G.R. No. L-23081 September 30, 1969
THE COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ILAGAN ELECTRIC & ICE PLANT, INC. and COURT OF TAX APPEALS, respondents.

FACTS

Respondent Ilagan Electric & Ice Plant, Inc., a franchise holder, paid its franchise tax at the 5% rate under the Tax Code. Based on a 1954 letter-ruling from the Deputy Collector of Internal Revenue stating it was liable only for a 2% tax under its legislative franchise, the respondent paid at the lower 2% rate from October 1, 1955, to September 30, 1959, and claimed a refund for prior overpayments. Petitioner Commissioner refunded P2,520.67 for the period from the 4th quarter of 1952 to the 4th quarter of 1954. Subsequently, following the Supreme Court’s 1959 ruling in Hoa Hin Co., Inc. vs. Collector, which held that the higher Tax Code rate applies absent an express exemption in the legislative franchise, the petitioner issued an assessment on July 27, 1961, demanding repayment of the P2,520.67 refund and payment of a deficiency franchise tax of P8,495.23 for the period from October 1, 1955, to September 30, 1959, plus a 25% surcharge. The respondent contested this before the Court of Tax Appeals, accepting liability for the P8,495.23 deficiency but contesting the surcharge and the recovery of the refund. The Tax Court eliminated the surcharge and held that the right to recover the P2,520.67 refund was barred by prescription.

ISSUE

Whether the recovery of the sum of P2,520.67 representing an erroneously refunded franchise tax is barred by the five-year prescriptive period under the Tax Code, or whether the six-year prescriptive period for quasi-contracts under the Civil Code applies.

RULING

The Supreme Court affirmed the decision of the Court of Tax Appeals. The right to assess and recover the erroneously refunded franchise tax is governed by the five-year prescriptive period provided in Sections 331 and 332(c) of the National Internal Revenue Code (Tax Code), not by the general provisions on prescription in the Civil Code. The demand for repayment is effectively an assessment for a deficiency tax, making the special law (Tax Code) prevail over the general law (Civil Code). Since the assessment was made on July 27, 1961, which was beyond five years from the filing of the quarterly returns for the 4th quarter of 1954, the right to assess and collect was barred by prescription. The Court cited its prior ruling in Guagua Electric Light Co., Inc. vs. Collector of Internal Revenue, which involved identical facts and legal issues.