View full case

LUCAS G. ADAMSON v. CA

FACTS:

The consolidated cases of G.R. No. 120935 and G.R. No. 124557 involve a petition for review on certiorari filed by petitioners Lucas G. Adamson, Therese June D. Adamson, and Sara S. De Los Reyes (private respondents) against then Commissioner of Internal Revenue Liwayway Vinzons-Chato (COMMISSIONER). G.R. No. 120935 seeks to review the Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 35488, while G.R. No. 124557 seeks to assail the Decision of the Court of Appeals in CA-G.R. SP No. 35520. The facts, as found by the appellate court, are as follows: On June 20, 1990, Lucas Adamson and Adamson Management Corporation (AMC) sold 131,897 common shares of stock in Adamson and Adamson, Inc. (AAI) to APAC Holding Limited (APAC) for P7,789,995.00. On June 22, 1990, they paid P159,363.21 as capital gains tax. On October 12, 1990, AMC sold another 229,870 common shares of stock in AAI to APAC Philippines, Inc. for P17,718,360.00. AMC paid the capital gains tax of P352,242.96. On October 15, 1993, the Commissioner issued a "Notice of Taxpayer" to AMC and the private respondents, informing them of deficiencies in their payment of capital gains tax and Value Added Tax (VAT). The Commissioner then filed a complaint against them for violation of the National Internal Revenue Code (NIRC). The private respondents filed a motion to suspend proceedings with the Department of Justice (DOJ) based on prejudicial questions, pendency of a civil case with the Supreme Court, and a letter-request for re-investigation with the Commissioner. After a preliminary investigation, the State Prosecutor found probable cause, and subsequently, the private respondents were charged before the Regional Trial Court (RTC) of Makati. The trial court initially denied their motion to dismiss, but upon reconsideration, it ruled that the cases should be regarded as a decision of the Commissioner and appealable to the Court of Tax Appeals (CTA). The Commissioner filed a petition for review with the Court of Appeals, which reversed the trial court's decision and reinstated the criminal complaints. Thus, the private respondents filed a petition before the Supreme Court, raising various issues.

The case involves two separate petitions, G.R. No. 124557 and G.R. No. 120935, which raise issues regarding assessments made by the Commissioner of the Bureau of Internal Revenue (BIR) and the jurisdiction of the Court of Tax Appeals (CTA) over tax disputes. In G.R. No. 124557, AMC, Lucas G. Adamson, Therese June D. Adamson, and Sara S. de los Reyes filed a Petition for Review with the CTA after the Commissioner found them liable for tax evasion. The Commissioner argued that the petition was premature as she had not yet issued a formal assessment. The CTA, however, considered the criminal complaint filed by the Commissioner as an implied formal assessment and denied her motion to dismiss. The Commissioner then appealed to the Court of Appeals, which upheld the CTA's denial. G.R. No. 120935, on the other hand, involves a similar situation, where the Commissioner filed a criminal complaint against Pascor Realty and its officers for alleged tax evasion without issuing a formal assessment. The company filed a petition for review with the CTA, which the Commissioner sought to dismiss for lack of jurisdiction. The CTA denied the motion to dismiss, and the Commissioner appealed to the Court of Appeals, which also upheld the CTA's denial. The Commissioner then filed a petition for review with the Supreme Court.

Section 203 of the National Internal Revenue Code (NIRC) requires the Commissioner of Internal Revenue to assess the correct amount of tax against the taxpayer within a specific period. Failure to do so could result in the inability to collect the deficiency tax, unless the taxpayer consents to the assessment or if a waiver has been executed. In this case, an affidavit was executed by revenue officers stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion. However, the Court held that this affidavit cannot be deemed an assessment that can be questioned before the Court of Tax Appeals. The Court emphasized that an assessment must be served on and received by the taxpayer to enable them to determine their remedies. Furthermore, an assessment must demand payment of the taxes described within a specific period. The Court noted that not all documents containing a computation of tax liability can be considered assessments. The issuance of an assessment is crucial not only in determining the period of limitation for its proper issuance but also in determining the period within which to protest it.

ISSUES:

  1. Whether the affidavit attached to a criminal complaint for tax evasion can be considered as an assessment that can be questioned before the Court of Tax Appeals.

  2. Whether the filing of a criminal complaint must be preceded by an assessment.

  3. Whether the Commissioner's recommendation letter can be considered a formal assessment of the private respondents' tax liability.

  4. Whether the filing of the criminal complaints against the private respondents by the DOJ is premature for lack of a formal assessment.

  5. Whether the CTA has jurisdiction to take cognizance of both the criminal and civil cases.

  6. Whether or not the Court of Tax Appeals (CTA) has jurisdiction to entertain an appeal without a final decision or assessment of the Commissioner of Internal Revenue.

  7. Whether or not the doctrines laid down in CIR v. Union Shipping Co. and Yabes v. Flojo are applicable to the cases at bar.

