[]Republic v. Lim Tian Teng Sons gross sales as the amount 95,500.

00Php was reported as cost of goods

| | sold.
 CIR Audit. The CIR conducted and audited the taxpayer’s ITR. It eliminated
SUMMARY the 95,000.00 outturn from the beginning inventory of 1952 and considered
`Lim Tian Teng Sons & Co. (taxpayer) reported a net loss in the year 1952. After it instead as accrued income for 1951. This increased the taxpayer’s net
examining the ITR of the taxpayer, the CIR disallowed the deduction of the income and necessarily its income tax.
95,000Php copra outturn as cost of goods sold, and instead treated such amount as  Deficiency Income Tax and Surcharge. CIR assessed a deficiency income
an accrued income, considering the accrual method of accounting adopted by the tax of P10,074.00 and 50% surcharge thereon amounting to P5,037.00 and
taxpayer. The CIR assessed the taxpayer with deficiency income tax and surcharge, demanded payment thereof not later than February 15, 1957.
which the latter questioned by demanding a reinvestigation. The CIR transmitted the  Referral by the CIR to the Solicitor General. The taxpayer requested
taxpayer’s request for reinvestigation to the Solicitor General, who denied the same reinvestigation of its 1952 income tax liability but the CIR did not reply to
and ordered the payment of the assessed deficiency taxes. Despite this ruling of the this; instead, the CIR referred the case to the Solicitor General for collection
SolGen, the taxpayer insisted on having a reinvestigation. The CIR eventually by judicial action.
agreed to conduct one provided the taxpayer submits a waiver of the statute of  Solicitor General’s decision dated September 20, 1957. The Solicitor
limitations. The taxpayer did not comply with this; hence, the CIR instituted an action General demanded payment within five days, otherwise judicial action
for collection before the CFI, which found for the CIR. in affirming the CFI’s ruling, would be instituted without further notice.
the SC ruled that the failure of the taxpayer to file an appeal to the CTA after the  A Waiver of the Statute of Limitations. Lim Tian Teng again wrote a letter to
expiration of the 30-day period provided in Section 11 of RA 1125 rendered the CIR for reinvestigation. It also wrote a letter to the Solicitor General so that
assessment final and executory, and it was only proper for the CIR to file the present it may be allowed to present supporting documents relating to its income
judicial action to collect from the taxpayer. In this case, the 30-day period should be tax liability. The SolGen transmitted the letter to the CIR. The Deputy of the
reckoned from October 8, 1957, the date of the receipt of the Solicitor General’s CIR informed the taxpayer that its request for reinvestigation would be
decision. granted provided it executed a waiver of the statute of limitations as
required in General Circular V-258 dated August 20, 1957. The waiver must
DOCTRINE: be filed on or before December 31, 1957; otherwise, a judicial action for
`The taxpayer has 30 days from the receipt of the decision of the Solicitor General to collection would be instituted without further notice.
file an appeal before the CTA. The period provided in Section 11 of Republic Act No.  Action for the Collection of Deficiency Income Tax. As the taxpayer failed to
1125 also applies in case of a referral by the CIR to the Solicitor General. file a waiver of the statute of limitations, the CIR instituted 8 months after,
specifically on September 2, 1958, an action for the collection of deficiency
FACTS: income tax. The CFI ordered the payment of the income tax deficiency.
 `Lim Tian Teng Sons & Co., Inc. is a domestic corporation with principal  Both parties appealed from this decision.
office in Cebu City engaged in the exportation of copra. o CIR’s position: The surcharge of 50% was not included in the
o The copra was weighed before shipment in the port of departure
money judgment.
and upon arrival in the port of destination. o Lim Tian Teng Sons & Co’s position: The lower court does not
o The weight before shipment was called copra outturn.
have jurisdiction to hear the case, the assessment is not yet final
o To allow for lose in weight due to shrinkage, said exporter and executory, and the surcharge assessment was improper.
collected only 95% of the amount appearing in the letter of credit
covering every copra outturn. The 5% balance remained ISSUES w/ HOLDING & RATIO
outstanding until final liquidation and adjustment. 1. `Whether the lower court has the jurisdiction to hear the case prior to the
 The 95,000Php Copra Outturn. The taxpayer filed its ITR for 1952 based on issuance of a final judgment by the CIR [YES]
accrued income and expenses. Its return showed a loss because it took up  `im Tian Teng Sons argues that final decision of the CIR on the disputed
as part of the beginning inventory for 1952 the copra outturn shipped in assessment is a condition precedent to the filing of an action for the
1951 amounting to P95,500.00 as part of its outstanding stock as of collection of a tax before the CFI.
December 31, 1951. By doing so, it naturally resulted in the decrease of its  The Court finds no merit in this case. The CIR has the option to collect
delinquent internal revenue taxes either by distraint and levy or by judicial
 action or both simultaneously. The Tax Code does not require CIR to  Assuming arguendo that requiring a waiver of the statute of limitations is
decide first on the taxpayer’s request for reinvestigation before it can file a invalid, the 30-day period within which the taxpayer may appeal to the Court
judicial action for collection. The only requisite before he can collect the tax of Tax Appeals had long lapsed when the Collector of Internal Revenue
is that he must first assess the same within the time fixed by law. And in the filed the complaint in this case on September 2, 1958.
case of a false or fraudulent return with intent to evade the tax or of a failure  The taxpayer’s failure to appeal to the CTA in due time made the
to file a return, a proceeding in court for the collection of such tax may be assessment in question final, executory and demandable. When the action
begun without assessment. was instituted on September 2, 1958 to enforce the deficiency assessment
 Before the creation of the CTA, the remedy of a taxpayer who desired to in question, it was already barred from disputing the correctness of the
contest an assessment issued by the CIR was to pay the tax and bring an assessment or invoking any defense that would reopen the question of his
action in the ordinary courts for its recovery pursuant to Section 306 of the tax liability on merits. Otherwise, the period of thirty days for appeal to the
Code. CTA would make little sense.
