G.R. No. L-15802; September 30, 1960
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. ENRIQUE MAGALONA, JR., ET AL., defendants-appellants.

FACTS

On April 30, 1951, appellants spouses Enrique Magalona, Jr. and Teresita Durango filed a joint income tax return for 1950. After audit, the Bureau of Internal Revenue assessed their tax due at P2,964.00 and sent them an Income Tax Assessment Notice (Ear-23187-52150) dated March 18, 1953, demanding payment on or before April 15, 1953. Appellants received the notice but did not pay. On April 14, 1954, Magalona, Jr. posted a surety bond with Luzon Surety Co., Inc. to guarantee payment, as he needed a tax clearance to go abroad. The Collector of Internal Revenue later sent demand letters to the surety company (December 17, 1955) and to Magalona, Jr. (January 28, 1957) for settlement, threatening bond forfeiture. As no payment was made, the Collector filed a complaint for collection with the Court of First Instance of Manila on April 24, 1957. After the complaint was filed, Magalona, Jr. requested to pay in installments, which was denied. In their answer, appellants claimed they believed the bond execution meant their tax liability would be reviewed and reassessed, and they were willing to pay the principal without surcharge and interest. They later amended their answer to allege prescription and lack of court jurisdiction. The Luzon Surety Co., Inc. argued the action was premature because the bond condition—a final adjudication of Magalona, Jr.’s liability—had not been met.

ISSUE

1. Whether the Court of First Instance of Manila had jurisdiction over the subject matter.
2. Whether the action for collection had prescribed.
3. Whether the income tax assessment was final, thereby making appellants liable for the surcharge and interest, and the surety liable on the bond.

RULING

1. Yes, the Court of First Instance had jurisdiction. The assessment became final because appellants received the Income Tax Assessment Notice on March 18, 1953, and had 30 days to appeal to the Court of Tax Appeals. Their failure to appeal rendered the assessment final and undisputed as of April 19, 1953. The court found no credible evidence that appellants had requested a reconsideration or reassessment. Their claim of a misunderstanding and the bond’s purpose did not negate finality. The bond was executed to secure payment for a tax clearance, not to await a new assessment. Since it was not a disputed assessment, the CFI had jurisdiction under Section 44(c) of the Judiciary Act.
2. No, the action had not prescribed. The prescriptive period commenced on April 16, 1953 (the day after the last date for payment per the notice). The complaint was filed on April 24, 1957, which was within the five-year prescriptive period for income tax collection under the law.
3. Yes, the assessment was final. Consequently, appellants were liable for the 5% surcharge and 1% monthly interest from April 16, 1953. The Luzon Surety Co., Inc. was jointly and severally liable with Magalona, Jr. for the principal sum of P2,964.00 under the bond terms. The condition in the bond for a “final adjudication” was satisfied by the finality of the assessment, not requiring a separate court decision beforehand. The trial court’s decision was affirmed.