G.R. No.

L-29485 November 21, 1980

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
AYALA SECURITIES CORPORATION and THE HONORABLE COURT OF TAX APPEALS,
respondents.
*Imprescriptibility of Taxes
FACTS:
Before the Court is petitioner Commissioner of Internal Revenue's motion for reconsideration
of the Court's decision of April 8, 1976 wherein the Court affirmed in toto the appealed
decision of respondent Court of Tax Appeals: cancelled and declared of no force and effect.
This Court's decision under reconsideration held that the assessment made on February 21,
1961 by petitioner against respondent corporation (and received by the latter on March 22,
1961) in the sum of P758,687.04 on its surplus of P2,758,442.37 for its fiscal year ending
September 30, 1955 fell under the five-year prescriptive period provided in section 331 of
the National Internal Revenue Code and that the assessment had, therefore, been made
after the expiration of the said five-year prescriptive period and was of no binding force and
effect .
Ayala Securities Corp filed its ITR w/ the CIR for the fiscal year w/c ended on Sept 30, 1955.
Attached to its ITR was the audited financial statements showing a surplus of P2M+. Income
tax due on the return was duly paid w/in the period prescribed by law. CIR then advised
Ayala for the assessment of P758k unpaid tax on its accumulated surplus.
Ayala protested ate assessment and sought reconsideration given that the accumulation was
1) for a bona fide business purpose and not to avoid imposition of tax, and 2) assessment
was issued beyond 5 yrs. CTA and SC both held that the assessment was made beyond the
5-year period and thus had no binding force and effect.
ISSUE:
Whether or not the assessment was done beyond the prescriptive period
HELD: YES.
In this case, the applicable provision is NOT Sec 332a but Sec 331. Sec 332 should apply
when there is fraud / falsity on the return with intent to evade payment of tax. There is no
evidence presented by the CIR in this case as to any fraud/falsity on the return w/ intent to
avoid payment. Fraud is a question of fact, circumstances must be proven and alleged.
In this case, the assessment issued on Feb 21, 1961, received by Ayala on March 22, 1961,
was made BEYOND the 5 year period prescribed under Sec331 (Ayala could file its income
tax on or before Jan 1956 thus, assessment must be made NOT later than Jan 1961). Thus,
it was no longer binding on Ayala Securities.