Bureau of Internal Revenue

-Summary Methods of Distraint and Levy

CIR vs. Reyes and CTA

G.R. No. L-8685

January 31, 1957

Facts:

In a letter, CIR demanded from Reyes payment of his alleged deficiency income taxes, surcharges,
interests and penalties for the tax years 1946 to 1950 with the suggestion that the aforesaid tax
liabilities be paid either to the BIR or the City Treasurer of Manila. Together with said letter, Reyes
received a warrant of distraint and levy on his properties in the event that he should fail to pay the
alleged deficiency income taxes on or before October 31, 1954. Reyes filed with CTA a petition for
review of the Collector’s assessment of his alleged deficiency income tax liabilities. This was followed by
an urgent petition, filed to restrain the CIR from executing the warrant of distraint and levy on his
properties, alleging among others, that the right of respondent to collect by summary proceedings the
tax demanded had already prescribed in accordance with section 51 (d) of the NIRC, as his income tax
returns for the tax years 1946 to 1950 had been filed more than 3 years ago; that a distraint and levy on
his properties would work injustice or irreparable injury to him and would tend to render any judgment
of the Court in the main case meaningless and ineffectual; that the requisite of Section 11 of Republic
Act No. 1125 for the filing of a bond or deposit before a writ of distraint and levy may be suspended is
not applicable in this case; that the greater portion of his assets consists of real properties located in
Manila and shares of stock in the Philippine Racing Club which are all encumbered in various financial
institutions and therefore there is no possibility that he would abscond with his property or remove or
conceal the same. CIR opposed said petition on the ground that the CTA has no authority to restrain
executing the warrant of distraint and levy on the properties of Reyes. In a resolution, CTA ordered CIR
to desist from collecting by administrative method the taxes allegedly due. CIR filed a petition for review
by certiorari of said resolution.
Issue:

(1) Whether CTA could restrain CIR from enforcing collection of income tax deficiency by sum mary
proceedings after the expiration of the 3-year period provided for in section 51 (d) of the NIRC.

(2) Granting that the CIR could be restrained, whether CTA had any power to grant an injunction
without requiring the filing of a bond or making a deposit as prescribed by section 11 of
Republic Act No. 1125.

Held:

(1) No. In the collection of income tax, it is mandatory that the right of the Collector of Internal
Revenue to collect it by the summary methods of distraint and levy be exercised within the
period of three years from the time the income tax return is filed, otherwise the right can only
be enforced by judicial action, Where, as in the present case, the deficiency income taxes were
assessed and the warrants for their collection by distraint and levy were issued after the three-
year prescriptive period, said warrants, as well as the steps taken in connection with the sale of
the properties of the taxpayer were issued without authority of the law and, hence, the Court of
Tax Appeals could properly enjoin their enforcement.

(2) Yes. Section 11 means that the requirement of the bond as a condition precedent to the
issuance of the writ of injunction applies only in cases where the processes by which the
collection sought to be made by means thereof are carried out in consonance with the law for
such cases provided and not when said processes are obviously in violation of the law to the
extreme that they have to be suspended for jeopardizing the interests of the taxpayer. Section
11 of RA 1125 is therefore premised on the assumption that the collection by summary
proceedings is by itself in accordance with existing law; and then what is suspended is the act of
collecting,whereas, in this case, what CTA suspended was the use of the method employed to
verify the collection which was evidently illegal after the lapse of the 3-year limitation period.
CTA issued the injunction in question on the basis of its findings that the means intended to be
used by CIR in the collection of the alleged deficiency taxes were in violation of law.