TAXATION 2 1

Tax Remedies – When distraint or levy is made without authority of law – Prescription

CIR v. AVELINO AND CTA

November 19, 1956 | J. Bautista Angelo

Petitioner(s): THE COLLECTOR OF INTERNAL REVENUE

Respondent(s): JOSE AVELINO and COURT OF TAX APPEALS

Doctrine: The court may in the sound use of its discretion to suspend by injunction the collection of taxes
by the CIR and at the same time not require the taxpayer to file a bond if the method employed by the
CIR is not sanctioned by law.

CASE SUMMARY
Trigger Word(s): After 5 years at saka lang naningil CIR – nag-prescribe na  judicial na dapat
FACTS: Jose Avelino filed income tax returns for 1946 and 1948. After more than 5 years, the CIR demanded from
Avelino the payment of deficiency income taxes for the years 1946 and 1948. Avelino failed to pay thus the CIR
issued warrants of garnishment, distraint and levy. Avelino's properties were seized and set for public auction.
Avelino filed a petition with the CTA, praying that the CIR be enjoined from proceeding with the sale of his properties
and that the assessment made by him be reviewed. CTA declared the warrants void and ordered the CIR from
collecting through summary administrative methods the deficiency income taxes. The CIR brought the case before
the SC, arguing that it should not be barred from collecting the taxes in question through the summary administrative
methods; that the court cannot prevent the CIR from collecting taxes through injunction, especially wherein the
taxpayer was not required by the Court either to deposit the amount claimed or to file a surety bond for not more than
double the amount with the Court, as provided under Sec. 11, RA 1125.

W/N the CIR was correctly barred from collecting through summary administrative methods the deficiency
taxes in question – YES

HELD: Sec. 51(d) of the NIRC provides that “In cases of refusal or neglect to make a return and in case of erroneous,
false, or fraudulent returns, the Collector of Internal Revenue shall, upon the discovery thereof, at any time within
three years after said return is due, or has been made, make a return upon information obtained as provided for in
this code or by existing law x x x.” The Court has interpreted this in a long line of cases (including Philippine Sugar
Estate Development Co., Inc. v. Posadas) that the government loses its rights to collect the income tax by summary
proceedings after three years have elapsed from the time the income tax return is filed, although it may still collect the
tax by judicial action. IN THIS CASE, since, admittedly, the deficiency taxes in question were assessed and the
warrants for their collection by distraint and levy were issued after the period of three years from the filing of the
returns, it is evident that said warrants, as well as the steps taken in connection with the sale of the properties of the
taxpayer, were issued without authority of law and hence, the Court of Tax Appeals acted properly in enjoining their
enforcement.

W/N the CIR erred in enjoining the collection of the CIR through administrative means and in not requiring
Avelino to put up a bond while granting the same – NO

The Court held that the case is not concerned with an injunction to restrain the collection of tax but with one to
restrain the exercise of the right to collect it by distraint and levy. What is prohibited is the injunction against judicial
collection which is not the case here, for what the court merely enjoined is the enforcement by distraint and levy
which was found to be in violation of the law. Further, under Sec. 11, RA 1125, if the collection by the BIR or the
Commissioner of Customs may jeopardize the interest of the Government and/or the taxpayer the Court at any stage
of the proceeding, the Court may suspend the said collection and require the taxpayer either to deposit the amount
claimed or to file a surety bond for not more than double the amount with the Court. The SC held that in this case, it is
improper and illogical to require the filing of the bond by Avelino, given the finding that the method employed by the
CIR is not sanctioned by law. (See Doctrine) (Concurring and Dissenting opinion of J. J.B.L. Reyes)

FACTS
 Jose Avelino filed his income tax returns for 1946 and 1948 on February 28, 1947 and April 20,
1949, respectively.
 May 24, 1954 (5 years and 35 days after the last of the 2 returns was filed), the CIR demanded
from Avelino the payment of deficiency income taxes for years 1946 and 1948 (P83,212.63)
 Avelino failed to pay. The CIR then issued a warrant of garnishment, followed by another warrant
of distraint and levy. As a result, Avelino's properties were seized and their sale for public auction
was set on May 25, 1955.

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Tax Remedies – When distraint or levy is made without authority of law – Prescription

 April 28, 1955 – Avelino filed an urgent petition with the CTA, praying that the CIR be enjoined
from proceeding with the sale of his properties and that the assessment made by him be
reviewed.
 The CTA declared the warrants of garnishment, as well as of distraint and levy, including the
seizure and notice of sale of the properties of Jose Avelino, null and void, and ordered the CIR to
desist from collecting “through summary administrative methods” the deficiency income taxes
which were assessed for the years 1946 and 1948.
 CIR then interposed the present petition for review before the SC.CIR argues:
o CTA erred in applying Sec. 51(d), NIRC, holding that CIR is barred from collecting
through summary administrative methods of distraint and levy the subject deficiency
income taxes
o CTA erred in restraining the CIR from collecting through summary administrative
methods the deficiency income taxes, without requiring a bond in accordance with Sec.
11 of RA 1125.

