5. Aznar Vs Cta.docx

Case Name: Aznar vs. CTA Doctrine: Whenever the government is placed at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities due to false returns, fraudulent return intended to evade payment of tax or failure to file returns, the period of ten years provided for in Sec. 332 (a) NIRC, from the time of the discovery of the falsity, fraud or omission even seems to be inadequate and should be the one enforced. Facts: Petitioner, as administrator of the estate of the deceased, Matias H. Aznar, seeks a review and nullification of the decision of the CTA ordering the petitioner to pay the government the sum of P227,691.77 representing deficiency income taxes for the years 1946 to 1951 with the condition that if the said amount is not paid within 30 days from the date the decision becomes final, there shall be added to the unpaid amount the surcharge of 5%, plus interest at the rate of 12% per annum from the date of delinquency to the date of payment, in accordance with Section 51 NIRC.    

 

The late Matias H. Aznar died on May 18, 1958, and his predecessor in interest, herein petitioner, during his lifetime filed his income tax returns CIR, having his doubts on the veracity of the reported income of one obviously wealthy caused B.I.R. Examiner Honorio Guerrero to ascertain the taxpayer's true income for said years The assets and liabilities of the taxpayer during the above-mentioned years were ascertained and it was discovered that from 1946 to 1951, his net worth had increased every year. Taxpayer did not declare correctly the income reported in his income tax returns for the aforesaid years and on February 20, 1953, respondent Commissioner of Internal Revenue, thru the City Treasurer of Cebu, placed the properties of Matias H. Aznar under distraint and levy to secure payment of the deficiency income tax in question Matias H. Aznar filed his petition for review to restrain respondent from collecting the deficiency tax by summary method. The Court set aside the C.T.A. resolution and required the petitioner to deposit with the CTA the amount demanded by the Commissioner of Internal Revenue for the years 1949 to 1951 or furnish a surety bond

Petitioner argues that Sec. 332 of the NIRC does not apply because the taxpayer did not file false and fraudulent returns with intent to evade tax, while respondent Commissioner of Internal Revenue insists with the CTA concluding that the very "substantial under declarations of income for six consecutive years eloquently demonstrate the falsity or fraudulence of the income tax returns with an intent to evade the payment of tax. Issue: WON CIR has the right to assess the deficiency taxes late Matias H. Aznar for the years 1946, 1947, and 1948 had already prescribed at the time the assessment was made on November 28, 1952 Held: Yes, it is still within the prescription period of 10 years. The Court believes that the proper and reasonable interpretation of said provision should be that in the three different cases of (1) false return, (2) fraudulent return with intent to evade tax, (3) failure to file a return, the tax may be assessed, or a proceeding in court for

the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the (1) falsity, (2) fraud, (3) omission. The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of the NIRC should be applicable to normal circumstances, but whenever the government is placed at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities due to false returns, fraudulent return intended to evade payment of tax or failure to file returns, the period of ten years provided for in Sec. 332 (a) NIRC, from the time of the discovery of the falsity, fraud or omission even seems to be inadequate and should be the one enforced. There being undoubtedly false tax returns in this case, The Court affirms the conclusion of the respondent Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that the period of ten years within which to assess petitioner's tax liability had not expired at the time said assessment was made The Court also ruled to remove the imposition of the 50% penalty surcharge. The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right. A mere mistake cannot be considered as fraudulent intent