G.R. No. L-8652; March 30, 1957
SANTIAGO SAMBRANO, petitioner, vs. COURT OF TAX APPEALS and COLLECTOR OF INTERNAL REVENUE, respondents.

FACTS

Petitioner Santiago Sambrano, owner and operator of a fleet of passenger and freight trucks, received from the Collector of Internal Revenue a demand for payment of income tax liabilities. On April 28, 1951, a revised assessment was served on him for income, percentage, and residence taxes for 1945-1948, and percentage tax on gravel sales for 1939-1941, totaling P184,241.07. Sambrano paid only P17,929.40. On May 3, 1951, he executed a chattel mortgage on 67 of his TPU buses in favor of the Government to secure payment, which was approved by the Public Service Commission and registered. He also agreed to a 24-month installment plan. Due to his failure to comply, the Collector issued warrants of distraint and levy on his properties in various provinces on September 27, 1952. On April 16, 1953, 63 of his auto buses were seized. Sambrano, through counsel, offered a compromise of P80,000 on April 7, 1954. The Secretary of Finance recommended acceptance on July 9, 1954, and the Collector informed counsel of acceptance on September 9, 1954. However, unaware of the acceptance, Sambrano’s counsel withdrew the offer on September 24, 1954. The Secretary of Finance then revoked the recommendation. The Collector proceeded to schedule sales of Sambrano’s properties, including his residential house and lot in Vigan and his passenger trucks. Sambrano filed a petition for certiorari with the Court of Tax Appeals on December 23, 1954, seeking to enjoin the sales and declare any sale null and void. The Court of Tax Appeals denied the petition on January 4, 1955. Sambrano elevated the case to the Supreme Court.

ISSUE

1. Whether the Collector of Internal Revenue could, in 1952, effect collection of income, percentage, and residence taxes for the years 1945-1948 by the summary methods of distraint and levy.
2. The effect of the mortgages executed by petitioner and his offer to compromise on his tax obligations, considering his defense of prescription.

RULING

1. The Supreme Court ruled that the Collector of Internal Revenue could not, in 1952, lawfully collect the income taxes for 1945-1948 through distraint and levy. Under Section 51(d) of the National Internal Revenue Code, in cases of false or fraudulent returns, the Collector must make an assessment within three years after the return is due or made. The Court considered the returns as filed not later than March 1 of the year following the tax year. Since the warrants of distraint and levy were issued on September 27, 1952, the collection for the 1945 income tax (due March 1, 1946) was barred by the three-year period. However, the collection for the 1946, 1947, and 1948 taxes was not yet prescribed. The Court also noted that the defense of prescription was not raised in the Court of Tax Appeals and was deemed waived. Nonetheless, the Court held that the Collector’s right to collect via distraint and levy had prescribed for all the taxes because the warrants were issued after the three-year period from the dates the returns were due or filed.
2. The Court held that the chattel mortgage executed by Sambrano on 67 buses constituted a waiver of the defense of prescription and an acknowledgment of his tax liabilities. Therefore, the Collector could proceed with the sale of these mortgaged properties. However, for properties not covered by the mortgage, the sale via distraint and levy was invalid due to prescription. The offer to compromise was deemed withdrawn before its acceptance was communicated, thus not binding.
The Supreme Court AFFIRMED the resolution of the Court of Tax Appeals dated January 4, 1955, insofar as it denied the injunction against the sale of the 67 mortgaged buses, and REVERSED it insofar as it affected properties not covered by the mortgage. The Court of Tax Appeals was ordered to determine, after due hearing, what unmortgaged properties were sold, the proceeds, and any damages suffered by Sambrano due to the undue sale. Any excess from the sale of the mortgaged trucks and the P17,929.40 already paid, over the tax liability of P184,241.07, shall be returned to Sambrano.