G.R. No. L-19495 November 24, 1966
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. LILIA YUSAY GONZALES and THE COURT OF TAX APPEALS, respondents.

FACTS

Matias Yusay died intestate on May 13, 1948, leaving heirs Jose S. Yusay (legitimate child) and Lilia Yusay Gonzales (acknowledged natural child). Jose S. Yusay, as administrator, filed an estate and inheritance tax return on May 11, 1949, declaring a gross estate of P187,204.00 but mentioning no heirs. The Bureau of Internal Revenue (BIR) investigation found a larger estate. The BIR issued an estate and inheritance tax assessment on October 29, 1953, which was increased on January 25, 1955. Jose S. Yusay requested an extension and posted a surety bond, but the Commissioner denied the request and issued a warrant of distraint and levy. After Jose S. Yusay’s death, a reamended project of partition dated May 30, 1956, listing a larger estate, came to the BIR’s attention. Based on this, the Commissioner issued a new assessment on February 13, 1958. Lilia Yusay Gonzales, who had become an administratrix for one-third of the estate, disputed this assessment on November 17, 1959, claiming prescription as more than five years had passed since the original return. The Commissioner rejected her protest on January 20, 1960 (received March 14, 1960), arguing the return was incomplete for not naming heirs, thus the ten-year period under Section 332 applied, and that the administrator had waived prescription. Lilia Yusay Gonzales filed a petition for review with the Court of Tax Appeals (CTA) on April 13, 1960. The CTA ruled the right to assess had prescribed. The Commissioner appealed, raising issues on the timeliness of the CTA petition, its jurisdiction despite a pending claim in the settlement court, and prescription.

ISSUE

1. Was the petition for review in the Court of Tax Appeals filed within the 30-day period under Section 11 of Republic Act 1125?
2. Could the Court of Tax Appeals take cognizance of the appeal despite the pendency of the Commissioner’s “Proof of Claim” in the Court of First Instance settlement proceedings?
3. Has the right of the Commissioner of Internal Revenue to assess the estate and inheritance taxes prescribed?

RULING

1. Yes. The 30-day period to appeal commenced from March 14, 1960, the date Lilia Yusay Gonzales received the Commissioner’s decision on her protest. The petition filed on April 13, 1960, was exactly 30 days later and thus timely.
2. Yes. The Court of Tax Appeals had exclusive jurisdiction over disputes involving internal revenue tax assessments. The settlement court (Court of First Instance acting as a probate court) had limited jurisdiction over estate settlement and no jurisdiction to adjudicate the validity of a tax assessment. Therefore, lis pendens did not apply.
3. Yes. The right to assess had prescribed. The prescriptive period under Section 331 of the Tax Code is five years from the filing of the return. The return filed on May 11, 1949, was a valid return despite not naming the heirs, as it contained sufficient data for the Commissioner to assess the tax. The omission of the heirs’ names did not constitute fraud with intent to evade tax, as no fraud surcharge was imposed. Thus, the ten-year period under Section 332 for fraudulent returns did not apply. The assessment issued on February 13, 1958, was beyond the five-year period and therefore prescribed. The surety bond posted by the former administrator did not constitute a waiver of the defense of prescription. The Court of Tax Appeals decision was affirmed.