes by judicial action is imprescriptible. It clarified that the Avelino ruling only distinguished between the prescriptive periods for summary collection (3 years under Section 51(d) of the National Internal Revenue Code) and judicial collection (5 years under Sections 331 and 332) of income taxes, and did not hold judicial collection to be without limitation. Since the assessments for 1945-1947 were issued on August 4 and 5, 1953, which was beyond five years from the dates the respective returns for those years were filed, the right to collect by judicial action had lapsed.
2. On Validity of Assessments for 1948-1950: The Supreme Court affirmed the Court of Tax Appeals, holding the company liable for the deficiency income taxes for 1948, 1949, and 1950. The Court upheld the prima facie correctness of the Collector’s assessments. Since the company failed to present any evidence at the hearing to show the assessments were incorrect, it did not overcome the presumption of correctness in favor of the Government. The burden of proof to disprove the assessment lies with the taxpayer, and the company’s failure to do so was fatal to its case.
DISPOSITIVE PORTION:
The decision of the Court of Tax Appeals was affirmed in its entirety. The Bohol Land Transportation Co. was ordered to pay the deficiency income taxes for 1948, 1949, and 1950, while the collection for 1945-1947 was barred by prescription. No costs were awarded.