THE COMMISIONER OF                    G.R. No. 147295INTERNAL REVENUE,                             Petitioner,                     Present:                                                                  QUISUMBING, J., Chairperson,                        - versus -                                CARPIO,                                                                       CARPIO MORALES,                                                                 TINGA, and

                                                       VELASCO, JR., JJ.ACESITE (PHILIPPINES)HOTEL CORPORATION,                    Promulgated:                             Respondent.                                                                                 February 16, 2007x-----------------------------------------------------------------------------------------x  

D E C I S I O N         

 VELASCO, JR., J.: 

The Case

 

Before us is a Petition for Review on Certiorari[1] under Rule 45 of the Rules

of Court, assailing the November 17, 2000 Decision[2] of the Court of Appeals

(CA) in CA-G.R. SP No. 56816, which affirmed the January 3, 2000 Decision[3] of

the Court of Tax Appeals (CTA) in CTA Case No. 5645 entitled Acesite

(Philippines) Hotel Corporation v. The Commissioner of Internal

Revenue for Refund of VAT Payments.  

 

 

 

The Facts

 

The facts as found by the appellate court are undisputed, thus: 

       Acesite is the owner and operator of the HOLIDAY INN  Manila Pavilion Hotel along United Nations Avenue in Manila.  It leases 6,768.53 square meters of the hotel’s premises to the Philippine Amusement and Gaming Corporation [hereafter, PAGCOR] for casino operations.  It also caters food and beverages to PAGCOR’s casino patrons through the hotel’s restaurant outlets.  For the period January (sic) 96 to April 1997, Acesite incurred VAT amounting to P30,152,892.02 from its rental income and SALE  of food and beverages to PAGCOR during said period.  Acesite tried to shift the said taxes to PAGCOR by incorporating it in the amount assessed to PAGCOR but the latter refused to pay the taxes on account of its tax exempt status.        Thus, PAGCOR paid the amount due to Acesite minus the P30,152,892.02 VAT while the latter paid the VAT to the Commissioner of Internal Revenue [hereafter, CIR] as it feared the legal consequences of non-payment of the tax.  However, Acesite belatedly arrived at the conclusion that its transaction with PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity.  On 21 May 1998, Acesite filed an administrative claim for refund with the CIR but the latter failed to resolve the same.  Thus on 29 May 1998, Acesite filed a petition with the Court of Tax Appeals [hereafter, CTA] which was decided in this wise:

 As earlier stated, Petitioner is subject to zero percent tax

pursuant to Section 102 (b)(3) [now 106(A)(C)] insofar as its gross income from rentals and SALES  to PAGCOR, a tax exempt entity by virtue of a special law. Accordingly, the amounts of P21,413,026.78 and P8,739,865.24, representing the 10% EVAT on its SALES  of food and services and gross rentals, respectively from PAGCOR shall, as a matter of course, be refunded to the petitioner for having been inadvertently remitted to the respondent.

 Thus, taking into consideration the prescribed portion of

Petitioner’s claim for refund of P98,743.40, and considering further the principle of ‘solutio indebiti’ which requires the return of what has been delivered through mistake, Respondent must refund to the Petitioner the amount of P30,054,148.64 COMPUTED  as follows:

 Total amount per

claim                                30,152,892.02Less Prescribed amount (Exhs A, X, & X-20)

January 1996                      P   2,199.94February 1996                      26,205.04March 1996                             70,338.42                  98,743.40

                                                          P30,054,148.64                                                          vvvvvvvvvvvvv

WHEREFORE, in view of all the foregoing, the instant Petition for Review is partially GRANTED.  The Respondent is hereby ORDERED to REFUND to the petitioner the amount of THIRTY MILLION FIFTY FOUR THOUSAND ONE HUNDRED FORTY EIGHT PESOS AND SIXTY FOUR CENTAVOS (P30,054,148.64) immediately.

 SO ORDERED.[4]

   

The Ruling of the Court of Appeals

 

Upon appeal by petitioner, the CA affirmed in toto the decision of the CTA

holding that PAGCOR was not only exempt from direct taxes but was also exempt

from indirect taxes like the VAT and consequently, the transactions between

respondent Acesite and PAGCOR were “effectively zero-rated” because they

involved the rendition of services to an entity exempt from indirect taxes. Thus, the

CA affirmed the CTA’s determination by ruling that respondent Acesite was

entitled to a refund of PhP 30,054,148.64 from petitioner.

 

The Issues

 

Hence, we have the instant petition with the following issues:  (1) whether

PAGCOR’s tax exemption privilege includes the indirect tax of VAT to entitle

Acesite to zero percent (0%) VAT rate; and (2) whether the zero percent (0%)

VAT rate under then Section 102 (b)(3) of the Tax Code (now Section 108 (B)(3)

of the Tax Code of 1997) legally applies to Acesite.

 

The petition is devoid of merit.

 

In resolving the first issue on whether PAGCOR’s tax exemption privilege

includes the indirect tax of VAT to entitle Acesite to zero percent (0%) VAT rate,

we answer in the affirmative.  We will however discuss both issues together.

 

PAGCOR is exempt from payment of indirect taxes

 

It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the

latter an exemption from the payment of taxes. Section 13 of P.D. 1869 pertinently

provides:

 Sec. 13.  Exemptions. –

 x x x x

 (2)  Income and other taxes. – (a)  Franchise Holder:  No tax of

any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed and collected under this Franchise from the Corporation; nor shall any form of tax or charge attach in any way to the earnings of the Corporation, except a Franchise Tax of five (5%) percent of the gross revenue or earnings derived by the Corporation from its operation under this Franchise.  Such tax shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial, or national government authority.

 x x x x

 (b)  Others:  The exemptions herein granted for earnings

derived from the operations conducted under the franchise specifically from the payment of any tax, income or otherwise,

as well as any form of charges, fees or levies, shall inure to the benefit of and extend to corporation(s), association(s), agency(ies), or individual(s) with whom the Corporation or operator has any contractual relationship in connection with the operations of the casino(s) authorized to be conducted under this Franchise and to those receiving compensation or other remuneration from the Corporation or operator as a result of essential facilities furnished and/or technical services rendered to the Corporation or operator. (Emphasis supplied.)

 

Petitioner contends that the above tax exemption refers only to PAGCOR’s

direct tax liability and not to indirect taxes, like the VAT. 

 

We disagree.

 

A close scrutiny of the above provisos clearly gives PAGCOR a blanket

exemption to taxes with no distinction on whether the taxes are direct or

indirect.  We are one with the CA ruling that PAGCOR is also exempt from

indirect taxes, like VAT, as follows:

        Under the above provision [Section 13 (2) (b) of P.D. 1869], the term “Corporation” or operator refers to PAGCOR.  Although the law does not specifically mention PAGCOR’s exemption from indirect taxes, PAGCOR is undoubtedly exempt from such taxes because the law exempts from taxes persons or entities contracting with PAGCOR in casino operations.  Although, differently worded, the provision clearly exempts PAGCOR from indirect taxes.  In fact, it goes one step further by granting tax exempt status to persons DEALING  with PAGCOR in casino operations.  The unmistakable conclusion is that PAGCOR is not liable for the P30,152,892.02 VAT and neither is Acesite as the latter is effectively subject to zero percent rate under Sec. 108 B (3). R.A. 8424.  (Emphasis supplied.) 

 

Indeed, by extending the exemption to entities or individuals DEALING  

with PAGCOR, the legislature clearly granted exemption also from indirect

taxes.  It must be noted that the indirect tax of VAT, as in the instant case, can be

shifted or passed to the buyer, transferee, or lessee of the goods, properties, or

services subject to VAT.  Thus, by extending the tax exemption to entities or

individuals DEALING  with PAGCOR in casino operations, it is exempting

PAGCOR from being liable to indirect taxes.

 The manner of charging VAT does not make PAGCOR liable to said tax

 

It is true that VAT can either be incorporated in the value of the goods,

properties, or services sold or leased, in which case it is COMPUTED  as 1/11 of

such value, or charged as an additional 10% to the value.  Verily, the seller or

lessor has the option to follow either way in charging its clients and customer.   In

the instant case, Acesite followed the latter method, that is, charging an additional

10% of the gross SALES  and rentals.  Be that as it may, the use of either method,

and in particular, the first method, does not denigrate the fact that PAGCOR is

exempt from an indirect tax, like VAT. 

