COMMISSIONER OF INTERNAL REVENUE vs. LILIA YUSAY GONZALES (Tax 2)

G.R. No. L-19495           November 24, 1966

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.

LILIA YUSAY GONZALES and THE COURT OF TAX APPEALS, respondents.

Office of the Solicitor General for the petitioner.

Ramon A. Gonzales for respondent Lilia Yusay Gonzales.

FACTS:

Matias Yusay died in 1948 leaving behind two heirs, namely, Jose Yusay and Lilia Yusay Gonzales. Jose was appointed as administrator. He filed an estate and inheritance tax return in 1949. The Bureau of Internal Revenue (BIR) conducted a tax audit and the BIR found that there was an under-declaration in the return filed. In 1953 however, a project of partition between the two heirs was submitted to the BIR. The estate was to be divided as follows: 1/3 for Gonzales and 2/3 for Jose. The BIR then conducted another investigation in July 1957 with the same result – there was a huge under-declaration. In February 1958, the Commissioner of Internal Revenue issued a final assessment notice (FAN) against the entire estate. In November 1959, Gonzales questioned the validity of the FAN issued in 1958. She averred that it was issued way beyond the prescriptive period of 5 years (under the old tax code). The return was filed by Jose in 1949 and so the CIR’s right to make an assessment has already prescribed in 1958.

ISSUE:

Whether the right to assess had prescribed.

RULING:

No, the right to assess the taxes in question has not been lost by prescription since the return which did not name the heirs cannot be considered a true and complete return sufficient to start the running of the period of limitations of five years under Section 331 of the Tax Code and pursuant to Section 332 of the same Code he has ten years within which to make the assessment counted from the discovery on September 24, 1953 of the identity of the heirs; and (2) that the estate's administrator waived the defense of prescription when he filed a surety bond on March 3, 1955 to guarantee payment of the taxes in question and when he requested postponement of the payment of the taxes pending determination of who the heirs are by the settlement court.

As stated, the Commissioner came to know of the identity of the heirs on September 24, 1953 and the huge underdeclaration in the gross estate on July 12, 1957. From the latter date, Section 94 of the Tax Code obligated him to make a return or amend one already filed based on his own knowledge and information obtained through testimony or otherwise, and subsequently to assess thereon the taxes due. The running of the period of limitations under Section 332(a) of the Tax Code should therefore be reckoned from said date for, as aforesaid, it is from that time that the Commissioner was expected by law to make his return and assess the tax due thereon. From July 12, 1957 to February 13, 1958, the date of the assessment now in dispute, less than ten years have elapsed. Hence, prescription did not abate the Commissioner's right to issue said assessment.