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May 3, 2017

CIR vs. Stanley Works Sales

Facts:

  • Stanley Works Sales Phils., Incorporated is a domestic corporation. Stanley Works filed its Annual Income Tax Return for taxable year 1989 with the BIR.
  • On March 19, 1993, the BIR issued to Stanley Works a Pre-Assessment Notice No. 002523 for 1989 deficiency income tax. It was received by the corporation on April 21, 1993.
  • On May 19, 1993, Stanley Works filed a protest letter and requested reconsideration and cancellation of the assessment.
  • On November 16, 1993, a certain Mr. John Ang, on behalf of the corporation, executed a "Waiver of the Defense of Prescription Under the Statute of Limitations of the National Internal Revenue Code" (Waiver). 
  • The Waiver was not signed by Stanley Works or any of its authorized representatives and did not state the date of acceptance as prescribed under Revenue Memorandum Order No. 20-90.
  • Under the terms of the Waiver, Stanley Works waived its right to raise the defense of prescription under Section 223 of the NIRC of 1977 insofar as the assessment and collection of any deficiency taxes for the year ended December 31, 1989, but not after June 30, 1994. 
  • On March 4, 2002, Stanley Works submitted a Supplemental Memorandum alleging that CIR’s right to collect the alleged deficiency income tax has prescribed.
  • The CTA Division ruled that the request for reconsideration did not suspend the running of the prescriptive period to collect deficiency income tax. This decision was affirmed by the CTA en banc.



Issues:
  1. Whether or not the right of CIR to collect the deficiency income tax of Stanley Works for taxable year 1989 has prescribed. YES
  2. Whether or not Stanley Works’ repeated requests and positive acts constitute "estoppel" from setting up the defense of prescription under the NIRC. NO


Held:

1st ISSUE: The right of CIR has already prescribed.

The period to assess and collect deficiency taxes may be extended only upon a written agreement between the CIR and the taxpayer prior to the expiration of the three-year prescribed period in accordance with Section 222 (b) of the NIRC. 

Jurisprudence is replete with requisites of a valid waiver:

1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase "but not after ______ 19 ___", which indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription, should be filled up.

2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer toa representative, such delegation should be in writing and duly notarized.

3. The waiver should be duly notarized.

4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver, the CIR or the revenue official authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and executed by the taxpayer or his duly authorized representative.

5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.

6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection of the agreement.

The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latter's real liability, but to take advantage of every opportunity to molest peaceful, law-abiding citizens. 

2nd ISSUE: Stanley Works is not barred from setting up the defense of prescription.  

The Supreme Court does not agree with petitioner that respondent is now barred from setting up the defense of prescription by arguing that the repeated requests and positive acts of the latter constituted estoppels, as these were attempts to persuade the CIR to delay the collection of respondent’s deficiency income tax.

True, respondent corporation filed a Protest and asked for a reconsideration and cancellation of the assessment on 19 May 1993; however, it is uncontested that petitioner failed to act on that Protest until 29 November 2001, when the latter required the submission of other supporting documents. In fact, the Protest was denied only on 22 March 2004.

Since the Waiver in this case is defective and therefore invalid, it produces no effect; thus, the prescriptive period for collecting deficiency income tax for taxable year 1989 was never suspended or tolled. Consequently, the right to enforce collection based on Assessment Notice No. 002523-89-6014 has already prescribed.

CITATION:
  • COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. THE STANLEY WORKS SALES (PHILS.), INCORPORATED, Respondent.
  • G.R. No. 187589               
  • December 3, 2014
  • First Division

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