 

VAT exemption extends to Acesite

 

Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by

Acesite, the latter is not liable for the payment of it as it is exempt in this particular

transaction by operation of law to pay the indirect tax.  Such exemption falls within

the former Section 102 (b) (3) of the 1977 Tax Code, as amended (now Sec. 108

[b] [3] of R.A. 8424), which provides:

        Section 102.  Value-added tax on SALE  of services – (a) Rate and base of tax – There shall be levied, assessed and collected, a value-added tax equivalent to 10% of gross receipts derived by any person engaged in the sale of services x x x;  Provided, that the following services performed in the Philippines by VAT-registered persons shall be subject to 0%.        x x x x 

       (b)  Transactions subject to zero percent (0%) rated.—        x x x x        (3)  Services rendered to persons or entities whose exemption under SPECIAL  laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero (0%) rate (emphasis supplied).

 

The rationale for the exemption from indirect taxes provided for in P.D.

1869 and the extension of such exemption to entities or individuals DEALING  

with PAGCOR in casino operations are best elucidated from the 1987 case

of Commissioner of Internal Revenue v. John Gotamco & Sons, Inc.,[5] where the

absolute tax exemption of the World Health Organization (WHO) upon an

international agreement was upheld.  We held in said case that the exemption of

contractee WHO should be implemented to mean that the entity or person exempt

is the contractor itself who constructed the building owned by contractee WHO,

and such does not violate the rule that tax exemptions are personal because

the manifest intention of the agreement is to exempt the contractor so that no

contractor’s tax may be shifted to the contractee WHO.  Thus, the proviso in

P.D. 1869, extending the exemption to entities or individuals DEALING  with

PAGCOR in casino operations, is clearly to proscribe any indirect tax, like VAT,

that may be shifted to PAGCOR.

 

Acesite paid VAT by mistake

 

Considering the foregoing discussion, there are undoubtedly erroneous

payments of the VAT pertaining to the effectively zero-rate transactions between

Acesite and PAGCOR.  Verily, Acesite has clearly shown that it paid the subject

taxes under a mistake of fact, that is, when it was not aware that the transactions it

had with PAGCOR were zero-rated at the time it made the payments.  In UST

Cooperative STORE  v. City of Manila,[6] we explained that “there is erroneous

payment of taxes when a taxpayer pays under a mistake of fact, as for the instance

in a case where he is not aware of an existing exemption in his favor at the time the

payment was made.”[7]  Such payment is held to be not voluntary and, therefore,

can be recovered or refunded.[8] 

 

Moreover, it must be noted that aside from not raising the issue of Acesite’s

compliance with pertinent Revenue Regulations on exemptions during the

proceedings in the CTA, it cannot be gainsaid that Acesite should have done so as

it paid the VAT under a mistake of fact.  Hence, petitioner’s argument on this point

is utterly tenuous.

 

Solutio indebiti applies to the Government

 

Tax refunds are based on the principle of quasi-contract or solutio

indebiti and the pertinent laws governing this principle are found in Arts. 2142 and

2154 of the Civil Code, which provide, thus:

        Art. 2142.  Certain lawful, voluntary, and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another.        Art. 2154.  If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.

 

When money is paid to another under the influence of a mistake of fact, that

is to say, on the mistaken supposition of the existence of a specific fact, where it

would not have been known that the fact was otherwise, it may be recovered.  The

ground upon which the right of recovery rests is that money paid through

misapprehension of facts belongs in equity and in good conscience to the person

who paid it.[9]

 

          The Government comes within the scope of solutio indebiti principle as

elucidated in Commissioner of Internal Revenue v. Fireman’s Fund Insurance

Company, where we held that: “Enshrined in the basic legal principles is the time-

honored doctrine that no person shall unjustly enrich himself at the expense of

another.  It goes without saying that the Government is not exempted from the

application of this doctrine.”[10]

 Action for refund strictly construed; Acesite discharged theburden of proof

 

Since an action for a tax refund partakes of the nature of an exemption,

which cannot be allowed unless granted in the most explicit and categorical

language, it is strictly construed against the claimant who must discharge such

burden convincingly.[11]  In the instant case, respondent Acesite had discharged this

burden as found by the CTA and the CA.  Indeed, the records show that Acesite

proved its actual VAT payments subject to refund, as attested to by an independent

Certified Public Accountant who was duly commissioned by the CTA.  On the

other hand, petitioner never disputed nor contested respondent’s testimonial and

documentary evidence.  In fact, petitioner never presented any evidence on its

behalf.

 

One final word.  The BIR must release the refund to respondent without any

unreasonable delay.  Indeed, fair DEALING  is expected by our taxpayers from

the BIR and this duty demands that the BIR should refund without any

unreasonable delay what it has erroneously collected.[12]

 

WHEREFORE, the petition is DENIED for lack of merit and

the November 17, 2000 Decision of the CA is herebyAFFIRMED.  No costs.

 

          SO ORDERED.

G.R. Nos. 179045-46               August 25, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs.SMART COMMUNICATION, INC., ⃰ Respondent.

D E C I S I O N

DEL CASTILLO, J.:

The right of a withholding agent to claim a refund of erroneously or illegally withheld taxes comes with the responsibility to return the same to the principal taxpayer.

This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the Decision1 dated June 28, 2007 and the Resolution2 dated July 31, 2007 of the Court of Tax Appeals (CTA) En Banc.

Factual Antecedents

Respondent Smart Communications, Inc. is a corporation organized and existing under Philippine law. It is an enterprise duly registered with the Board of Investments.

On May 25, 2001, respondent entered into three Agreements for Programming and Consultancy Services3 with Prism Transactive (M) Sdn. Bhd. (Prism), a non-resident corporation duly organized and existing under the laws of Malaysia. Under the agreements, Prism was to provide programming and consultancy services for the installation of the Service Download Manager (SDM) and the Channel Manager (CM), and for the installation and implementation of Smart Money and MOBILE  Banking Service SIM Applications (SIM Applications) and Private Text Platform (SIM Application).

On June 25, 2001, Prism billed respondent in the amount of US$547,822.45, broken down as follows:

SDM Agreement US$236,000.00

CM Agreement 296,000.00

SIM Application Agreement 15,822.45

Total US$547,822.45 4

Thinking that these payments constitute royalties, respondent withheld the amount of US$136,955.61 orP7,008,840.43,5 representing the 25% royalty tax under the RP-Malaysia Tax Treaty.6

On September 25, 2001, respondent filed its Monthly Remittance Return of Final Income Taxes Withheld (BIR Form No. 1601-F)7 for the month of August 2001.

On September 24, 2003, or within the two-year period to claim a refund, respondent filed with the Bureau of Internal Revenue (BIR), through the International Tax Affairs Division (ITAD), an administrative claim for refund8of the amount of P7,008,840.43.

Proceedings before the CTA Second Division

Due to the failure of the petitioner Commissioner of Internal Revenue (CIR) to act on the claim for refund, respondent filed a Petition for Review9 with the CTA, docketed as CTA Case No. 6782 which was raffled to its Second Division.

In its Petition for Review, respondent claimed that it is entitled to a refund because the payments made to Prism are not royalties10 but "business profits,"11 pursuant to the definition of royalties under the RP-Malaysia Tax Treaty,12 and in view of the pertinent Commentaries of the Organization for Economic Cooperation and Development (OECD) Committee on Fiscal Affairs through the Technical Advisory Group on Treaty Characterization of ELECTRONIC  Commerce Payments.13 Respondent further averred that since under Article 7 of the RP-Malaysia Tax Treaty, "business profits" are taxable in the Philippines "only if attributable to a permanent establishment in the Philippines, the payments made to Prism, a Malaysian company with no permanent establishment in the Philippines,"14 should not be taxed.15

On December 1, 2003, petitioner filed his Answer16 arguing that respondent, as withholding agent, is not a party-in-interest to file the claim for refund,17 and that assuming for the sake of argument that it is the proper party, there is no showing that the payments made to Prism constitute "business profits."18

Ruling of the CTA Second Division

In a Decision19 dated February 23, 2006, the Second Division of the CTA upheld respondent’s right, as a withholding agent, to file the claim for refund citing the cases of Commissioner of Internal Revenue v. Wander Philippines, Inc.,20 Commissioner of Internal Revenue v. Procter & Gamble Philippine Manufacturing Corporation21 and Commissioner of Internal Revenue v. The Court of Tax Appeals.22

However, as to the claim for refund, the Second Division found respondent entitled only to a partial refund. Although it agreed with respondent that the payments for the CM and SIM Application Agreements are "business profits,"23 and therefore, not subject to tax24 under the RP-Malaysia Tax Treaty, the Second Division found the payment for the SDM Agreement a royalty subject to withholding tax.25 Accordingly, respondent was granted refund in the amount of P3,989,456.43, COMPUTED  as follows:26

Particulars Amount (in US$)

1. CM 296,000.00

2. SIM Application 15,822.45

Total US$311,822.45

Particulars Amount

Tax Base US$311,822.45

Multiply by: Withholding Tax Rate 25%

Final Withholding Tax US$ 77,955.61

Multiply by: Prevailing Exchange Rate 51.176

Tax Refund Due P3,989,456.43

The dispositive portion of the Decision of the CTA Second Division reads:

WHEREFORE, premises considered, the instant petition is partially GRANTED. Accordingly, respondent Commissioner of Internal Revenue is hereby ORDERED to REFUND or ISSUE a TAX CREDIT CERTIFICATE to petitioner Smart Communications, Inc. in the amount of P3,989,456.43, representing overpaid final withholding taxes for the month of August 2001.

