COMMISSIONER vs. PHOENIX (Tax 2)

G.R. No. L-19727             May 20, 1965

THE COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.

PHOENIX ASSURANCE CO., LTD., respondent.

FACTS:

Phoenix Assurance Co., Ltd., a foreign insurance corporation organized under the laws of Great Britain, is licensed to do business in the Philippines with head office in London. Through its head office, it entered in London into worldwide reinsurance treaties with various foreign insurance companies. It agree to cede a portion of premiums received on original insurances underwritten by its head office, subsidiaries, and branch offices throughout the world, in consideration for assumption  by the foreign insurance companies of an equivalent portion of the liability from such original insurances.

On August 1, 1958 the Bureau of Internal Revenue deficiency assessment on income tax for the years 1952 and 1954 against Phoenix Assurance Co, Ltd. The assessment resulted from the disallowance of a portion of the deduction claimed by Phoenix Assurance Co., Ltd. as head office expenses allocable to its business in the Philippines fixed by the Commissioner at 5% of the net Philippine income instead of 5% of the gross Philippine income as claimed in the returns. Phoenix Assurance Co., Ltd. protested against the aforesaid assessments for withholding tax and deficiency income tax. However, the Commissioner of Internal Revenue denied such protest. 

Subsequently, Phoenix Assurance Co., Ltd. appealed to the Court of Tax Appeals. In a decision dated February 14, 1962, the Court of Tax Appeals allowed in full the decision claimed by Phoenix Assurance Co., Ltd. for 1950 as net addition to marine insurance reserve; determined the allowable head office expenses allocable to Philippine business to be 5% of the net income in the Philippines; declared the right of the Commissioner of Internal Revenue to assess deficiency income tax for 1952 to have prescribed; absolved Phoenix Assurance Co., Ltd. from payment of the statutory penalties for non-filing of withholding tax return.

ISSUE:

Whether or not the right of the Commissioner of Internal Revenue to assess deficiency income tax for the year 1952 against Phoenix Assurance Co., Ltd., has prescribed.

RULING:

No, The question is. Should the running of the prescriptive period commence from the filing of the original or amended return?xxx the deficiency income tax in question could not possibly be determined, or assessed, on the basis of the original return filed on April 1, 1953, for considering that the declared loss amounted to P199,583.93, the mere disallowance of part of the head office expenses could not possibly result in said loss being completely wiped out and Phoenix being liable to deficiency tax. Not until the amended return was filed on August 30, 1955 could the Commissioner assess the deficiency income tax in question.”

Accordingly, he would wish to press for the counting of the prescriptive period from the filing of the amended return. Considering that the deficiency assessment was based on the amended return which, as aforestated, is substantially different from the original return, the period of limitation of the right to issue the same should be counted from the filing of the amended income tax return. From August 30, 1955, when the amended return was filed, to July 24, 1958, when the deficiency assessment was issued, less than five years elapsed. The right of the Commissioner to assess the deficiency tax on such amended return has not prescribed.