ST. LUKE’S MEDICAL CENTER, INC. V.
COMMISSIONER OF INTERNAL REVENUE
(CTA Case No. 7340, August 24, 2009)
Is a waiver of the statute of limitation executed after the expiration of the ordinary prescriptive periods for assessment and collection, and which does not state a definite period of extension, valid?
On April 15, 1986 and April 15, 1987, St. Luke’s filed its profit and loss statement and balance sheet for the taxable year 1985 and 1986 respectively.
Pursuant to a Letter of Authority (LOA) dated February 26, 1988, the BIR conducted an investigation to ascertain the tax liabilities of petitioner for said taxable years.
St. Luke’s executed a Waiver of the Defense of
Prescription for the taxable year 1985.
On April 11, 1990, St. Luke’s received final assessment notices for 1985 and 1986 deficiency income tax and deficiency expanded withholding tax.
On May 25, 1990, St. Luke’s filed an administrative protest. The BIR, then, cancelled the 1985 and 1986 income tax deficiency, but affirmed the 1985 and 1986 withholding tax deficiency.
Thus, St. Luke’s filed this present Petition for Review.
Period to Assess
According to the then 268 and 269 of the Tax Code, the BIR had a period of 3 years, or 10 years in case of false or fraudulent return, after the last day prescribed by law for the filing of return to assess deficiency taxes from St. Luke’s.
As for the 10 year period of assessment to apply, the filing of false returns must be with intent to evade tax. As found by the Revenue Examiner, however, there was no showing that St. Luke’s filed a false Annual Returns for withholding taxes nor was there intention to evade tax. Hence, the BIR had only until April 15, 1989 and April 15, 1990, respectively, to assess petitioner.
Since the assessments were received by St. Luke’s beyond April 15, 1990, the BIR’s right to assess it has already prescribed, regardless of the execution of a Waiver of Defense of Prescription .
Requisites for a Valid Waiver of Statute of Limitations
A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, must be:
(1) in writing;
On April 11, 1990, St. Luke’s received final assessment notices for 1985 and 1986 deficiency income tax and deficiency expanded withholding tax.
On May 25, 1990, St. Luke’s filed an administrative protest. The BIR, then, cancelled the 1985 and 1986 income tax deficiency, but affirmed the 1985 and 1986 withholding tax deficiency.
Thus, St. Luke’s filed this present Petition for Review.
Period to Assess
According to the then 268 and 269 of the Tax Code, the BIR had a period of 3 years, or 10 years in case of false or fraudulent return, after the last day prescribed by law for the filing of return to assess deficiency taxes from St. Luke’s.
As for the 10 year period of assessment to apply, the filing of false returns must be with intent to evade tax. As found by the Revenue Examiner, however, there was no showing that St. Luke’s filed a false Annual Returns for withholding taxes nor was there intention to evade tax. Hence, the BIR had only until April 15, 1989 and April 15, 1990, respectively, to assess petitioner.
Since the assessments were received by St. Luke’s beyond April 15, 1990, the BIR’s right to assess it has already prescribed, regardless of the execution of a Waiver of Defense of Prescription .
Requisites for a Valid Waiver of Statute of Limitations
A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, must be:
(1) in writing;
(2) agreed by both the Commissioner and the
taxpayer;
(3) before the expiration of the ordinary prescriptive periods of assessment and collection; and
(4) for a definitive period beyond the ordinary prescriptive periods for assessment and collection. The period agreed upon can still be extended by subsequent written agreement, provided that it is executed prior to the expiration of the first period agreed upon.
Here, the waiver shows that it was executed after the expiration of the ordinary prescriptive periods for assessment and collection; and did not state a definite period beyond the ordinary prescriptive periods for assessment and collection.
For the purpose of safeguarding taxpayers from any unreasonable examination, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed.3
Here, the respondent CIR did not strictly comply with the requisites for a valid waiver, hence it is declared invalid and without effect.
(3) before the expiration of the ordinary prescriptive periods of assessment and collection; and
(4) for a definitive period beyond the ordinary prescriptive periods for assessment and collection. The period agreed upon can still be extended by subsequent written agreement, provided that it is executed prior to the expiration of the first period agreed upon.
Here, the waiver shows that it was executed after the expiration of the ordinary prescriptive periods for assessment and collection; and did not state a definite period beyond the ordinary prescriptive periods for assessment and collection.
For the purpose of safeguarding taxpayers from any unreasonable examination, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed.3
Here, the respondent CIR did not strictly comply with the requisites for a valid waiver, hence it is declared invalid and without effect.
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