SO ORDERED.27

Both parties moved for partial reconsideration28 but the CTA Second Division denied the motions in a Resolution29 dated July 18, 2006.

Ruling of the CTA En Banc

Unsatisfied, both parties appealed to the CTA En Banc by filing their respective Petitions for Review,30 which were consolidated per Resolution31 dated February 8, 2007.

On June 28, 2007, the CTA En Banc rendered a Decision affirming the partial refund granted to respondent. In sustaining respondent’s right to file the claim for refund, the CTA En Banc said that although respondent "and Prism are unrelated entities, such circumstance does not affect the status of [respondent] as a party-in-interest [as its legal interest] is based on its direct and independent liability under the withholding tax system."32 The CTAEn Banc also concurred with the Second Division’s characterization of the payments made to Prism, specifically that the payments for the CM and SIM Application Agreements constitute "business profits,"33 while the payment for the SDM Agreement is a royalty.34

The dispositive portion of the CTA En Banc Decision reads:

WHEREFORE, the instant petition is hereby DISMISSED. Accordingly, the assailed Decision and Resolution are hereby AFFIRMED.

SO ORDERED.35

Only petitioner sought reconsideration36 of the Decision. The CTA En Banc, however, found no cogent reason to reverse its Decision, and thus, denied petitioner’s motion for reconsideration in a Resolution37 dated July 31, 2007.

Unfazed, petitioner availed of the present recourse.

Issues

The two issues to be resolved are: (1) whether respondent has the right to file the claim for refund; and (2) if respondent has the right, whether the payments made to Prism constitute "business profits" or royalties.

Petitioner’s Arguments

Petitioner contends that the cases relied upon by the CTA in upholding respondent’s right to claim the refund are inapplicable since the withholding agents therein are wholly owned subsidiaries of the principal taxpayers, unlike in the instant case where the withholding agent and the taxpayer are unrelated entities. Petitioner further claims that since respondent did not file the claim on behalf of Prism, it has no legal standing to claim the refund. To rule otherwise would result to the unjust enrichment of respondent, who never shelled-out any amount to pay the royalty taxes. Petitioner, thus, posits that the real party-in-interest to file a claim for refund of the erroneously withheld taxes is Prism. He cites as basis the case of Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue,38 where it was ruled that the proper party to file a refund is the statutory taxpayer.39 Finally, assuming that respondent is the proper party, petitioner counters that it is still not entitled to any refund because the payments made to Prism are taxable as royalties, having been made in consideration for the use of the programs owned by Prism.

Respondent’s Arguments

Respondent, on the other hand, maintains that it is the proper party to file a claim for refund as it has the statutory and primary responsibility and liability to withhold and remit the taxes to the BIR. It points out that under the withholding tax system, the agent-payor becomes a payee by fiction of law because the law makes the agent personally liable for the tax arising from the breach of its duty to withhold. Thus, the fact that respondent is not in any way related to Prism is immaterial.

Moreover, respondent asserts that the payments made to Prism do not fall under the definition of royalties since the agreements are for programming and consultancy services only, wherein Prism undertakes to perform services for the creation, development or the bringing into existence of software applications solely for the satisfaction of the peculiar needs and requirements of respondent.

Our Ruling

The petition is bereft of merit.

Withholding agent may file a claim for refund

Sections 204(c) and 229 of the National Internal Revenue Code (NIRC) provide:

Sec. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. – The Commissioner may –

x x x x

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the PURCHASER , and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund.

x x x x

Sec. 229. Recovery of Tax Erroneously or Illegally Collected. – No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. (Emphasis supplied)

Pursuant to the foregoing, the person entitled to claim a tax refund is the taxpayer. However, in case the taxpayer does not file a claim for refund, the withholding agent may file the claim.

In Commissioner of Internal Revenue v. Procter & Gamble Philippine Manufacturing Corporation,40 a withholding agent was considered a proper party to file a claim for refund of the withheld taxes of its foreign parent company. Pertinent portions of the Decision read:

The term "taxpayer" is defined in our NIRC as referring to "any person subject to tax imposed by the Title [on Tax on Income]." It thus becomes important to note that under Section 53(c)41 of the NIRC, the withholding agent who is "required to deduct and withhold any tax" is made "personally liable for such tax" and indeed is indemnified against any claims and demands which the stockholder might wish to make in questioning the amount of payments effected by the withholding agent in accordance with the provisions of the NIRC. The withholding agent, P&G-Phil., is directly and independently liable for the correct

amount of the tax that should be withheld from the dividend remittances. The withholding agent is, moreover, subject to and liable for deficiency assessments, surcharges and penalties should the amount of the tax withheld be finally found to be less than the amount that should have been withheld under law.

A "person liable for tax" has been held to be a "person subject to tax" and properly considered a "taxpayer." The terms "liable for tax" and "subject to tax" both connote legal obligation or duty to pay a tax. It is very difficult, indeed conceptually impossible, to consider a person who is statutorily made "liable for tax" as not "subject to tax." By any reasonable standard, such a person should be regarded as a party in interest, or as a person having sufficient legal interest, to bring a suit for refund of taxes he believes were illegally collected from him.

In Philippine Guaranty Company, Inc. v. Commissioner of Internal Revenue, this Court pointed out that a withholding agent is in fact the agent both of the government and of the taxpayer, and that the withholding agent is not an ordinary government agent:

"The law sets no condition for the personal liability of the withholding agent to attach. The reason is to compel the withholding agent to withhold the tax under all circumstances. In effect, the responsibility for the collection of the tax as well as the payment thereof is concentrated upon the person over whom the Government has jurisdiction. Thus, the withholding agent is constituted the agent of both the Government and the taxpayer. With respect to the collection and/or withholding of the tax, he is the Government’s agent. In regard to the filing of the necessary income tax return and the payment of the tax to the Government, he is the agent of the taxpayer. The withholding agent, therefore, is no ordinary government agent especially because under Section 53 (c) he is held personally liable for the tax he is duty bound to withhold; whereas the Commissioner and his deputies are not made liable by law."

If, as pointed out in Philippine Guaranty, the withholding agent is also an agent of the beneficial owner of the dividends with respect to the filing of the necessary income tax return and with respect to actual payment of the tax to the government, such authority may reasonably be held to include the authority to file a claim for refund and to bring an action for recovery of such claim. This implied authority is especially warranted where, as in the instant case, the withholding agent is the wholly owned subsidiary of the parent-stockholder and therefore, at all times, under the effective control of such parent-stockholder. In the circumstances of this case, it seems particularly unreal to deny the implied authority of P&G-Phil. to claim a refund and to commence an action for such refund.

x x x x

We believe and so hold that, under the circumstances of this case, P&G-Phil. is properly regarded as a "taxpayer" within the meaning of Section 309,42 NIRC, and as impliedly authorized to file the claim for refund and the suit to recover such claim. (Emphasis supplied.)

Petitioner, however, submits that this ruling applies only when the withholding agent and the taxpayer are related parties, i.e., where the withholding agent is a wholly owned subsidiary of the taxpayer.

We do not agree.

