FIRST DIVISION

[G.R. NO. 120935 : May 21, 2009]

LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON, and SARA S. DE LOS REYES, in their
capacities as President, Treasurer and Secretary of Adamson Management
Corporation, Petitioners, v.COURT OF APPEALS and LIWAYWAY VINZONS-CHATO, in her
capacity as Commissioner of the Bureau of Internal Revenue,Respondents.

[G.R. NO. 124557 : May 21, 2009]

INTERNAL REVENUE, Petitioner, v. COMMISSIONER OF COURT OF APPEALS, COURT OF TAX

APPEALS, ADAMSON MANAGEMENT CORPORATION, LUCAS G. ADAMSON, THERESE JUNE
D. ADAMSON, and SARA S. DE LOS REYES, Respondents.

Before the Court are the consolidated cases of G.R. No. 120935 and G.R. No. 124557.

FACTS:

On June 20, 1990, Lucas Adamson and AMC sold 131,897 common shares of
stock in Adamson and Adamson, Inc. (AAI) to APAC Holding Limited (APAC). The shares
were valued at P7,789,995.00.[1] On June 22, 1990, P159,363.21 was paid as capital gains
tax for the transaction.

On October 12, 1990, AMC sold to APAC Philippines, Inc. another 229,870
common shares of stock in AAI for P17,718,360.00. AMC paid the capital gains tax
of P352,242.96.

On October 15, 1993, the Commissioner issued a Notice of Taxpayer to AMC,

Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes, informing them
of deficiencies on their payment of capital gains tax and Value Added Tax (VAT). The
notice contained a schedule for preliminary conference.

The events preceding G.R. No. 120935 are the following:

On October 22, 1993, the Commissioner filed with the Department of Justice
(DOJ) her Affidavit of Complaint[2] against AMC, Lucas G. Adamson, Therese June D.
Adamson and Sara S. de los Reyes for violation of Sections 45 (a) and (d)[3], and 110[4],
in relation to Section 100[5], as penalized under Section 255,[6] and for violation of
Section 253[7], in relation to Section 252 (b) and (d) of the National Internal Revenue
Code (NIRC).[8]

AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes
filed with the DOJ a motion to suspend proceedings on the ground of prejudicial
question, pendency of a civil case with the Supreme Court, and pendency of their
letter-request for re-investigation with the Commissioner.

On April 29, 1994, Lucas G. Adamson, Therese June D. Adamson and Sara S. de
los Reyes were charged before the Regional Trial Court (RTC) of Makati, Branch 150 in
Criminal Case Nos. 94-1842 to 94-1846. They filed a Motion to Dismiss or Suspend the
Proceedings. They invoked the grounds that there was yet no final assessment of their
tax liability, and there were still pending relevant Supreme Court and CTA cases.
 Initially, the trial court denied the motion It further held that the said cases
cannot proceed independently of the assessment case pending before the CTA, which
has jurisdiction to determine the civil and criminal tax liability of the respondents therein.

On October 10, 1994, the Commissioner filed a Petition for Review with the Court
of Appeals assailing the trial courts dismissal of the criminal cases. She averred that it
was not a condition prerequisite that a formal assessment should first be given to the
private respondents before she may file the aforesaid criminal complaints against
them. She argued that the criminal complaints for tax evasion may proceed
independently from the assessment cases pending before the CTA.

On March 21, 1995, the Court of Appeals reversed the trial courts decision and
reinstated the criminal complaints.

In parallel circumstances, the following events preceded G.R. No. 124557:

On December 1, 1993, AMC, Lucas G. Adamson, Therese June D. Adamson and

Sara S. de los Reyes filed a letter request for re-investigation with the Commissioner of
the Examiners Findings earlier issued by the Bureau of Internal Revenue (BIR), which
pointed out the tax deficiencies.

On March 15, 1994 before the Commissioner could act on their letter-request,
AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed a
Petition for Review with the CTA. They assailed the Commissioners finding of tax evasion
against them. It considered the criminal complaint filed by the Commissioner with the
DOJ as an implied formal assessment, and the filing of the criminal informations with the
RTC as a denial of petitioners protest regarding the tax deficiency.

The Commissioner repaired to the Court of Appeals on the ground that

the CTA acted with grave abuse of discretion. She contended that, with regard to the
protest provided under Section 229 of the NIRC, there must first be a formal assessment
issued by the Commissioner, and it must be in accord with Section 6 of Revenue
Regulation No. 12-85.

She maintained that she had not yet issued a formal assessment of tax liability,
and the tax deficiency amounts mentioned in her criminal complaint with the DOJ
were given only to show the difference between the tax returns filed and the audit
findings of the revenue examiner.

