G.R. No. L-22356 July 21, 1967
Republic of the Philippines, plaintiff-appellant, vs. Pedro B. Patanao, defendant-appellee.

FACTS

The Republic of the Philippines, through the Solicitor General, filed a complaint against Pedro B. Patanao for the collection of deficiency income taxes and additional residence taxes for the years 1951 to 1955, amounting to P79,892.75. The complaint alleged that Patanao, a timber license holder, failed to file income tax returns for 1953 and 1954, and filed false and fraudulent returns for 1951, 1952, and 1955. A letter of demand with assessment was sent on February 14, 1958. Patanao moved to dismiss the complaint on two grounds: (1) the action is barred by prior judgment due to his acquittal in criminal cases for failure to file returns and non-payment of taxes for 1953 and 1954; and (2) the action has prescribed. The Court of First Instance of Agusan dismissed the complaint concerning taxes for 1951, 1953, and 1954, and residence taxes for 1951 and 1952, holding that the acquittal barred the civil action and that the claim for 1951 had prescribed. The court required an answer only for the 1955 income tax and 1953-1955 residence taxes. The Republic appealed.

ISSUE

1. Whether the acquittal of the defendant in the criminal cases for violation of the tax law bars the civil action for collection of the taxes.
2. Whether the action for the collection of deficiency income tax and residence tax for the year 1951 has prescribed.

RULING

1. No, the acquittal in the criminal cases does not bar the civil action for tax collection. The civil liability to pay taxes arises from the statutory duty to pay based on engaging in business, independent of any criminal act. Criminal liability under the tax law arises from the failure to satisfy this civil obligation. The civil remedies for tax collection (distraint or judicial action) are exclusive and separate from criminal proceedings. Since the civil liability is not deemed included in the criminal action under the tax law, an acquittal does not discharge the taxpayer from the duty to pay the taxes.
2. No, the action for 1951 has not prescribed. The complaint alleged the fraud was discovered on February 14, 1958. By filing a motion to dismiss, the defendant hypothetically admitted this allegation. Therefore, Section 332(a) of the National Internal Revenue Code (providing a 10-year period from discovery of fraud) applies, not Section 331 (5-year period). The action filed on December 7, 1962, was within the 10-year period. The order of dismissal is set aside, and the case is remanded for further proceedings.