In Bank of the Philippine Islands v. Commissioner of Internal Revenue, the Supreme Court ruled that the Bureau of Internal Revenue (BIR) could no longer collect deficiency documentary stamp tax (DST) from BPI for the taxable year 1985 because the period to collect had already prescribed. This decision underscores the importance of adhering to statutory deadlines in tax collection and protects taxpayers from perpetual tax liabilities. It serves as a reminder that even the government is bound by the statute of limitations, ensuring fairness and predictability in tax administration.

Time’s Up: When Prescription Shields Taxpayers from Belated Assessments

This case revolves around an assessment issued by the BIR against BPI for deficiency DST on its sales of foreign bills of exchange to the Central Bank in 1985. The assessment, issued in 1989, demanded payment of P1,259,884.50. BPI protested the assessment, arguing lack of legal and factual bases. The Commissioner of Internal Revenue (CIR) denied the protest, leading BPI to file a petition for review before the Court of Tax Appeals (CTA). The CTA ruled in favor of BPI, canceling the assessment. The CIR appealed to the Court of Appeals (CA), which reversed the CTA decision and reinstated the assessment. The central legal question is whether the BIR lost its right to collect the assessed DST due to prescription.

The Supreme Court addressed the issue of prescription, emphasizing that courts must dismiss a claim if it is barred by the statute of limitations, even if this defense is not raised by the parties. The Court cited Section 1, Rule 9 of the Rules of Court, which states that when it appears from the pleadings or the evidence that the action is barred by the statute of limitations, the court shall dismiss the claim.

Section 1. Defenses and objections not pleaded. – Defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived. However, when it appears from the pleadings or the evidence on record that the court has no jurisdiction over the subject matter, that there is another action pending between the same parties for the same cause, or that the action is barred by prior judgment or by the statute of limitations, the court shall dismiss the claim.

The prescriptive period for the collection of assessed taxes is crucial to protect taxpayers from indefinite liability. Under Section 319(c) of the National Internal Revenue Code (NIRC) of 1977, any internal revenue tax assessed within the limitation period must be collected within three years following the assessment date. The assessment date is when the assessment notice is released, mailed, or sent by the BIR to the taxpayer. In this case, the Court determined that the BIR had until June 15, 1992, to collect the DST, counting from the latest possible date of receipt of the assessment notice by BPI on June 16, 1989.

The Court noted that the BIR’s earliest attempt to collect the tax was the filing of its answer in the CTA on February 23, 1999, which was several years beyond the three-year prescriptive period. Moreover, prior to 2004, judicial actions to collect internal revenue taxes fell under the jurisdiction of the regular trial courts, not the CTA. The BIR argued that BPI’s protest letter suspended the prescriptive period. However, the Court distinguished between a request for reconsideration and a request for reinvestigation. This distinction is essential because only a request for reinvestigation, if granted by the CIR, suspends the running of the statute of limitations, as stated in Section [320 (now, 223)] of the Tax Code of 1977.

Of particular importance to the present case is one of the circumstances enumerated in Section [320 (now, 223)] of the Tax Code of 1977, as amended, wherein the running of the statute of limitations on assessment and collection of taxes is considered suspended “when the taxpayer requests for a reinvestigation which is granted by the Commissioner.”

The Supreme Court pointed to Revenue Regulations (RR) No. 12-85, which defines these terms:

Request for Reconsideration	Request for Reinvestigation
A plea for re-evaluation based on existing records without additional evidence.	A plea for re-evaluation based on newly-discovered or additional evidence.

The Court determined that BPI’s protest was a request for reconsideration, not reinvestigation, because it raised questions of law without offering new evidence. Even if it were considered a request for reinvestigation, there was no evidence the BIR granted it. The BIR’s denial of the request for reconsideration further supports the conclusion that the prescriptive period was not suspended. The BIR argued itsUnnumbered Ruling dated 30 May 1977 shifted the liability to pay DST to the other party.

The Court emphasized the importance of the Commissioner’s approval for any suspension of the prescriptive period. This prevents indefinite delays in tax collection and protects taxpayers from prolonged uncertainty. As the protest letter of BPI was a request for reconsideration, which did not suspend the running of the prescriptive period to collect.

A close review of the contents thereof would reveal, however, that it protested Assessment No. FAS-5-85-89-002054 based on a question of law, in particular, whether or not petitioner BPI was liable for DST on its sales of foreign currency to the Central Bank in taxable year 1985. The same protest letter did not raise any question of fact; neither did it offer to present any new evidence. In its own letter to petitioner BPI, dated 10 September 1992, the BIR itself referred to the protest of petitioner BPI as a request for reconsideration. These considerations would lead this Court to deduce that the protest letter of petitioner BPI was in the nature of a request for reconsideration

Based on these considerations, the Supreme Court granted the petition, reversing the CA decision and canceling the assessment against BPI. The Court emphasized that the dismissal of the case due to prescription made it unnecessary to determine the validity of the assessment itself.

FAQs

What was the key issue in this case?	The central issue was whether the BIR’s right to collect assessed deficiency documentary stamp tax (DST) from BPI had prescribed due to the lapse of the statutory period for collection.
What is the prescriptive period for collecting assessed taxes?	Under the then-applicable law, the BIR had three years from the date of assessment to collect the tax. The assessment date is considered the date the assessment notice was released, mailed, or sent to the taxpayer.
What is the difference between a request for reconsideration and a request for reinvestigation?	A request for reconsideration is a plea for re-evaluation based on existing records, while a request for reinvestigation is based on newly discovered or additional evidence. Only a request for reinvestigation, if granted by the CIR, suspends the prescriptive period.
Did BPI’s protest letter suspend the prescriptive period in this case?	No, the Court determined that BPI’s protest letter was a request for reconsideration, not reinvestigation, because it raised questions of law without offering new evidence. The BIR also never granted a reinvestigation.
When did the BIR attempt to collect the tax?	The BIR’s earliest attempt to collect the tax was when it filed its answer in the CTA on February 23, 1999, which was several years beyond the three-year prescriptive period.
Why was the CA’s decision reversed?	The CA’s decision was reversed because the Supreme Court found that the prescriptive period to collect the assessed DST had already lapsed. The BIR failed to collect the tax within the prescribed period, and BPI’s protest did not suspend the running of that period.
What is the practical effect of this ruling for taxpayers?	This ruling reinforces the importance of the statute of limitations in tax collection, protecting taxpayers from indefinite liability and ensuring fairness in tax administration. It also clarifies that only a request for reinvestigation, if granted, can suspend the prescriptive period.
What should taxpayers do if they receive an assessment they believe is time-barred?	Taxpayers should consult with a qualified tax attorney to assess the validity of the assessment and determine whether the statute of limitations has expired. They should also gather all relevant documents, including the assessment notice and any correspondence with the BIR.

This case serves as an important reminder that the BIR must act within the prescribed periods to collect assessed taxes. Taxpayers, on the other hand, should be vigilant in asserting their rights and raising the defense of prescription when applicable. Strict adherence to procedural requirements ensures fairness and efficiency in the tax system.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Bank of the Philippine Islands vs. Commissioner of Internal Revenue, G.R. No. 181836, July 09, 2014