G.R. No. L-16814, September 19, 1961
Edward San Juan, petitioner, vs. Honorable Judge Conrado Vasquez, of the Court of First Instance of Manila Branch II, and the Honorable Commissioner of Internal Revenue, respondents.

FACTS

The Commissioner of Internal Revenue assessed petitioner Edward San Juan for deficiency income taxes and surcharges totaling P19,704.50 for various years. On June 30, 1954, the Collector of Internal Revenue granted San Juan a grace period to pay or to submit evidence contesting the assessment. On July 30, 1954, San Juan’s accountant sent a detailed letter to the Collector, formally disputing the correctness of the assessments and requesting their adjustment. The Collector did not respond to this protest.
Nearly five years later, on February 25, 1959, the Collector filed a collection suit (Civil Case No. 39578) against San Juan in the Court of First Instance (CFI) of Manila. San Juan, in his answer, contested the assessments and raised prescription as a defense. He later moved to dismiss the CFI case, arguing it lacked jurisdiction because the assessment was disputed, which placed exclusive appellate jurisdiction over the matter with the Court of Tax Appeals (CTA). He also noted a related petition for review was already pending before the CTA. The CFI denied his motion and subsequent reconsideration, prompting this certiorari and prohibition petition.

ISSUE

Whether the Court of First Instance has jurisdiction over a collection suit where the taxpayer has timely disputed the correctness of the tax assessment.

RULING

The Supreme Court granted the petition, ruling that the CFI acted with grave abuse of discretion in assuming jurisdiction. The legal logic hinges on the exclusive appellate jurisdiction of the Court of Tax Appeals over “disputed assessments” as defined under Section 7 of Republic Act No. 1125. The Court found that San Juan had timely disputed the assessment through his accountant’s letter of July 30, 1954, which presented objections and sought reconsideration. This protest rendered the assessment “disputed.”
Once an assessment is legitimately disputed, the Collector of Internal Revenue must first issue a final decision on the protest. The taxpayer may then appeal that decision to the CTA. The Collector cannot bypass this administrative and appellate review process by immediately filing a collection suit in the ordinary courts. Citing Blaquera v. Rodriguez, the Court held that the determination of a contested assessment’s correctness falls within the CTA’s exclusive appellate jurisdiction, not the CFI’s. The cases cited by the respondent (Republic vs. Del Rosario and Republic vs. Uy Ham) were distinguished as they involved undisputed assessments or mere enforcement actions, not contested liabilities. Consequently, the CFI’s orders were set aside for lack of jurisdiction.