G.R. No. L-16504; October 27, 1961
Republic of the Philippines, plaintiff-appellee, vs. Ernesto S. Gamboa, defendant-appellant.

FACTS

Defendant Ernesto S. Gamboa filed his 1952 income tax return on March 20, 1953, reporting a net loss. On January 29, 1956, the Bureau of Internal Revenue discovered that Gamboa had sold several parcels of land in 1952 for P110,000, which he had originally acquired for P42,000, indicating a potential gain of P68,000 not reported. Consequently, on May 13, 1957, the BIR issued a deficiency income tax assessment against Gamboa in the amount of P29,133. Gamboa did not contest this assessment before the Court of Tax Appeals within the statutory period. Due to his failure to pay, the Republic filed an ordinary collection suit in the Court of First Instance of Negros Occidental on February 17, 1958, seeking recovery of the tax due.

ISSUE

The primary issues are: (1) whether the deficiency tax assessment is null and void for being issued beyond the three-year period stated in Section 51(d) of the Tax Code; (2) whether the Court of First Instance had jurisdiction over the collection case; and (3) whether Gamboa can still dispute the factual basis of the assessment.

RULING

The Supreme Court affirmed the decision of the lower court. On the first issue, the Court ruled that the three-year period in Section 51(d) is a limitation only on the government’s right to use summary proceedings (distraint and levy) for immediate collection, not on its right to assess taxes for judicial action. The applicable prescriptive periods are found in Sections 331 and 332(a) of the Tax Code. An assessment must be made within five years after the return is filed. For a false or fraudulent return, the tax may be assessed or collected by judicial action within ten years from discovery of the falsity. The assessment here was made on May 13, 1957, within five years from the filing of the return on March 20, 1953. The judicial action was filed on February 17, 1958, well within ten years from the discovery of the unreported gain on January 29, 1956. Therefore, the assessment and the suit were timely.
On the second issue, the Court held that the Court of First Instance properly had jurisdiction. The exclusive appellate jurisdiction of the Court of Tax Appeals under Republic Act No. 1125 is invoked only when a taxpayer adversely affected by a BIR decision files an appeal within thirty days. Gamboa did not contest the assessment before the CTA. Consequently, the assessment became final, and the government’s subsequent filing of an ordinary action for collection of a sum of money fell within the general jurisdiction of the CFI.
On the third issue, the Court ruled that Gamboa is now barred from challenging the factual accuracy of the assessment. By failing to avail of the statutory remedy of appeal to the CTA, the deficiency assessment attained finality. His argument regarding the cost of improvements to the property, which was merely admitted “for the sake of argument” in the stipulation of facts and not as a conclusive admission, cannot be raised at this late stage to collaterally attack the assessment. The decision of the lower court was therefore affirmed.