AZNAR vs.

CTA
G.R. No. L-20569, August 23, 1974

FACTS: Petitioner, as administrator of the estate of the deceased, Matias H. Aznar, seeks a
review and nullification of the decision of the Court of Tax Appeals in C.T.A. Case No. 109,
modifying the decision of respondent Commissioner of Internal Revenue and ordering the
petitioner to pay the government the sum of P227,691.77 representing deficiency income taxes
for the years 1946 to 1951.

The Commissioner of Internal Revenue having his doubts on the veracity of the reported income
of the late Matias H. Aznar, one obviously wealthy, caused B.I.R. Examiner Honorio Guerrero to
ascertain the taxpayer's true income for said years by using the net worth and expenditures
method of tax investigation. The assets and liabilities of the taxpayer were ascertained and it
was discovered that from 1946 to 1951, his net worth had increased every year, which
increases in net worth was very much more than the income reported during said years. The
findings clearly indicated that the taxpayer did not declare correctly the income reported in his
income tax returns for the aforesaid years.

And thus, the CIR ordered petitioner to pay the deficiency income taxes.

The petitioner contented that the right of the CIR to assess deficiency income taxes of the late
Matias H. Aznar for the years 1946, 1947, and 1948 had already prescribed and that the
provision of law applicable to this case is the period of five years limitation upon assessment
and collection from the filing of the returns provided for in Sec. 331 of the National Internal
Revenue Code. He argues that since the 1946 income tax return could be presumed filed
before March 1, 1947 and the notice of final and last assessment was received by the taxpayer
on March 2, 1955, a period of about 8 years had elapsed and the five year period provided by
law (Sec. 331 of the National Internal Revenue Code) had already expired.

Respondents, on the other hand, are of the firm belief that regarding the prescriptive period for
assessment of tax returns, Section 332 of the National Internal Revenue Code should apply
because, as in this case, "(a) In the case of a false or fraudulent return with intent to evade tax
or of a failure to file a return, the tax may be assessed, or a proceeding in court for 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" (Sec. 332 (a) of the NIRC).

Petitioner argues that Sec. 332 of the NIRC does not apply because the taxpayer did not file
false and fraudulent returns with intent to evade tax.

ISSUE: Whether or not the right of the Commissioner of Internal Revenue to assess deficiency
income taxes of the late Matias H. Aznar for the years 1946, 1947, and 1948 had already
prescribed

SUPREME COURT: NO.

We believe that the proper and reasonable interpretation of said provision should be that in the
three different cases of (1) false return, (2) fraudulent return with intent to evade tax, (3) failure
to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax
may be begun without assessment, at any time within ten years after the discovery of the (1)
falsity, (2) fraud, (3) omission. Our stand that the law should be interpreted to mean a
separation of the three different situations of false return, fraudulent return with intent to evade
tax, and failure to file a return is strengthened immeasurably by the last portion of the provision
which aggregates the situations into three different classes, namely "falsity", "fraud" and
"omission". That there is a difference between "false return" and "fraudulent return" cannot be
denied. While the first merely implies deviation from the truth, whether intentional or not, the
second implies intentional or deceitful entry with intent to evade the taxes due.

The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec.
331 of the NIRC should be applicable to normal circumstances, but whenever the government is
placed at a disadvantage so as to prevent its lawful agents from proper assessment of tax
liabilities due to false returns, fraudulent return intended to evade payment of tax or failure to file
returns, the period of ten years provided for in Sec. 332 (a) NIRC, from the time of the discovery
of the falsity, fraud or omission even seems to be inadequate and should be the one enforced.
There being undoubtedly false tax returns in this case, We affirm the conclusion of the
respondent Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that the period
of ten years within which to assess petitioner's tax liability bad net expired at the time said
assessment was made.