ISSUES:

1. WHETHER THE COMMISSIONER HAS ALREADY RENDERED AN

ASSESSMENT (FORMAL OR OTHERWISE) OF THE TAX LIABILITY OF
AMC, LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON AND SARA
S. DE LOS REYES;

2. WHETHER THERE IS BASIS FOR THE CRIMINAL CASES FOR TAX

EVASION TO PROCEED AGAINST AMC, LUCAS G. ADAMSON,
THERESE JUNE D. ADAMSON AND SARA S. DE LOS REYES; and

3. WHETHER THE COURT OF TAX APPEALS HAS JURISDICTION TO

TAKE COGNIZANCE OF BOTH THE CIVIL AND THE CRIMINAL ASPECTS
OF THE TAX LIABILITY OF AMC, LUCAS G. ADAMSON, THERESE JUNE
D. ADAMSON AND SARA S. DE LOS REYES.
LAWS

 Section 269 of the NIRC (now Section 222 of the Tax Reform Act of 1997) provides:

Sec. 269. Exceptions as to period of limitation of assessment and collection

of taxes.-(a) In the case of a false or fraudulent return with intent to evade
tax or of failure to file a return, the tax may be assessed, or a proceeding
in court after the collection of such tax may be begun without
assessment, at any time within ten years after the discovery of the falsity,
fraud or omission: Provided, That in a fraud assessment which has become
final and executory, the fact of fraud shall be judicially taken cognizance
of in the civil or criminal action for collection thereof.

 Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals) as
amended, the rulings of the Commissioner are appealable to the CTA, thus:

SEC. 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive appellate
jurisdiction to review by appeal, as herein provided -

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed
in relation thereto, or other matters arising under the National Internal Revenue Code or
other laws or part of law administered by the Bureau of Internal Revenue;

 Republic Act No. 8424, titled An Act Amending the National Internal Revenue
Code, As Amended, And For Other Purposes, later expanded the jurisdiction of
the Commissioner and, correspondingly, that of the CTA, thus:

SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. The
power to interpret the provisions of this Code and other tax laws shall be under the
exclusive and original jurisdiction of the Commissioner, subject to review by the
Secretary of Finance.

The power to decide disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties imposed in relation thereto, or other matters arising under this
Code or other laws or portions thereof administered by the Bureau of Internal Revenue
is vested in the Commissioner, subject to the exclusive appellate jurisdiction
of the Court of Tax Appeals.

 The latest statute dealing with the jurisdiction of the CTA is Republic Act No.
9282.[26] It provides:

SEC. 7. Section 7 of the same Act is hereby amended to read as follows:

Sec. 7. Jurisdiction. The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue or other
laws administered by the Bureau of Internal Revenue;

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue Code or
other laws administered by the Bureau of Internal Revenue, where the National Internal
Revenue Code provides a specific period of action, in which case the inaction shall be
deemed a denial;

(3) Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally
decided or resolved by them in the exercise of their original or appellate jurisdiction;
xxx

(b) Jurisdiction over cases involving criminal offenses as herein provided:

(1) Exclusive original jurisdiction over all criminal offenses arising from violations of the
National Internal Revenue Code or Tariff and Customs Code and other laws
administered by the Bureau of Internal Revenue or the Bureau of Customs: Provided,
however, That offenses or felonies mentioned in this paragraph where the principal
amount of taxes and fees, exclusive of charges and penalties, claimed is less than One
million pesos (P1,000,000.00) or where there is no specified amount claimed shall be
tried by the regular courts and the jurisdiction of the CTA shall be appellate. Any
provision of law or the Rules of Court to the contrary notwithstanding, the criminal
action and the corresponding civil action for the recovery of civil liability for taxes and
penalties shall at all times be simultaneously instituted with, and jointly determined in the
same proceeding by the CTA, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to reserve the filling of
such civil action separately from the criminal action will be recognized.

(2) Exclusive appellate jurisdiction in criminal offenses:

(a) Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in
tax cases originally decided by them, in their respected territorial jurisdiction.

(b) Over petitions for review of the judgments, resolutions or orders of the Regional Trial
Courts in the exercise of their appellate jurisdiction over tax cases originally decided by
the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in
their respective jurisdiction.

(c) Jurisdiction over tax collection cases as herein provided:

(1) Exclusive original jurisdiction in tax collection cases involving final and executory
assessments for taxes, fees, charges and penalties: Provided, however, That collection
cases where the principal amount of taxes and fees, exclusive of charges and
penalties, claimed is less than One million pesos (P1,000,000.00) shall be tried by the
proper Municipal Trial Court, Metropolitan Trial Court and Regional Trial Court.

(2) Exclusive appellate jurisdiction in tax collection cases:

(a) Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in
tax collection cases originally decided by them, in their respective territorial jurisdiction.

(b) Over petitions for review of the judgments, resolutions or orders of the Regional Trial
Courts in the exercise of their appellate jurisdiction over tax collection cases originally
decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit
Trial Courts, in their respective jurisdiction.