 When the Republic Act 1125 was enacted creating the CTA, the taxpayer is 3. ` Whether the act of requiring a waiver of the statute of limitations before the
allowed to dispute the correctness legality of an assessment but it does not grant of reinvestigation as provided for in General Circular No. V-258 is valid
preclude the CIR from collecting the tax through any of the means provided [YES]
for in Section 316 of the Tax Code, except when enjoined by said Court of  This question was not raised in the BIR but suffice it to say that General
Tax Appeals. Circular No. V-258 was promulgated pursuant to Section 338 of the Tax
2. `Whether the trial court erred in considering as final and executory the Code. The authority thereunder of the Secretary of Finance to issue rules
assessment by the CIR, pending the reinvestigation requests [NO and regulations for the effective enforcement of the provisions of the Tax
 `Defendant received the assessment on January 30, 1957 and on the Code has been sustained by this Court in previous cases.
following day requested reinvestigation of its tax liability. However, the CIR 4. ` Whether the assessment in question is correct [YES]
did not reply to the request for reinvestigation, and instead referred the case  The 1952 income tax return of Lim Tian Teng Sons & Co., Inc. showed that
to the Solicitor General for collection of the tax. The lower court interpreted it employs the "accrual" method of accounting.
this action of the CIR as a denial of defendant's request for reinvestigation.  Following such accounting method, the copra outturn in the amount of
 The Court found no error in this interpretation by the trial court as the CIR’s P95,500.00 outstanding as of December 31, 1951, should have been
repeated insistence to collect the deficiency tax assessment amounts to its treated as accrued income for 1951, instead of as stock on hand on
denial of the request for reinvestigation. The pertinent dates in this case are January 1, 1952.
as follows:  Defendant took up the copra outturn in question as copra on hand in the
o The SolGen decided on the taxpayer’s appeal on September 20, beginning inventory for 1952, which means that the copra purchased during
1957. the year and copra on hand as of December 31, 1952 were deducted as
o The taxpayer received this decision on October 8, 1957. "cost of goods sold" from the total gross sales for the purpose of
o It had 30 days from October 8, 1957 within which to appeal to the determining the net sales. This diminished the net sales by P95,500.00,
CTA pursuant to Section 11 of Republic Act 1125. thereby also decreasing defendant's net taxable income by the same
o Instead of appealing to the Tax Court, however, the defendant amount. This procedure of treating the copra outturn in question is
herein in a letter dated October 8, 1957 reiterated its request for inconsistent with defendants accounting method.
reinvestigation.  The Court also found fraudulent the ITR of the taxpayer for the year 1952.
o The CIR then placed in the hands of the taxpayer the holding of a o Taxpayer's beginning inventory for 1952 did not state the truth in
reinvestigation conditioned upon the latter’s submission of a considering the copra outturn as copra on hand, for on December
waiver of the statute of limitations. 31, 1951 such copra was not any more in taxpayer's bodega. It
o The taxpayer failed to submit a written waiver of the statute of was in transit to a foreign port. The taxpayer no longer owned the
limitations on or before December 31, 1957. copra as it already received payment for the same.
o Such omission automatically brought about the denial of the o By observing regularly its own system of accounting, taxpayer had
request for reinvestigation. no choice but to account the copra outturn as accrued income but
such was not done.
5. ` Whether the lower court erred in not imposing on defendant's tax liability a
surcharge of 5% for late payment [YES]
 ` SEC. 51. Assessment and payment of income tax. — xxx (c) Surcharge
and interest in case of delinquency. - To any sum or sums due and unpaid
after the dates prescribed in subsections (b), (c) and (d) for the payment of
the same, there shall be added the sum of five per centum on the amount of
tax unpaid and interest at the rate of one per centum a month upon said tax
from the time the same became due.
 Based on this provision, the 5% surcharge is mandatory and automatically
due, once the tax is not paid on time. "Shall" is the word that law uses a
word normally imperative and a "language of demand".
 Section 183 of the present Tax Code also applies, which states that:: If the
percentage tax on any business is not paid within the time prescribed above
the amount of the tax shall be increased by twenty-five per centum, the
increment to be part of the tax.
 When should the payment of the delinquency interest be reckoned?
Pursuant to Section 51(d), "the assessment made by the Collector of
Internal Revenue shall be paid ... immediately upon notification of the
amount of such assessment."
o The income tax assessment notice gave defendant up to February
15, 1957 to pay the deficiency tax in question. No payment was
made.
o Pursuant to Section 51 (e), quoted earlier, interest on the unpaid
tax fell due starting February 16, 1957 and continues to accrue
until full payment of the tax.
RULING:
` The decision appealed from is MODIFIED. Lim Tian Teng Sons & Co., Inc. is
hereby ordered:
to pay the sum of P10,074.00 as deficiency income tax for 1952
plus 50% and 5% surcharges thereon for fraud and late payment, respectively, and
1% monthly interest upon said tax of P10,074.00, computed from February 16, 1957
until the tax is fully paid.