Although such relation between the taxpayer and the withholding agent is a factor that increases the latter’s legal interest to file a claim for refund, there is nothing in the decision to suggest that such relationship is required or that the lack of such relation deprives the withholding agent of the right to file a claim for refund. Rather, what is clear in the decision is that a withholding agent has a legal right to file a claim for refund for two reasons. First, he is considered a "taxpayer" under the NIRC as he is personally liable for the withholding tax as well as for deficiency assessments, surcharges, and penalties, should the amount of the tax withheld be finally found to be less than the amount that should have been withheld under law. Second, as an agent of the taxpayer, his authority to file the necessary income tax return and to remit the tax withheld to the government impliedly includes the authority to file a claim for refund and to bring an action for recovery of such claim.

In this connection, it is however significant to add that while the withholding agent has the right to recover the taxes erroneously or illegally collected, he nevertheless has the obligation to remit the same to the principal taxpayer. As an agent of the taxpayer, it is his duty to return what he has recovered; otherwise, he would be unjustly enriching himself at the expense of the principal taxpayer from whom the taxes were withheld, and from whom he derives his legal right to file a claim for refund.

As to Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue43 cited by the petitioner, we find the same inapplicable as it involves excise taxes, not withholding taxes. In that case, it was ruled that the proper party to question, or seek a refund of, an indirect tax "is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another."

In view of the foregoing, we find no error on the part of the CTA in upholding respondent’s right as a withholding agent to file a claim for refund.

The payments for the CM and the SIM Application Agreements constitute

"business profits"

Under the RP-Malaysia Tax Treaty, the term royalties is defined as payments of any kind received as consideration for: "(i) the use of, or the right to use, any patent, trade mark, design or model, plan, secret formula or process, any copyright of literary, artistic or scientific work, or for the use of, or the right to use, industrial, commercial, or scientific equipment, or for information concerning industrial, commercial or scientific experience; (ii) the use of, or the right to use, cinematograph films, or tapes for radio or TELEVISION  broadcasting."44These are taxed at the rate of 25% of the gross amount.45

Under the same Treaty, the "business profits" of an enterprise of a Contracting State is taxable only in that State, unless the enterprise carries on business in the other Contracting

State through a permanent establishment.46The term "permanent establishment" is defined as a fixed place of business where the enterprise is wholly or partly carried on.47 However, even if there is no fixed place of business, an enterprise of a Contracting State is deemed to have a permanent establishment in the other Contracting State if it carries on supervisory activities in that other State for more than six months in connection with a construction, installation or assembly project which is being undertaken in that other State.48

In the instant case, it was established during the trial that Prism does not have a permanent establishment in the Philippines. Hence, "business profits" derived from Prism’s DEALINGS

 with respondent are not taxable. The question is whether the payments made to Prism under the SDM, CM, and SIM Application agreements are "business profits" and not royalties.

Paragraph 1.3 of the Programming Services (Schedule A) of the SDM Agreement,49 reads:

1.3 Intellectual Property Rights (IPR)

The SDM shall be installed by PRISM, including the SDM Libraries, the IPR of which shall be retained by PRISM. PRISM, however, shall provide the Client the APIs for the SDM at no cost to the Client. The Client shall be permitted to develop programs to interface with the SDM or the SDM Libraries, using the related APIs as appropriate.50 (Emphasis supplied.)

Whereas, paragraph 1.4 of the Programming Services (Schedule A) of the CM Agreement and paragraph 1.3 of the Programming Services (Schedule A) of the SIM Agreement provide:

1.4 Intellectual Property Rights (IPR)

The IPR of all components of the CM belong to the Client with the exception of the following components, which are provided, without technical or commercial restraints or obligations:

• ConfigurationException.java

• DataStructures (DblLinkedListjava, DbIListNodejava, List

EmptyException.java, ListFullException.java, ListNodeNotFoundException.java,

QueueEmptyException.java, QueueFullException.java, QueueList.java, QueuListEx.java, and QueueNodeNotFoundException.java)

• FieldMappedObjeet.java

• LogFileEx.java

• Logging (BaseLogger.java and Logger.java)

• PrismGeneric Exception.java

• PrismGenericObject.java

• ProtocolBuilders/CIMD2 (Alive.java, BaseMessageData.java, DeliverMessage.java, Login.java, Logout.java, Nack.java, SubmitMessage.java,

• TemplateManagement (FileTemplateDataBag.java, TemplateDataBag.java, TemplateManagerExBag.java, and TemplateParserExBag.java)

• TemplateManager.class

• TemplateServer.class

• TemplateServer$RequestThread.class

• Template Server_skel.class

• TemplateServer_stub.class

• TemplateService.class

• Prism Crypto Server module for PHP451

x x x x

1.3 Intellectual Property Rights (IPR)

The Client shall own the IPR for the Specifications and the Source Code for the SIM Applications. PRISM shall develop an executable compiled code (the "Executable Version") of the SIM Applications for use on the aSIMetric card which, however, shall only be for the Client’s use. The Executable Version may not be provided by PRISM to any third [party] without the prior written consent of the Client. It is further recognized that the Client anticipates licensing the use of the SIM Applications, but it is agreed that no license fee will be charged to PRISM or to a licensee of the aSIMetrix card from PRISM when SIMs are supplied to the Client.52 (Emphases supplied.)

The provisions in the agreements are clear. Prism has intellectual property right over the SDM program, but not over the CM and SIM Application programs as the proprietary rights of these programs belong to respondent. In other words, out of the payments made to Prism, only the payment for the SDM program is a royalty subject to a 25% withholding tax. A refund of the erroneously withheld royalty taxes for the payments pertaining to the CM and SIM Application Agreements is therefore in order.

Indeed, the government has no right to retain what does not belong to it.1âwphi1 "No one, not even the State, should enrich oneself at the expense of another."53

WHEREFORE, the petition is DENIED. The assailed Decision dated June 28, 2007 and the Resolution dated July 31, 2007 of the Court of Tax Appeals En Banc are hereby AFFIRMED. The Bureau of Internal Revenue is herebyordered to issue a Tax

Credit Certificate to Prism Transactive (M) Sdn. Bhd. in the amount of P3,989,456.43 representing the overpaid final withholding taxes for the month of August 2001.

SO ORDERED.

G.R. No. L-10550             September 19, 1961

KOPPEL (PHILIPPINES), INC., petitioner-appellant, vs.COLLECTOR OF INTERNAL REVENUE, respondent-appellee.

Carlos and Laurea for petitioner-appellant.Office of the Solicitor General for respondent-appellee.

PAREDES, J.:

This is an appeal taken by the Koppel (Philippines), Inc., petitioner-appellant, from the decision dated March 5, 1956, rendered by the Court of Tax Appeals, declaring that it had no jurisdiction over the dispute, on the ground that petitioner's cause of action to seek the refund of P30,726.53, had already prescribed under section 306 of the National Internal Revenue Code; and in sustaining the order of the respondent Collector of Internal Revenue, denying the refund of P30,726.53, under Section 30 par.(d), sub-par. (2) and sec. 30 par. (e) sub-par. (1), of the said revenue Code.

The case was submitted on a stipulation of facts:

The petitioner, it appears, is a domestic corporation of American capital duly organized and existing by virtue the Philippine laws. During the year 1942 to the early part of 1945, the petitioner sustained losses arising from the occupation of the Philippines by the Japanese Military forces from 1941 to the battle of liberation in 1945. On March 27, 1942, the U.S. Congress passed Public Law 506, (War Damage Insurance Act), to cover insurance of all properties in the Philippines which might be damaged, destroyed or lost due to the operations of war. The petitioner, relying on the provisions of this legislation, entered in its books as "accounts receivable" from the U.S. Government the entire value of its properties damaged, destroyed and lost during World War II. On April 30, 1946, the U.S. Congress enacted Public Law 370 (Philippine Rehabilitation Act of 1946), which provided that the Philippine War Damage Commission supersedes the War Damage Commission. Section 102 of the Public Law 370 states:

. . . . Provided further, that in case the aggregate amount of the claims which would be payable to anyone claimant under the foregoing provisions exceeds $500, the

aggregate amount the claims approved in favor of such claimant shall be reduced by 25 per centum of the excess over $500.