ARGUMENTS

PETITIONERS: They invoked the grounds that there was yet no final assessment of their
tax liability, and there were still pending relevant Supreme Court and CTA cases. It
further held that the said cases cannot proceed independently of the assessment case
pending before the CTA, which has jurisdiction to determine the civil and criminal tax
liability of the respondents therein.

RESPONDENT: The Commissioner denied that she issued a formal assessment of the tax
liability of AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los
Reyes. She admits though that she wrote the recommendation letter[22] addressed to
the Secretary of the DOJ recommending the filing of criminal complaints against AMC
and the aforecited persons for fraudulent returns and tax evasion.
SUPREME COURT RULING

FIRST ISSUE: NO.

In the context in which it is used in the NIRC, an assessment is a written notice
and demand made by the BIR on the taxpayer for the settlement of a due tax
liability that is there definitely set and fixed. A written communication containing a
computation by a revenue officer of the tax liability of a taxpayer and giving him an
opportunity to contest or disprove the BIR examiners findings is not an assessment
since it is yet indefinite.[23]

We rule that the recommendation letter of the Commissioner cannot be

considered a formal assessment. Even a cursory perusal of the said letter would reveal
three key points:

1. It was not addressed to the taxpayers.

2. There was no demand made on the taxpayers to pay the tax liability,
nor a period for payment set therein.
3. The letter was never mailed or sent to the taxpayers by the Commissioner.
In fine, the said recommendation letter served merely as the prima facie basis for filing
criminal informations that the taxpayers had violated Section 45 (a) and (d), and 110, in
relation to Section 100, as penalized under Section 255, and for violation of Section 253,
in relation to Section 252 9(b) and (d) of the Tax Code.[24]

SECOND ISSUE: YES.

THERE IS BASIS FOR FOR THE CRIMINAL CASES FOR TAX EVASION TO PROCEED
AGAINST AMC, LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON AND SARA S. DE LOS
REYES IN ACCORDANCE TO SECTION 269 OF THE NIRC (NOW SECTION 222 OF THE TAX
REFORM ACT OF 1997).

The law is clear. When fraudulent tax returns are involved as in the cases at bar, a
proceeding in court after the collection of such tax may be begun without assessment.
Here, the private respondents had already filed the capital gains tax return and the VAT
returns, and paid the taxes they have declared due therefrom. Upon investigation of
the examiners of the BIR, there was a preliminary finding of gross discrepancy in the
computation of the capital gains taxes due from the sale of two lots of AAI shares, first
to APAC and then to APAC Philippines, Limited. The examiners also found that the VAT
had not been paid for VAT-liable sale of services for the third and fourth quarters of
1990.Arguably, the gross disparity in the taxes due and the amounts actually declared
by the private respondents constitutes badges of fraud.

Thus, the applicability of Ungab v. Cusi[25] is evident to the cases at bar. In this
seminal case, this Court ruled that there was no need for precise computation and
formal assessment in order for criminal complaints to be filed against him. It quoted
Mertens Law of Federal Income Taxation, Vol. 10, Sec. 55A.05, p. 21, thus:

An assessment of a deficiency is not necessary to a criminal

prosecution for willful attempt to defeat and evade the income tax. A
crime is complete when the violator has knowingly and willfully filed a
fraudulent return, with intent to evade and defeat the tax. The
perpetration of the crime is grounded upon knowledge on the part of the
taxpayer that he has made an inaccurate return, and the governments
failure to discover the error and promptly to assess has no connections
with the commission of the crime.

This hoary principle still underlies Section 269 and related provisions of the present Tax
Code.
 THIRD ISSUE: NO.

While the laws governing the CTA have expanded the jurisdiction of the Court,
they did not change the jurisdiction of the CTA to entertain an appeal only from a final
decision of the Commissioner, or in cases of inaction within the prescribed period. Since
in the cases at bar, the Commissioner has not issued an assessment of the tax liability of
the Petitioners, the CTA has no jurisdiction.

Finally, we hold that contrary to private respondents stance, the doctrines laid
down in CIR v. Union Shipping Co. and Yabes v. Flojo are not applicable to the cases at
bar. In these earlier cases, the Commissioner already rendered an assessment of the tax
liabilities of the delinquent taxpayers, for which reason the Court ruled that the filing of
the civil suit for collection of the taxes due was a final denial of the taxpayers request
for reconsideration of the tax assessment.

IN VIEW WHEREOF, premises considered, judgment is rendered:

1. In G.R. No. 120935, AFFIRMING the CA decision dated March

21, 1995, which set aside the Regional Trial Courts Order dated
August 8, 1994, and REINSTATING Criminal Case Nos. 94-1842 to 94-
1846 for further proceedings before the trial court; and

2. In G.R. No. 124557, REVERSING and SETTING ASIDE the Decision

of the Court of Appeals dated March 29, 1996, and ORDERING the
dismissal of C.T.A. Case No. 5075.

No costs.

SO ORDERED.