ISSUES + HELD
ISSUE #1: W/N the CIR was correctly barred from collecting through summary administrative
methods the deficiency taxes in question – YES
 Sec. 51(d) of the NIRC provides that “In cases of refusal or neglect to make a return and in case
of erroneous, false, or fraudulent returns, the Collector of Internal Revenue shall, upon the
discovery thereof, at any time within three years after said return is due, or has been made, make
a return upon information obtained as provided for in this code or by existing law x x x.”
o The Court has interpreted this in a long line of cases (including Philippine Sugar Estate
Development Co., Inc. v. Posadas) that the government loses its rights to collect the
income tax by summary proceedings after three years have elapsed from the time the
income tax return is filed, although it may still collect the tax by judicial action.
 IN THIS CASE, since, admittedly, the deficiency taxes in question were assessed and the
warrants for their collection by distraint and levy were issued after the period of three years from
the filing of the returns, it is evident that said warrants, as well as the steps taken in connection
with the sale of the properties of the taxpayer, were issued without authority of law and hence, the
Court of Tax Appeals acted properly in enjoining their enforcement.
 While Secs. 331 and 332, NIRC provide that the CIR may assess and internal revenue tax within
5 years after the return was filed, and in case of fraudulent return he may also assess such tax as
may be found due at any time within 10 years after discovery of the falsity, fraud or omission, and
their collection may be enforced either by distraint or levy or by a proceeding in court, said
sections merely apply to internal revenue taxes in general and not to income taxes, the collection
of which is specifically provided for under a different title of the same law.
o When the Income Tax Law was incorporated in the NIRC, Sec. 51(d) was carried with it
(it was a reproduction of Sec. 9(a) of the former Income Tax Law) Meanwhile, nothing in
the NIRC provided that Sec. 51(d) were deemed repealed or modified by Secs. 331 and
332.
o Harmonizing the provisions, the Court concluded that while both provisions remain
binding, Sec. 51(d) is special and particularly applicable to income tax while Secs. 331
and 332 are general and they apply to other kinds of internal revenue taxes. To hold
otherwise would be to render nugatory and meaningless Sec. 51(d) of the NIRC, a
conclusion not warranted by the circumstances, since it cannot be presumed that
Congress has adopted it merely through an oversight.

ISSUE #2: W/N the CTA erred in enjoining the collection through administrative means and in not
requiring Avelino to put up a bond – NO
 It is the theory of the Solicitor General that the CTA has no power to restrain the Collector from
proceedings with the distraint and levy to enforce their collection for that would be a violation of
the principle that the collection of taxes cannot be restrained by injunction, and assuming that it
can do so it can only hold the collection after requiring the taxpayer either to deposit the amount
claimed or to file a bond for not more than double that amount.

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Tax Remedies – When distraint or levy is made without authority of law – Prescription

o Sec. 305, NIRC: “No court shall have authority to grant an injunction to restrain the
collection of any national internal revenue tax, fee, or charge imposed by this code”
o Churchill and Tait v. Raffert; Sarsola v. Trinidad: The authority to issue injunction is
“limited, as in other cases where equitable relief is sought, to those cases where there is
no ‘plain, adequate, and complete remedy at law’ , which will not be granted while the
rights between the parties are undetermined, except in extraordinary cases where
material and irreparable injury will be done”, which cannot be compensated in damages
 SC:
o These authorities are not here controlling, for we are not here concerned with an
injunction to restrain the collection of tax but with one to restrain the exercise of the right
to collect it by distraint and levy. What is prohibited is the injunction against judicial
collection which is not the case here, for what the court merely enjoined is the
enforcement by distraint and levy which was found to be in violation of the law.
o Further, the Court's action may also be justified under Sec. 11, RA 1125 which
provides: “No appeal taken to the CTA from the decision of the CIR or the Collector of
Customs shall suspend the payment, levy, distraint, and/or sale of any property of the
taxpayer for the satisfaction of his tax liability as provided by existing law: Provided,
however, That when in the opinion of the Court the collection by the BIR or the
Commissioner of Customs may jeopardize the interest of the Government and/or the
taxpayer the Court at any stage of the proceeding may suspend the said collection and
require the taxpayer either to deposit the amount claimed or to file a surety bond for not
more than double the amount with the Court.”
 Thus, when in the opinion of the court the collection of the tax by the Collector of
Internal Revenue may jeopardize the interest of the taxpayer it may, at any stage
of the proceeding, suspend the collection and require the taxpayer either to
deposit the amount claimed or file a surety bond for not more than double the
amount with the court.
o While the CTA did not require the taxpayer to deposit the amount claimed or to file a
bond as required by law before granting the relief, the SC found the same justified.
Considering that the CIR's action was found to be contrary to law, to require a bond
would be illogical and improper.
 Supposing the Court required Avelino to file a bond, and Avelino fails to file the
same, should the CIR then be allowed to collect through administrative methods
which methods the Court has held to be illegal?
 The SC upheld the CTA's ruling that under Sec. 11, RA 1125, the court may in
the sound use of its discretion to suspend by injunction the collection of taxes by
the CIR and at the same time not require the taxpayer to file a bond if the method
employed by the CIR is not sanctioned by law.

RULING: CTA affirmed.

CONCURRING AND DISSENTING OPINION:

Justice J.B.L. Reyes (Back)
 I concur with the decision in so far as it holds that after the lapse of three years the Collector of
Internal Revenue may not enforce collection of deficiency income taxes by extra-judicial distraint
and levy. But I disagree from the proposition that the Court of Tax Appeals may suspend the
collection of taxes without requiring the taxpayer to post a bond or deposit the amount of the
taxes claimed.
 It is very obvious that the law permits the suspension of the tax collection only upon deposit or
bond, as an assurance that the tax- payer would not become insolvent and the taxes becomes
uncollectible during the pendency of the proceedings. Being an exception to the general rule that
collection of taxes should not be interfered with, section 11 should be given strict interpretation.

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