On January 15, 1947, the U.S.-Philippine War Damage Commission, the agency entrusted with the enforcement of said Public Law 370, issued a notice to the effect that February 25, 1947, was the date agreed upon as the initial date for the issuance of forms for the claimants of war damages and the claims could not be filed until after March 1, 1947. In 1947, the petitioner came to know that its losses equivalent to 25% or P256,054.88 could not be recovered, for which reason petitioner could not claim deduction for said losses in its 1945 and 1946 income tax returns. Petitioner, therefore, in its book of accounts for the year 1947, wrote off as "bad debts" the said amount of P256,054.88. On June 6, 1949, the respondent Collector of Internal Revenue, assessed against the petitioner's income tax for 1947, the sum of P34,636.21, corresponding to the amount of P256,054.88 as war losses sustained and ascertained to be recoverable in 1946. On June 29, 1949, the petitioner paid under protest with the Bureau of Internal Revenue the amount of P34,636.21 (O.R. No. 58094) as alleged deficiency income tax due, based on the disallowed deduction of P256,054.88. Petitioner repeatedly sought from respondent a reconsideration of the assessment and the refund of the amount of P34,636.21 later reduced to P30,726.21, on the ground that said assessment was illegal. The then Secretary of Finance, Pio Pedrosa, on September 11, 1951, sustained petitioner's stand and that of other taxpayers similarly situated, setting rules to be followed. The respondent issued general Circular No. V-123 addressed to all Internal Revenue officers and income tax examiners to apply the rules in the investigation of income tax returns involving war damage losses. On September 21, 1951, petitioner reiterated its demand for the refund of the amount of P30,726.53. Petitioner, on July 28, 1953, received a communication denying the refund of the amount, on the ground that the ruling of Finance Secretary Pedrosa had already been revoked by his successor, Secretary of Finance Aurelio Montinola.

On August 27, 1953, petitioner filed a petition for review with the then Board of Tax Appeals (B.T.A. Case No. 157), praying that the respondent be ordered to refund to the petitioner the sum of P30,726.53, to which on September 5, 1953 respondent answered, praying for the dismissal of the case. The case was submitted for decision after the parties had filed their respective memoranda. Notwithstanding the lapse of 60 days from the filing of the petition for review, the Board of Tax Appeals, had not rendered any decision. On November 4, 1953, petitioner gave notice of intention to file an appeal, pursuant to section 21 of Executive Order No. 401-A. On November 13, 1953, petitioner received a copy of the decision of the Board of Tax Appeals dated October 26, 1953, confirming the order of the respondent Collector of Internal Revenue, in denying the refund requested by the petitioner. A petition for review was presented before this Court, being case No. L-5701.

In this Court, respondent did not file his brief, instead on April 21, 1954, he presented a motion to dismiss the appeal. On April 29, 1954, this Court dismissed the petitioner's appeal in said case "without prejudice, following the decision in University of Sto. Tomas vs. Board of Tax Appeals, G.R. No. L-6701". On May 18, 1954, petitioner filed a complaint with the Manila Court of First Instance, Civil Case No. 22893, entitled "Koppel (Philippines), Inc. plaintiff v. Collector of Internal Revenue, defendant," praying that the latter be ordered to refund to the former the sum of P30,726.53. Upon motion of the Solicitor General, the Manila Court of First Instance remanded the case to the Court of Tax Appeals, pursuant to

section 22 of Rep. Act No. 1125, in which Court, on December 14, 1955, the parties submitted a stipulation of facts. On March 5, 1956, the Court of Tax Appeals rendered a decision, recited at the threshold of this opinion.

The petitioner alleges in its brief (first assignment of error) that the Court of Tax Appeals erred in holding that it had no jurisdiction over the dispute on the ground that petitioner's cause of action, seeking the refund of P30,726.53 had already prescribed under section 306 of the National Internal Revenue Code. In this connection, petitioner submits that the Court of Tax Appeals in dismissing the case (1) Disregarded the fact that this is not a new case and that there are "peculiar circumstances involved herein"; (2) That in the previous case (Case No. 157 of Board of Tax Appeals), the respondent did not raise the issue that petitioner's action has prescribed and respondent is thereby estopped from invoking it now for the first time, and (3) That the present action was filed by petitioner in accordance with the observations made by the Supreme Court in said G.R. No. L-5701.

Petitioner argues that the "without prejudice" resolution in said case is now final and the "law of the case". The "peculiar circumstances" mentioned were the fact that on September 18, 1951, the then Secretary of Finance "issued a ruling in connection with the deductions for war losses, similar to plaintiffs' (petitioner) claim" which in substance held that war losses should "be allowed as deduction in the year the said notice of approval was received"; that the ruling was subsequently implemented by respondent himself in his General Circular No. V-123; that prior to July 28, 1953, when plaintiff (petitioner), received a communication from respondent, denying the refund of the said P30,726.53 on the ground that the ruling of the former Secretary of Finance (Pio Pedrosa) was already revoked by the succeeding Secretary of Finance (Aurelio Montinola) pursuant to an opinion of the Secretary of Justice, there was no justification for plaintiff to go to Court; and it would have been ridiculous for petitioner to file a suit in court, when respondent himself had issued a circular favorable to its claim for refund.1awphîl.nèt

Section 306 of the National Internal Revenue Code provides as follows:

No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Collector of Internal Revenue; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty.

In the case of Kiener Co., Ltd. vs. S. David, G.R. No. L-5157, Apr. 22, 1953 (49 O.G. No. 5, 1852), this Court declared:

. . . . To this end, and bearing in mind that the Legislature is presumed to have understood the language it used and to have acted with full idea of what it wanted to accomplish, it is fair and reasonable to say, without doing violence to the context of either of the two provisions, that by the first is meant simply that the Collector of

Internal Revenue shall be given an opportunity to consider his mistake, if mistake has been committed, before he is sued but not, as the appellant contends, that pending consideration of the claim, the period of two years provided in the last clause shall be deemed interrupted. Nowhere and in no wise does the law imply that the Collector of Internal Revenue must act upon the claim, or that the taxpayer shall not go to court before he is notified of the Collector's action. Having filed his claim and the Collector of Internal Revenue having had ample time to study it, the claimant may, indeed should, within the statutory period of two years proceed with his suit without waiting for the Collector's decision. We understand the filing of the claim with the Collector of Internal Revenue to be intended primarily as a notice or warning that, unless the tax or penalty alleged to have been collected erroneously or illegally is refunded, court action will follow. Previous and timely notice is, in other cases and for diverse salutary reasons, made a prerequisite to the prosecution of contemplated proceedings without imposing on the party to whom the notice was sent any obligation to make any move. . . . .

The record reveals that on June 29, 1949, the petitioner paid to the respondent the deficiency tax in question. From the said date, the two years within which to file an action in court for the recovery of the tax expired on June 29, 1951. Within the said period, the petitioner failed to file an action for refund either in the Court of First Instance or the Board of Tax Appeals, immediately after the creation of the Board under Executive Order No. 401-A promulgated on Jan. 5, 1951. Petitioner just waited for the decision of the respondent Collector of Internal Revenue in its claim for refund, which was handed down on July 28, 1953, after more than four (4) years from payment. It is clearly ruled in the Kiener case that the petitioner should not have folded his arms and wait for the decision, knowing, that the "time for bringing an action for a refund of income tax, fixed by statute, is not extended by the delay of the Collector of Internal Revenue in giving notice of the rejection of such claim (U.S. v. Michel, 282 U.S. 656, 51 S. Ct. 284)" (II Arañas, N.I.R. Code p. 719). There was an assessment; the petitioner paid; the petitioner asked for refund; it was denied; a motion for reconsideration was presented and no resolution was forthcoming from the respondent Collector. Aware of the provisions of the law, it was the duty of the petitioner to have urged the respondent for his decision and wake him up from his lethargy or file his action within the time prescribed by law. While it is true that there was a ruling couched in general terms, by the Secretary of Finance on the matter, which was really controversial, because the same was later revoked by another Secretary of Finance, said pronouncement, however, was not a decision by the respondent Collector on the specific controversy relative to the refund of the deficiency tax in question. The court should not give a premium to a litigant who sleeps on his rights. The lawyers of the petitioner may not come now and invoke estoppel when they have been in laches themselves. The government is never estopped by error or mistake on the part of its agents (Pineda, et al. v. CFI and Coll. of Int. Rev., 52 Phil. 803). The reservation made by the Supreme Court in the case No. L-5701 should not be interpreted as permitting the petitioner to file another case under all circumstances, but as the facts and circumstances might warrant under the law. The ruling in the Kiener case is still a sound one, and should be, as it is applied, as a matter of public policy, in the enforcement of tax laws.

Having reached this conclusion, it would seem unnecessary to pass upon the second assignment of error.

The appeal is, therefore, dismissed, with costs.

COMMISSIONER OF INTERNAL REVENUE, vs.FAR EAST BANK & TRUST COMPANY (NOW BANK OF THE PHILIPPINE ISLANDS), Respondent.

