Case Name: Josefina Capó Sánchez de Lube, Plaintiff and Appellant, v. José R. Noguera, Secretary of the Treasury, Defendant and Appellee
Court: Supreme Court of Puerto Rico
Jurisdiction: Puerto Rico
Decision Date: 1965-11-30
Citations: 92 P.R. 817
Docket Number: No. 428
Parties: Josefina Capó Sánchez de Lube, Plaintiff and Appellant, v. José R. Noguera, Secretary of the Treasury, Defendant and Appellee.
Judges: Mr. Chief Justice Negrón Fernández, together with Mr. Justice Belaval, Mr. Justice Hernández. Matos, and Mr. ■ Justice Santana Becerra concur in a separate vote rendered by .the latter, concurring in the result on different grounds from those set forth by the Court. Mr. Justice Be-laval also delivered a separate vote. ■
Reporter: Puerto Rico Reports
Volume: 92
Pages: 817–834

Head Matter:
Josefina Capó Sánchez de Lube, Plaintiff and Appellant, v. José R. Noguera, Secretary of the Treasury, Defendant and Appellee.
No. 428.
Decided November 30, 1965.
Manuel I. Vallecillo for appellant. J. B. Fernández Badillo, Solicitor General, and Peter Ortiz, Assistant Solicitor General, for appellee.

Opinion:
Mr. Justice Pérez Pimentel
delivered the opinion of the Court.
On Second Motion for Reconsideration
Appellant contends that civil case No. 10 does not constitute res judicata. or collateral estoppel by judgment.
In that action, brought by the Commonwealth of Puerto Rico against the Succession of Carmen Massari Cintron of which estate plaintiff-appellant herein was part, for collection of an income-tax deficiency amounting to $21,569.50, defendants challenged the validity of the tax sought to be collected on several grounds of nullity, one of them being, and which concerns us, that the tax deficiency was levied on nonexistent profits,. arbitrarily determined by taking into consideration a minimum basic value far below the market value of the property on March 1, 1963, the date which by law should prevail; that the basic value of the part of the real property sold, from' which the alleged profit is derived, was $70,000 on March 1, 1913, and the sale was carried out for $61,500, with a resulting loss of $8,500; that the basic value of $36,661.96 assigned to the property by the Treasurer of Puerto Rico was erroneous.
- In rejecting this cause of nullity in civil action No. 10, it was held that the error was one of computation, and that it could not be reviewed within the action for collection of taxes, because the taxpayers did not timely seek judicial review of the error within the term and through the procedure provided by law. It . was also held that no evidence was offered to prove that the Treasurer's determination of the net income with respect to the sale of the real property was incorrect.
The doctrine of collateral estoppel by judgment is applied when a material fact for the issuance of a judgment is actually litigated and determined by a valid and final judgment, such a determination being conclusive in a subsequent suit between the same parties, although different causes of action are involved. Pereira v. Hernández, 83 P.R.R. 156 (1961), footnote 7 at p. 161, and cases therein cited.
It is evident that in civil case No. 10 the court, in rendering judgment, did not adjudicate on the merits defendants' contention concerning the basic value of the prop erty in 1913. That question was not litigated éither, since the parties offered no evidence on that fact. Consequently, the doctrine of collateral estoppel by judgment, as repeatedly explained by this Court, does not legally preclude defendants therein from litigating that question in the suit for tax refund. Tartak v. District Court, 74 P.R.R. 80S (1953); People v. Ibarra, 69 P.R.R. 523 (1949).
Howevér, under the doctrine" of res judicata the judgment rendered in the former action bars a subsequent action between the same parties for the same cause of action and things, not only respecting the questions litigated and adjudicated, but also as to questions which could have been properly litigated and adjudicated in the former action. Manrique v. Goffinet, 37 P.R.R. 314 (1927).
In the judgment rendered in civil case No. 10 it was held that defendants therein could not question, within that action, the validity of the deficiency notified by the Treasurer because the taxpayers failed to avail themselves of the procedures established by law to review judicially the Treasurer's determinations on matter of notice of income-tax' deficiencies. Subsequent decisions of this Court indicate that the trial judge was not mistaken in that case. See, for example, Cervecería India v. Sec. of the Treasury, 80 P.R.R. 262 (1958). This being so, the former judgment could not be invoked either as an exception of res judicata in the present suit.
We therefore agree with appellant that the trial, court erred in holding that the judgment rendered in civil action No. 10 constitutes res judicata. However, the Superior Court also held that plaintiff was not entitled to the refund claimed since she had failed to pay the full amount of the tax due, having made only one payment of $20 on August 16, 1955, for credit against the tax due. We know that that tax, without including interest, amounts to $21,394.85. The par ties stipulated before the trial court that plaintiff Josefina Capó Sánchez de Lube would have to pay 66.405 percent of that tax. They also stipulated that plaintiff had paid to the Secretary of the Treasury the following amounts:
$5,786.94 deposited with the clerk of the Superior Court and remitted to the Secretary of the Treasury;
$2,400 withheld from her salary as professor of the University of Puerto Rico and also remitted to the Secretary of the Treasury;
$20 paid directly by the taxpayer to the Income Tax Bureau; and
$2,700 deposited with the clerk of the Superior Court, although not as yet delivered to the Secretary of the Treasury.
The taxes paid by plaintiff amount to $10,906.94. A simple arithmetical operation shows that 66.405 percent of the sum of $21,394.85 is $14,207.25, the amount which appellant is bound to pay. Since she failed to pay the full amount, the trial court correctly applied the law and the case of Flora v. United States, 357 U.S. 63, 2 L.Ed.2d 1165.