  8. Whether Criminal Case Nos. 94-1842 to 94-1846 should be reinstated for further proceedings before the trial court.

  9. Whether C.T.A. Case No. 5075 should be dismissed.

RULING:

  1. The affidavit attached to the criminal complaint cannot be considered as an assessment. The affidavit merely contained a computation of the taxpayers' tax liability and did not state a demand or a period for payment. It was addressed to the justice secretary, not to the taxpayers. An assessment must be sent to and received by the taxpayer, must demand payment of the taxes described therein within a specific period, and must be released, mailed, or sent by the collector of internal revenue to the taxpayer. The purpose of the affidavit was to support and substantiate the criminal complaint for tax evasion, not to be a notice of the tax due and a demand for payment.

  2. The filing of a criminal complaint does not necessarily have to be preceded by an assessment. Section 222 of the National Internal Revenue Code (NIRC) states that in cases where a false or fraudulent return is submitted or in cases of failure to file a return, proceedings in court may be commenced without an assessment. Furthermore, Section 205 of the NIRC allows for the simultaneous pursuit of civil and criminal aspects of a tax evasion case. The commissioner of internal revenue has discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do both. Thus, the criminal charge need only be supported by a prima facie showing of failure to file a required return and does not require an assessment.

  3. The recommendation letter of the Commissioner cannot be considered a formal assessment. It was not addressed to the taxpayers, there was no demand made on the taxpayers to pay the tax liability, nor a period for payment set therein, and the letter was never mailed or sent to the taxpayers by the Commissioner.

  4. The filing of the criminal complaints against the private respondents by the DOJ is not premature for lack of a formal assessment. Under Section 269 of the NIRC, when fraudulent tax returns are involved, a proceeding in court after the collection of such tax may be begun without assessment. In this case, the private respondents had already filed their tax returns and paid the taxes due, but there were preliminary findings of gross discrepancy and badges of fraud.

  5. The CTA has jurisdiction to take cognizance of both the criminal and civil cases. Under Republic Act No. 1125, as amended, the CTA has exclusive appellate jurisdiction to review decisions of the Commissioner on cases involving disputed assessments, refunds of internal revenue taxes, penalties, and other matters arising under the NIRC or other laws administered by the BIR.

  6. The CTA does not have jurisdiction to entertain an appeal without a final decision or assessment of the Commissioner of Internal Revenue.

  7. The doctrines laid down in CIR v. Union Shipping Co. and Yabes v. Flojo are not applicable to the cases at bar.

  8. Criminal Case Nos. 94-1842 to 94-1846 are reinstated for further proceedings before the trial court.

  9. C.T.A. Case No. 5075 is dismissed.

PRINCIPLES:

  • An assessment must be sent to and received by the taxpayer, demand payment within a specific period, and be released, mailed, or sent by the collector of internal revenue to the taxpayer.

  • Filing of a criminal complaint for tax evasion does not necessarily have to be preceded by an assessment. The commissioner of internal revenue has discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do both.

  • Proceedings in court may be commenced without an assessment in cases of false or fraudulent return or failure to file a return.

  • The civil and criminal aspects of a tax evasion case may be pursued simultaneously according to Section 205 of the NIRC.

  • An assessment is a written notice and demand made by the BIR on the taxpayer for the settlement of a due tax liability that is definitely set and fixed.

  • A written communication containing a computation by a revenue officer of the tax liability of a taxpayer and giving him an opportunity to contest or disprove the findings is not an assessment if it is yet indefinite.

  • When fraudulent tax returns are involved, a proceeding in court after the collection of such tax may be begun without assessment.

  • The filing of a criminal complaint for tax evasion does not require a formal assessment of the tax liability.

  • The CTA has jurisdiction to review decisions of the Commissioner on cases involving disputed assessments, refunds, penalties, and other matters arising under the NIRC or other laws administered by the BIR.

  • The power to decide disputed assessments, refunds, penalties, and other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue (BIR) is vested in the Commissioner of Internal Revenue, subject to the exclusive appellate jurisdiction of the CTA (Section 4, RA 1125).

  • The CTA has exclusive appellate jurisdiction over decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds, penalties, and other matters arising under the National Internal Revenue Code or other laws administered by the BIR (Section 7(a)(1), RA 9282).

  • The CTA has exclusive appellate jurisdiction over inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds, penalties, and other matters arising under the National Internal Revenue Code or other laws administered by the BIR, where the National Internal Revenue Code provides a specific period of action (Section 7(a)(2), RA 9282).

  • The CTA has jurisdiction over criminal offenses arising from violations of the National Internal Revenue Code or Tariff and Customs Code and other laws administered by the BIR or the Bureau of Customs. However, offenses where the principal amount of taxes and fees claimed is less than One million pesos or where there is no specified amount claimed shall be tried by the regular courts, and the jurisdiction of the CTA shall be appellate (Section 7(b)(1), RA 9282).

  • The CTA has jurisdiction over tax collection cases involving final and executory assessments for taxes, fees, charges, and penalties. However, collection cases where the principal amount of taxes and fees claimed is less than One million pesos shall be tried by the proper Municipal Trial Court, Metropolitan Trial Court, or Regional Trial Court (Section 7(c)(1), RA 9282).

  • The court may reinstate a criminal case for further proceedings if there is a valid reason to do so.

  • The court may dismiss a case if there is no valid ground to pursue it.