D E C I S I O N

DEL CASTILLO, J.:

Entitlement to a tax refund is for the taxpayer to prove and not for the government to disprove.

This Petition for Review on Certiorari assails the January 31, 2006 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 56773 which reversed and set aside the October 4, 1999 Decision2 of the Court of Tax Appeals (CTA) in CTA Case No. 5487. Also assailed is the July 19, 2006 Resolution3 of the CA denying the motion for reconsideration.

The CTA found that respondent Far East Bank & Trust Company failed to prove that the income derived from rentals and SALE  of real property from which the taxes were withheld were reflected in its 1994 Annual Income Tax Return. The CA found otherwise.

Factual Antecedents

On April 10, 1995, respondent filed with the Bureau of Internal Revenue (BIR) two Corporate Annual Income Tax Returns, one for its Corporate Banking Unit (CBU)4 and another for its Foreign Currency Deposit Unit (FCDU),5for the taxable year ending December 31, 1994. The return for the CBU consolidated the respondent’s overall income tax liability for 1994, which reflected a refundable income tax of P12,682,864.00, COMPUTED  as follows:

  FCDU CBU

Gross Income P13,319,068 5,348,080,630

Less: Deductions 1,397,157 5,432,828,719

     

Net Income 11,921,911 [84,748,089]

Tax Rate 35% 35%

     

Income Tax Due Thereon 4,172,669 NIL

     

Consolidated Tax Due for

Both CBU and FCDU Operations P 4,172,669  

     

Less:    

     

Quarterly Income Tax Payments    

CBU -1st Quarter 633,085  

-2nd Quarter 11,844,333  

FCDU -1st Quarter 955, 280  

-2nd Quarter 1,104,942  

     

Less:    

Creditable Taxes 2,317,893  

Withheld at Source    

Refundable Income Tax [P12,682,864]6  

Pursuant to Section 697 of the old National Internal Revenue Code (NIRC),

the amount of P12,682,864.00 was carried over and applied against respondent’s income tax liability for the taxable year ending December 31, 1995. On April 15, 1996, respondent filed its 1995 Annual Income Tax Return, which showed a total overpaid income tax in the amount of P17,443,133.00, detailed as follows:

  FCDU CBU

Gross Income P16,531,038 7,076,497,628

Less: Deductions 1,327,549 7,086,821,354

     

Net Income 15,203,539 [10,423,728]

Tax Rate 35% 35%

Income Tax Due Thereon 5,321,239 NIL

     

Consolidated Tax Due for

Both CBU and FCDU Operations P 5,321,239  

     

Less:    

Prior year’s (1994) excessincome tax credit

12,682,864  

Additional prior year’s excessincome tax credit

6,283,484  

Creditable Taxes    

Withheld at Source 3,798,024  

Refundable Income Tax [P17,443,133]8  

Out of the P17,433,133.00 refundable income tax, only P13,645,109.00 was sought to be refunded by respondent. As to the remaining P3,798,024.00, respondent opted to carry it over to the next taxable year.

On May 17, 1996, respondent filed a claim for refund of the amount of P13,645,109.00 with the BIR. Due to the failure of petitioner Commissioner of Internal Revenue (CIR) to act on the claim for refund, respondent was compelled to bring the matter to the CTA on April 8, 1997 via a Petition for Review docketed as CTA Case No. 5487.

After the filing of petitioner’s Answer, trial ensued.

To prove its entitlement to a refund, respondent presented the following documents:

Exhibits Nature and Description

A Corporate Annual Income Tax Return covering income of respondent’s CBU for the year ended December 31, 1994 together with attachments

B Corporate Annual Income Tax Return covering income of respondent’s FCDU for the year ended December 31, 1994 together with attachments

C Corporate Annual Income Tax Return covering income of respondent’s CBU for the year ended December 31, 1995 together with attachments

D Corporate Annual Income Tax Return covering income of respondent’s FCDU for the year ended December 31, 1995 together with attachments

N to Z; Certificates of Creditable

AA to UU Withholding Tax and Monthly Remittance Returns of Income Taxes Withheld issued by various withholding agents for the year ended December 31, 1994

VV Letter claim for refund dated May 8, 1996 filed with the Revenue District Office No. 33 on May 17, 19969

Petitioner, on the other hand, did not present any evidence.

Ruling of the Court of Tax Appeals

On October 4, 1999, the CTA rendered a Decision denying respondent’s claim for refund on the ground that respondent failed to show that the income derived from rentals and sale of real property from which the taxes were withheld were reflected in its 1994 Annual Income Tax Return.

On October 20, 1999, respondent filed a Motion for New Trial based on excusable negligence. It prayed that it be allowed to present additional evidence to support its claim for refund.

However, the motion was denied on December 16, 1999 by the CTA. It reasoned, thus:

[Respondent] is reminded that this case was originally submitted for decision as early as September 22, 1998 (p. 497, CTA Records). In view, however, of the Urgent Motion to Admit Memorandum filed on April 27, 1999 by Atty. Louella Martinez, who entered her appearance as collaborating counsel of Atty. Manuel Salvador allegedly due to the latter counsel’s absences, this Court set aside its resolution of September 22, 1998 and considered this case submitted for decision as of May 7, 1999. Nonetheless, it took [respondent] another five months after it was represented by a new counsel and after a decision unfavorable to it was rendered before [respondent] realized that an additional material documentary evidence has to be presented by way of a new trial, this time initiated by a third counsel coming from the same law firm. x x x

Furthermore, in ascertaining whether or not the income upon which the taxes were withheld were included in the returns of the [respondent], this Court based its findings on the income tax returns and their supporting schedules prepared and reviewed by the [respondent] itself and which, to Us, are enough to support the conclusion reached.1avvphi1

WHEREFORE, in view of the foregoing, [respondent’s] Motion for New Trial is hereby DENIED for lack of merit.

SO ORDERED.10

Ruling of the Court of Appeals

On appeal, the CA reversed the Decision of the CTA. The CA found that respondent has duly proven that the income derived from rentals and sale of real property upon which the taxes were withheld were included in the return as part of the gross income.

Hence, this present recourse.

Issue

The lone issue presented in this petition is whether respondent has proven its entitlement to the refund.11

Our Ruling

We find that the respondent miserably failed to prove its entitlement to the refund. Therefore, we grant the petition filed by the petitioner CIR for being meritorious.

A taxpayer claiming for a tax credit or refund of creditable withholding tax must comply with the following requisites:

1) The claim must be filed with the CIR within the two-year period from the date of payment of the tax;

2) It must be shown on the return that the income received was declared as part of the gross income; and

3) The fact of withholding must be established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld.12

The two-year period requirement is based on Section 229 of the NIRC of 1997 which provides that:

SECTION 229. Recovery of Tax Erroneously or Illegally Collected. — No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. (Formerly Section 230 of the old NIRC)

While the second and third requirements are found under Section 10 of Revenue Regulation No. 6-85, as amended, which reads:

Section 10. Claims for tax credit or refund. — Claims for tax credit or refund of income tax deducted and withheld on income payments shall be given due course only when it is shown on the return that the income payment received was declared as part of the gross income and the fact of withholding is established by a copy of the statement duly issued by the payer to the payee (BIR Form No. 1743.1) showing the amount paid and the amount of tax withheld therefrom.

Respondent timely filed its claim for refund.

There is no dispute that respondent complied with the first requirement. The filing of respondent’s administrative claim for refund on May 17, 1996 and judicial claim for refund on April 8, 1997 were well within the two-year period from the date of the filing of the return on April 10, 1995.13

Respondent failed to prove that the income derived from rentals and sale of real property were included in the gross income as reflected in its return.

However, as to the second and third requirements, the tax court and the appellate court arrived at different factual findings.

The CTA ruled that the income derived from rentals and sales of real property were not included in respondent’s gross income. It noted that in respondent’s 1994 Annual Income Tax Return, the phrase "NOT APPLICABLE" was printed on the space provided for rent, sale of real property and trust income. The CTA also declared that the certifications issued by respondent cannot be considered in the absence of the Certificates of Creditable Tax Withheld at Source. The CTA ruled that:

x x x the Certificates of Creditable Tax Withheld at Source submitted by [respondent] pertain to rentals of real property while the Monthly Remittance Returns of Income Taxes Withheld refer to sales of real property. But, if we are to look at Schedules 3, 4, and 5 of the Annual Income Tax Return of [respondent] for 1994 (Exhibit "A"), there was no showing that the Rental Income and Income from Sale of Real Property were included as part of the gross income appearing in Section A of the said return. In fact, under the said schedules, the phrase "NOT APPLICABLE" was printed by [respondent]. Verily, the income of [respondent] coming from rent and sale of real property upon which the creditable taxes withheld were based were not duly reflected. As to the certifications issued by the [respondent] (Exh. UU), the same cannot be considered in the absence of the requisite Certificates of Creditable Tax Withheld at Source.