In Anglade v. Sec. of the Treasury, 79 P.R.R. 785 (1957), decided by this Court before the decision in Flora was handed down, we said at p. 788:
"Be that as it may, it is well to clarify that where the Secretary of the Treasury and the taxpayer have reached an agreement as to the payment of the tax in specified instalments, or such situation arises from the manner in which the distraint proceeding has been effected, the taxpayer is not bound to pay the full amount of the instalments before applying for refund of that portion which he believes he has paid in excess of the amount due, or which has been collected from him, illegally or unduly, by the Secretary of the Treasury. 10 Merten's 866-67, § 58.34 (Callaghan and Company, 1948); Sirian Lamp Co. v. Manning, 128 F.2d 776, 778 (Maris) (1941); see Coates v. United States, 111 F.2d 609, 610 (Patterson) (1940)."
Subsequently we ratified this doctrine in Inter-American Orange Crush v. Sec. of the Treasury, 81 P.R.R. 302 (1959).
However, Flora holds, construing a legal provision similar to ours, that the taxpayer must pay the full amount of an income-tax deficiency before he may challenge its correctness in a claim for refund. The doctrine announced in Coates v. United States, supra, and Sirian Lamp Co. v. Manning, supra, which we cited as authorities in Anglade, was repudiated in Flora. See 10 Mertens, Law of Federal Income Taxation, 1963 Cum. Supp. 205, § 58.37. Anglade and Inter-American Orange Crush, insofar as they conflict with Flora, are overruled.
We believe that in following the Flora doctrine, we are placing a correct interpretation on our Income Tax Act. According to that doctrine, and contrary to the holding in Aro-glade and Inter-American Orange Crush, the taxpayer may not litigate in a claim for refund of the tax assessed if he has not already paid the same in full. The requisite of payment of the tax or its bonding before it may be litigated, is a general principle underlying our tax system on the question of collection and litigation of taxes imposed. In Cervecería India v. Sec. of the Treasury, 80 P.R.R. 262, we examined this principle and analyzed the procedures established by our laws for litigating taxes. Regarding income taxes, we said at p. 268: "In all cases in which the taxpayer is permitted to litigate a tax without paying first, the Legislature of Puerto Rico has imposed certain conditions to guarantee the payment of the tax and to insure the efficient collection of taxes. The Government has always tried to prevent tax suits from becoming an obstacle to the collection of revenues which are necessary for its proper functioning. Regarding income taxes, the giving of a bond is required normally as a condition precedent for appealing to the Superior Court from a final determination of a deficiency. And if an appeal is taken from a judgment of the Superior Court determining an income-tax deficiency, the payment of the full amount of the deficiency is normally required as a condition precedent for the Supreme Court to hear the appeal on the merits."
If it were permitted in a claim for refund to litigate income taxes assessed and not fully paid, the procedures expressly provided in the Income Tax Act to question the legality of the , tax assessed could be evaded. For instance,' the Secretary of the Treasury notifies a taxpayer of a deficiency of $10,000 for' a certain tax year and the taxpayer believes that the deficiency is erroneous as-being excessive and that it should only amount to $2,0.00, he must pay $2,001 and then apply for refund of $1 which in his opinion he overpaid. Clearly, in this suit the taxpayer would be questioning not only the overpayment of $1 but also, indirectly, the remaining $7,999 of the total deficiency notified to him, without having paid or guaranteed such sum by bond. Obviously this procedure is contrary to the provisions of the tax laws of Puerto Rico.
The new Income Tax Act of 1954, as amended (13 L.P.R.A. § 3272), has not changed this principle. Regarding the overpayments made and the right to refund, the Act provides that "If the amount already paid, whether or not on the basis of installments, exceeds the amount determined to be the correct amount of the tax, the overpayment shall be credited or refunded as provided in section 3322 of this title." The refund therefore lies whenever the taxpayer, once the correct amount of the tax is determined by the Secretary of the Treasury or by the Court, makes a payment in excess of such amount. The determinations of the Secretary of the Treasury are presumed to be correct. Once the amount of the tax is determined by that officer, the taxpayer is bound to pay the same or may litigate its correctness through the procedures provided by law. He may apply for refund of that portion of the tax which in his opinion he overpaid only if he has paid the full amount of the tax determined by the Secretary of the Treasury and has not appealed to the Superior Court from the determination.
The second motion for reconsideration will be denied insofar as it seeks reversal of the judgment rendered by the Superior Court.
Mr. Chief Justice Negrón Fernández, together with Mr. Justice Belaval, Mr. Justice Hernández. Matos, and Mr. Justice Santana Becerra concur in a separate vote rendered by .the latter, concurring in the result on different grounds from those set forth by the Court. Mr. Justice Be-laval also delivered a separate vote.
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For the sake of argument, we have taken as basis the original deficiency without including interest. We are not determining here the amount which the taxpayer will definitively be bound to pay to the Secretary of the Treasury.
Although the Secretary of the Treasury could proceed to collect this remaining sum, in the meantime the taxpayer would nonetheless he litigating its validity.
Act No. 8 of April 10, 1964 (18 L.P.R.A. § 381, 1964 Cum. Supp.), establishing the system of partial' payment of property and income taxes, does not alter in any way that principle either.
The partial-payment system does not apply to taxes in litigation. Even in cases where the Secretary of the Treasury accepts partial payments, the debts included in the partial-payment plans are registered in the Registry of Property on any property of the debtor, and they remain in effect as a lien on the property until the debtor shall have paid the debt in full. (13 L.P.R.A. § 335, 1964 Cum. Supp.)