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CIR v Ayala Securities Corporation (Imprescribility of Taxes)

Facts: Ayala Securities Corp. (Ayala) failed to file returns of their accumulated surplus so Ayala
was charged with 25% surtax by the Commissioner of internal Revenue. The CTA (Court of Tax
Appeals) reversed the Commissioner’s decision and held that the assessment made against
Ayala was beyond the 5-yr prescriptive period as provided in section 331 of the National Internal
Revenue Code. Commissioner now files a motion for reconsideration of this decision. Ayala
invokes the defense of prescription against the right of the Commissioner to assess the surtax.

Issue: Whether or not the right to assess and collect the 25% surtax has prescribed after five

Held: No. There is no such time limit on the right of the Commissioner to assess the 25% surtax
since there is no express statutory provision limiting such right or providing for its prescription.
Hence, the collection of surtax is imprescriptible. The underlying purpose of the surtax is to
avoid a situation where the corporation unduly retains its surplus earnings instead of declaring
and paying dividends to its shareholders. SC reverses the ruling of the CTA.

Gurrero Notes:

Commissioner of Internal Revenue vs. Ayala Securities Corp. (GR L-29485, 21 November 1980)

Facts: An assessment made on 21 February 1961 by the Commissioner of Internal Revenue

against the Ayala Securities Corporation (and received by the latter on 22 March 1961) in the
sum of P758,687.04 on its surplus of P2,758,442.37 for its fiscal year ending 30 September 1955.
Raised before the Court of Tax Appeals, the tax court reversed the assessment of the 25% surtax
and interest in the amount of P758,687.04, and thereby cancelled and declared of no force and
effect the assessment of the Commissioner for 1955. On 8 April 1976, the Supreme Court
affirmed the decision of the Court of Tax Appeals and ruled that the assessment fell under the 5-
year prescriptive period provided in section 331 of the National Internal Revenue

Code (NIRC) and that the assessment had, therefore, been made after the expiration of the said
5-year prescriptive period and was of no binding force and effect. The Commissioner moved for

The Supreme Court set aside its decision of 8 April 1976, and rendered in lieu thereof another
judgment ordering the corporation to pay the assessment in the sum of P758,687.04 as 25%
surtax on its unreasonably accumulated surplus, plus the 5% surcharge and 1% monthly interest
thereon, pursuant to section 51 (e) of the NIRC, as amended by RA 2343; with costs