Based on the foregoing, [respondent] has failed to comply with two essential requirements for a valid claim for refund. Consequently, the same cannot be given due course. 14 (Emphasis supplied)

On the other hand, the CA found thus:

We disagree with x x x CTA’s findings. In the case of Citibank, N.A. vs. Court of Appeals (280 SCRA 459), the Supreme Court held that:

"a refund claimant is required to prove the inclusion of the income payments which were the basis of the withholding taxes and the fact of withholding. However, a detailed proof of the truthfulness of each and every item in the income tax return is not required. x x x

x x x The grant of a refund is founded on the assumption that the tax return is valid; that is, the facts stated therein are true and correct. x x x"

In the case at bench, the BIR examined [respondent] Bank’s Corporate Annual Income Tax Returns for the years 1994 and 1995 when they were filed on April 10, 1995 and April 15, 1996, respectively. Presumably, the BIR found no false declaration in them because it did not allege any false declaration thereof in its Answer (to the petition for review) filed before x x x CTA. Nowhere in the Answer, did the BIR dispute the amount of tax refund being claimed by [respondent] Bank as inaccurate or erroneous. In fact, the reason given by the BIR (in its Answer to the petition for review) why the claimed tax refund should be denied was that "x x x the amount ofP13,645,109.00 was not illegally or erroneously collected, hence, the petition for review has no basis" [see Record, p. 32]. The amount of P17,433,133.00 reflected as refundable income tax in [respondent] Bank’s Corporate Annual Income Tax Return for the year 1995 was not disputed by the BIR to be inaccurate because there were certain income not included in the return of the [respondent]. Verily, this leads Us to a conclusion that [respondent] Bank’s Corporate Annual Income Tax Returns submitted were accepted as regular and even accurate by the BIR.

Incidentally, under Sec. 16 of the NIRC, the Commissioner of the BIR is tasked to make an examination of returns and assess the correct amount of tax, to wit:

"Sec. 16. Power of the Commissioner to make assessment and prescribe additional requirements for tax administration and enforcement.

(a) After a return is filed as required under the provision of this Code, the Commissioner shall examine it and assess the correct amount of tax. x x x"

which the [petitioner] Commissioner undeniably failed to do. Moreover, noteworthy is the fact that during the hearing of the petition for review before the CTA, [petitioner] Commissioner of the BIR submitted the case for decision "in view of the fact that he has no evidence to present nor records to submit relative to the case" x x x

Thus, although it is a fact that [respondent] failed to indicate said income payments under the appropriate Schedules 3, 4, and 5 of Section C of its 1994 Annual Income Tax Return (Exhibit "A"), however, We give credence to [respondent] Bank’s assertion that it reported the said income payments as part of its gross income when it included the same as part of the "Other Income," "Trust Income," and "Interest Income" stated in the Schedule of Income (referred to as an attachment in Section C of Exhibit "A", x x x and in the 1994 audited Financial Statements (FS) supporting [respondent’s] 1994 Annual Corporate Income Tax Return. The reason why the phrase "NOT APPLICABLE" was indicated in schedules 3, 4, and 5 of Section C of [respondent’s] 1994 Annual Income Tax Return is due to the fact that

[respondent] Bank already reported the subject rental income and income from SALE  of real property in the Schedule of Income under the headings "Other Income/Earnings," "Trust Income" and "Interest Income." Therefore, [respondent] Bank still complied with the second requirement that the income upon which the taxes were withheld are included in the return as part of the gross income.

x x x x

[Respondent] Bank’s various documentary evidence showing that it had satisfied all requirements under the Tax Code vis-à-vis the Bureau of Internal Revenue’s failure to adduce any evidence in support of their denial of the claim, [respondent] Bank should, therefore, be granted the present claim for refund.15 (Emphasis supplied)

Between the decision of the CTA and the CA, it is the former’s that is based on the evidence and in accordance with the applicable law and jurisprudence.

To establish the fact of withholding, respondent submitted Certificates of Creditable Tax Withheld at Source and Monthly Remittance Returns of Income Taxes Withheld, which pertain to rentals and SALES  of real property, respectively. However, a perusal of respondent’s 1994 Annual Income Tax Return shows that the gross income was derived solely from SALES  of services. In fact, the phrase "NOT APPLICABLE" was printed on the schedules pertaining to rent, sale of real property, and trust income.16 Thus, based on the entries in the return, the income derived from rentals and SALES  of real property upon which the creditable taxes were withheld were not included in respondent’s gross income as reflected in its return. Since no income was reported, it follows that no tax was withheld. To reiterate, it is incumbent upon the taxpayer to reflect in his return the income upon which any creditable tax is required to be withheld at the source.17

Respondent’s explanation that its income derived from rentals and SALES  of real properties were included in the gross income but were classified as "Other Earnings" in its Schedule of Income18 attached to the return is not supported by the evidence. There is nothing in the Schedule of Income to show that the income under the heading "Other Earnings" includes income from rentals and SALES  of real property. No documentary or testimonial evidence was presented by respondent to prove this. In fact, respondent, upon realizing its omission, filed a motion for new trial on the ground of excusable negligence with the CTA. Respondent knew that it had to present additional evidence showing the breakdown of the "Other Earnings" reported in its Schedule of Income attached to the return to prove that the income from rentals and sales of real property were actually included under the heading "Other Earnings."19 Unfortunately, the CTA was not convinced that there was excusable negligence to justify the granting of a new trial.

Accordingly, the CA erred in ruling that respondent complied with the second requirement.

Respondent failed to present all the Certificates of Creditable Tax Withheld at Source.

The CA likewise failed to consider in its Decision the absence of several Certificates of Creditable Tax Withheld at Source. It immediately granted the refund without first verifying whether the fact of withholding was established by the Certificates of Creditable Tax

Withheld at Source as required under Section 10 of Revenue Regulation No. 6-85. As correctly pointed out by the CTA, the certifications (Exhibit UU) issued by respondent cannot be considered in the absence of the required Certificates of Creditable Tax Withheld at Source.

The burden is on the taxpayer to prove its entitlement to the refund.

Moreover, the fact that the petitioner failed to present any evidence or to

refute the evidence presented by respondent does not ipso facto entitle the respondent to a tax refund. It is not the duty of the government to disprove a taxpayer’s claim for refund. Rather, the burden of establishing the factual basis of a claim for a refund rests on the taxpayer.20

And while the petitioner has the power to make an examination of the returns and to assess the correct amount of tax, his failure to exercise such powers does not create a presumption in favor of the correctness of the returns. The taxpayer must still present substantial evidence to prove his claim for refund. As we have said, there is no automatic grant of a tax refund.21

Hence, for failing to prove its entitlement to a tax refund, respondent’s claim must be denied. Since tax refunds partake of the nature of tax exemptions, which are construed strictissimi juris against the taxpayer, evidence in support of a claim must likewise be strictissimi scrutinized and duly proven.22

WHEREFORE, the petition is GRANTED. The assailed January 31, 2006 Decision of the Court of Appeals in CA-G.R. SP No. 56773 and its July 19, 2006 Resolution are REVERSED and SET ASIDE. The October 4, 1999 Decision of the Court of Tax Appeals denying respondent’s claim for tax refund for failure to prove that the income derived from rentals and SALE  of real property from which the taxes were withheld were reflected in its 1994 Annual Income Tax Return, is REINSTATED and AFFIRMED.

SO ORDERED.

G.R. No. L-23912

COMMISSIONER OF INTERNAL REVENUE, petitioner, 

vs.

JOSE CONCEPCION, as Ancillary Administrator of the Estate of Mary H. Mitchel-Roberts (deceased), and JACK F. MITCHELL-ROBERTS, respondents.

Office of the Solicitor General for petitioner. Liedo, Andrada, Perez & Associates for respondents.FERNANDO, J.:

In this petition for the review of a decision of the Court of Tax Appeals, the

decisive question, one of first impression, is whether a taxpayer who had lost

his right to dispute the validity of an assessment, the period for appealing to

the Court of Tax Appeals having expired, as found by such Court in a

previous case in a decision now final, and who thereafter paid under protest

could then, relying on Section 306 of the National Internal Revenue

Code[[1]] sue for recovery on the ground of its illegality? The Court of Tax

Appeals, in the decision under review, answered in the affirmative. We hold

otherwise and accordingly reverse.

