G.R. No. L-18993; April 30, 1964
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. CAPITOL SUBDIVISION, INC., respondent.

FACTS

The Commissioner of Internal Revenue assessed deficiency income taxes against Capitol Subdivision, Inc. for the years 1948 to 1951, totaling P27,212.88. The assessment notices were issued on April 8, 1953. On May 30, 1953, the taxpayer requested a detailed breakdown of the disallowed “General Expenses” items, stating it needed this to study the assessment and potentially make payments or provide explanations. The Bureau sent inquiry letters on June 21, 1955, to which the taxpayer replied on July 1, 1955, reiterating its 1953 request for itemization. The Commissioner denied this request and reiterated the demand for payment on September 20, 1955. The taxpayer then formally requested a reinvestigation on October 15, 1955. After reinvestigation, the Bureau affirmed the assessments and made a final demand for payment on September 2, 1959. The taxpayer, in its reply dated September 16, 1959, raised the defense of prescription. The Commissioner filed an answer in the Court of Tax Appeals on December 29, 1959, which was deemed the judicial action for collection.

ISSUE

Whether the right of the Commissioner to collect the deficiency income taxes through judicial action had already prescribed under Section 332(c) of the National Internal Revenue Code, which requires such action to be begun within five years after the assessment.

RULING

No, the right to collect had not prescribed. The Supreme Court reversed the Court of Tax Appeals. The five-year prescriptive period for collection commenced on April 8, 1953, the date of assessment. However, this period was interrupted by the taxpayer’s written requests, which effectively questioned the assessment’s correctness. The taxpayer’s letter of May 30, 1953, while not using the words “reconsideration” or “review,” was a request for clarification that constituted an exception to the assessment, thereby tolling the prescriptive period. This interruption lasted until the Commissioner’s denial through the demand letter of June 21, 1955—a period of 2 years and 21 days. The period ran again but was tolled a second time by the taxpayer’s reiteration on July 1, 1955, and subsequent request for reinvestigation. Deducting the total periods of interruption from the total time elapsed between the assessment (April 8, 1953) and the judicial action (December 29, 1959), which was 6 years, 8 months, and 21 days, the net time counted for prescription was only 4 years and 8 months. Since this is within the five-year statutory limit, the collection action was timely filed.