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CIR v. STANLEY WORKS SALES

FACTS:

The Commissioner of Internal Revenue (petitioner) filed a Petition for Review on Certiorari assailing the decision of the Court of Tax Appeals En Banc (CTA En Banc). The petitioner is the duly appointed officer of the Bureau of Internal Revenue (BIR) and the respondent is a domestic corporation engaged in the business of designing, manufacturing, and distributing hardware materials.

On January 1, 1979, the respondent and Stanley Works Agencies (Pte.) Limited, Singapore entered into a Representation Agreement, appointing the respondent as its sole agent for selling its products in the Philippines. On April 16, 1990, the respondent filed its Annual Income Tax Return for taxable year 1989, and on March 19, 1993, the BIR issued a Pre-Assessment Notice for deficiency income tax. The respondent received the PAN on March 29, 1993.

On April 12, 1993, the petitioner issued an Assessment Notice for deficiency income tax for taxable year 1989. The respondent received this notice on April 21, 1993. The respondent filed a protest letter on May 19, 1993, requesting reconsideration and cancellation of the assessment. On November 16, 1993, the respondent executed a "Waiver of the Defense of Prescription Under the Statute of Limitations of the National Internal Revenue Code" stating that it waived its right to raise the defense of prescription on the assessment and collection of deficiency taxes for the year 1989, but not after June 30, 1994.

Subsequently, the respondent requested the BIR Appellate Division to take cognizance of its protest and asserted that the dispute involved pure questions of law. The respondent also filed supplemental memoranda and submitted requested documents. On March 4, 2002, the respondent submitted a Supplemental Memorandum asserting that the petitioner's right to collect the deficiency income tax had prescribed.

On March 22, 2004, the petitioner rendered a Decision denying the respondent's request for reconsideration and ordering the payment of the deficiency income tax. The respondent received a copy of this decision on March 30, 2004, and filed a Petition for Review before the CTA.

The CTA First Division ruled that although the assessment was made within the prescribed period, the period to collect the deficiency income tax had already expired. The CTA En Banc affirmed this ruling, stating that the waiver executed by the respondent did not extend the prescriptive period for assessment and collection and that the petitioner failed to act within the prescribed period on the protest.

The issues raised in the present recourse are whether the petitioner's right to collect the deficiency income tax has prescribed and whether the respondent's actions constitute estoppel from setting up the defense of prescription.

ISSUES:

  1. Whether the Waiver executed by the respondent is valid and can extend the period to collect the assessed deficiency income taxes.

  2. Whether the lack of approval by the Commissioner of Internal Revenue (CIR) is a ground to consider the Waiver invalid.

  3. Whether the waiver of the statute of limitations on the assessment and collection of taxes is a unilateral act of the taxpayer or a bilateral agreement between the taxpayer and the BIR.

  4. Whether the repeated requests and positive acts of the taxpayer constituted estoppel and barred the BIR from setting up the defense of prescription.

  5. Whether or not the right to collect the deficiency income tax based on the assessment notice has prescribed.

RULING:

  1. The Court finds that the Waiver executed by the respondent is invalid. It fails to comply with the requirements set forth in Revenue Memorandum Order (RMO) No. 20-90, specifically the absence of the conformity of either petitioner or a duly authorized representative, the date of acceptance showing agreement before the expiration of the prescriptive period, and proof of furnishing a copy to the respondent.

  2. The lack of approval by the CIR is a ground to consider the Waiver invalid. The CIR's approval must be indicated through signing the waiver, indicating that the Bureau accepted and agreed to it. The CIR's approval cannot be implied from the acts of the BIR officials in response to the request for reinvestigation.

  3. The waiver of the statute of limitations on the assessment and collection of taxes is a bilateral agreement between the taxpayer and the BIR. The BIR must act on the waiver, either by conforming to or disagreeing with the extension. The waiver does not imply that the taxpayer relinquishes the right to invoke prescription unequivocally.

  4. The repeated requests and positive acts of the taxpayer did not constitute estoppel. The BIR failed to act promptly in resolving and denying the request for reconsideration filed by the taxpayer and in enforcing the collection on the assessment. The subsequent letters of the taxpayer were intended to urge the BIR to act on the protest, not to persuade the BIR to delay the actual collection. The right to enforce collection based on the assessment notice was not barred by prescription.

  5. The right to collect the deficiency income tax based on the assessment notice has prescribed.

PRINCIPLES:

  • The statute of limitations on the right to assess and collect a tax means that once the period established by law for the assessment and collection of taxes has lapsed, the government's corresponding right to enforce that action is barred.

  • 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 prescribed period.

  • A valid waiver of the statute of limitations must strictly conform to the requirements set forth in RMO No. 20-90, including proper form, signing by the taxpayer or authorized representative, notarization, signing by the CIR indicating acceptance, and execution before the expiration of the prescribed period.

  • The burden is on the BIR to ensure compliance with the requirements of the waiver, as they have the burden of securing the government's right to assess and collect tax deficiencies. Lack of action by the BIR cannot be used to benefit from an invalid waiver.

A waiver of the statute of limitations on the assessment and collection of taxes is a bilateral agreement between the taxpayer and the BIR. The purpose of the statute of limitations is to benefit both the taxpayer and the government by providing stability and assurance against unscrupulous tax agents. The BIR's failure to act promptly may prevent it from invoking the defense of prescription.

  • The prescriptive period for the collection of deficiency income tax is ten years from the date of assessment.