G.R. Nos. L-23236 and L-23254 May 31, 1967
CENTRAL AZUCARERA DON PEDRO, petitioner, vs. COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.

FACTS

The petitioner, Central Azucarera Don Pedro, a domestic corporation, filed its income tax returns on a fiscal year basis ending August 31. Two cases were consolidated. In CTA Case No. 1273 (G.R. No. L-23236), the Commissioner of Internal Revenue assessed a deficiency income tax for the fiscal year ending August 31, 1954, and imposed a ½% monthly interest pursuant to Section 51(d) of the National Internal Revenue Code, as amended by Republic Act No. 2343 (effective June 20, 1959), computed from June 20, 1959, to the date of the revised assessment (December 20, 1961). The petitioner paid the deficiency tax but protested the interest. In CTA Case No. 1278 (G.R. No. L-23254), the Commissioner assessed deficiency income taxes for the fiscal years ending August 31, 1955, 1956, 1957, and 1958, with corresponding ½% monthly interest under the same amended law. The petitioner paid the taxes and interest but later filed a claim for refund of the interest paid. The Court of Tax Appeals upheld the Commissioner’s imposition of interest in both cases. The common factual backdrop is that the petitioner’s taxable incomes were earned prior to the effectivity of Republic Act No. 2343 on June 20, 1959, but the deficiency assessments were made after this date.

ISSUE

Whether the interest of 6% per annum (or ½% monthly) provided for in Section 51(d) of the National Internal Revenue Code, as amended by Republic Act No. 2343 , is imposable on deficiency income tax due on income earned prior to the effectivity of said Act, but assessed after it.

RULING

Yes. The Supreme Court affirmed the decisions of the Court of Tax Appeals. The imposition of interest is not a retroactive application of the law. Republic Act No. 2343 took effect on June 20, 1959, and the deficiency taxes were assessed and remained unpaid after this date. The Commissioner computed the interest only from June 20, 1959, not from the time the original taxes became due. Therefore, the law was applied prospectively from its effectivity. The interest is compensatory, not penal, in nature; it constitutes just compensation to the state for the delay in tax payment and the taxpayer’s use of government funds. As such, its imposition does not violate the constitutional prohibition against ex post facto laws, which applies only to criminal or penal matters. The provision in Section 13 of Republic Act No. 2343 , which makes new tax rates applicable to income earned in 1959 onward, refers only to basic tax rates and does not limit the application of the interest provision in Section 51(d). The amended law was applied correctly, and the petitioner’s claims were without merit.