In CTA Case No. 669, respondent Jose Concepcion, as ancillary

administrator of the estate of Mary H. Mitchell-Roberts, and respondent Jack

F. Mitchell-Roberts, husband of the deceased sought a refund of the sum of

P1,181.33 and P2,616.10 representing estate and inheritance taxes on 50

shares of stock of Edward J. Nell Company issued in the names of both

spouses "as joint tenants with full rights of survivorship and not as tenants in

common." The above assessment was made by petitioner Commissioner of

Internal Revenue on the ground that there was a transmission to the husband

of one-half share thereof upon the death of the wife, the above shares being

conjugal property. Respondents maintained on the other hand that there was

no transmission of property since under English law, ownership of all

property acquired during the marriage vests in the husband. Moreover, the

shares of stock were issued to the spouses "as joint tenants with full rights of

survivorship and not as tenants in common." Not being agreeable to the

theory entertained by petitioner Commissioner of Internal Revenue,

respondents, in a previous case, CTA Case No. 168, appealed such a decision

under Republic Act No. 1125. The Court of Tax Appeals, however,

dismissed such an appeal as the petition for review because it was filed

beyond the reglementary period of 30 days. That decision rendered on April

29, 1957, became final.

What next transpired was set forth in the appealed decision, CTA Case No.

669, thus: "Whereupon, on June 14, 1957, petitioners paid the taxes in

question amounting to P1,181.33 (as estate tax) and P2,616.10 (as inheritance

tax), inclusive of delinquency penalties, and at the same time filed a claim for

the refund of said amounts (Exh. A, BIR rec., pp. 83-87). In the claim for

refund, petitioners also invoked the reciprocity provision of Section 122 of

the Revenue Code (CTA rec., pp. 92-93). Without waiting for the decision of

respondent on the claim for refund, petitioner's instituted the instant appeal

on June 11, 1959 in order to avoid the prescriptive period of two years

provided for in Section 306 of the Revenue Code."[[2]]

Petitioner Commissioner of Internal Revenue, before the Court of Tax

Appeals, raised as one of its defenses the fact that respondents were

"estopped from denying the legality and correctness of the assessment for

estate and inheritance taxes in view of the fact that they paid the same in

pursuance of a decision of the Commissioner which has become final,

executory and demandable as a result of the dismissal of CTA Case No.

168, . . ."[[3]] Such a defense was considered unavailing by the Court of Tax

Appeals by virtue of its decision in La Paz y Buen Viaje Cigar & Cigarette

Factory v. Commissioner of Internal Revenue.[[4]] It was the view of the Court

of Tax Appeals that with no procedural obstacle to stand in the way and with

the spouses, both non-resident English subjects, being married in England,

their property relation thus being governed by English law, the national law

of the husband, by virtue of which there was no transmission of property

from wife to husband, governs, with the result that no tax was demandable.

Petitioner Commissioner of Internal Revenue was ordered to refund the

inheritance and estate taxes paid in the amount of P3,797.43. Hence this

petition for review.

The Court of Tax Appeals in relying on its previous decision in the La Paz y

Buen Viaje Cigar & Cigarette Factory and ruling against the defense of the

finality of the assessment, after the dismissal of the appeal in CTA No. 168 in

view of the failure to have it filed within the reglementary period of thirty

(30) days, must have been of the belief that this Court, in affirming its

decision on March 30, 1963, without however passing on the above question,

did give an indication of its probable thinking on the matter. Such is not a

correct appraisal of the situation however, for on March 30, 1963, the very

same day its La Paz y Buen Viaje decision was affirmed, the opinion

in Republic of the Philippines v. Lopez[[5]] was handed down. This is

an appeal by the Republic from an order of the Court of First Instance of

Baguio dismissing its complaint for collection of a deficiency income tax

against defendant Lopez on the ground that the action had prescribed. After

noting that prescription as a defense did not lie, this Court, in an opinion by

Justice J.B.L. Reyes, likewise stated: "Another ground for reversing the

dismissal of the complaint is that the proper remedy of the taxpayer against

the assessment complained of was to appeal the ruling of the Collector to the

Court of Tax Appeals. . . ." The precise question in this litigation then, while

undoubtedly one of novelty, is not without illumination supplied by

radiations from past decisions.

For subsequently, in Republic v. Lim Tian Teng Sons & Co. Inc.,[[6]] the above doctrine was reaffirmed categorically in this language:

"Taxpayer's failure to appeal to the Court of Tax Appeal in due time made the

assessment in question final, executory and demandable. And when the

action was instituted on September 2, 1958 to enforce the deficiency

assessment in question, it was already barred from disputing the correctness

the assessment or invoking any defense that would reopen the question of his

tax liability on the merits. Otherwise, the period of thirty days for appeal to

the Court of Tax Appeals would make little sense." Once, the matter has

reached the stage of finality in view of the failure to appeal, it logically

follows, in the appropriate language of Justice Makalintal, in Morales v. Collector of Internal Revenue,[[7]] that it "could no longer be reopened

through the expedient of an appeal from the denial of petitioner's request for

cancellation of the warrant of distraint and levy."

In the same way then that the expedient of an appeal from a denial of a tax

request for cancellation of warrant of distraint and levy cannot be utilized for

the purpose of testing the legality of an assessment, which had become

conclusive and binding on the taxpayer, there being no appeal, the procedure

set forth in Section 306 of the National Internal Revenue Code is not

available to revive the right to contest the validity of an assessment once the

same had been irretrievably lost not only by the failure to appeal but likewise

by the lapse of the reglementary period within which to appeal could have

been taken. Clearly then, the liability of respondent Concepcion as an

ancillary administrator of the estate of the deceased wife and of respondent

Mitchell-Roberts as the husband for the amount of P1,181.33 as estate tax

and P2,616.10 as inheritance tax was beyond question. Having paid the same,

respondents are clearly devoid of any legal right to sue for recovery. The

decision of the Court of Tax Appeals ordering petitioner Commissioner of

Internal Revenue to refund the above total sum of P3,797.43 cannot stand.

WHEREFORE, the decision of the respondent Court of Tax Appeal under

review is reversed. With costs against respondents.

Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro and Angeles, JJ., concur.

G.R. No. 138485      September 10, 2001

DR. FELISA L. VDA. DE SAN AGUSTIN, in substitution of JOSE Y. FERIA, in his capacity as Executor of the Estate of JOSE SAN AGUSTIN, petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, respondent.

VITUG,, J.:

Before the Court is a petition for review seeking to set aside the decision of 24 February 1999 of the Court of Appeals, as well as its resolution of 27 Apri11999, in CA-G.R. SP No. 34156, which has reversed that of the Court of Tax Appeals in CTA Case No.4956, entitled "Jose V. Feria, in his capacity as Executor of the Estate of Jose San Agustin versus Commissioner of Internal Revenue." The tax court's decision has modified the deficiency assessment of the Commission of Internal Revenue for surcharge, interests and other penalties imposed against the estate of the late Jose San Agustin.

The facts of the case narrated by the appellate court would appear, by and large, to be uncontroverted; thus viz:

"Atty. Jose San Agustin of 2904 Kakarong St., Olympia, Makati died on June 27, 1990 leaving his wife Dra. Felisa L. San Agustin as sole heir. He left a holographic will executed on April 21, 1980 giving all his estate to his widow, and naming retired Justice Jose Y. Feria as Executor thereof.

"Probate proceedings were instituted on August 22, 1990, in the Regional Trial Court (RTC) of Makati, Branch 139, docketed as Sp. Proc. No. M-2554. Pursuantly, notice of decedent's death was sent to the Commissioner of Internal Revenue on August 30, 1990.1âwphi1.nêt

"On September 3, 1990, an estate tax return reporting an estate tax due of P1,676,432.00 was filed on behalf of the estate, with a request for an extension of two years for the payment of the tax, inasmuch as the decedent's widow ( did) not personally have sufficient funds, and that the payment (would) have to come from the estate.

"In his letter/answer, dated September 4, 1990, BIR Deputy Commissioner Victor A. Deoferio, Jr., granted the heirs an extension of only six (6) months, subject to the imposition of penalties and interests under Sections 248 and 249 of the National Internal Revenue Code, as amended.

"In the probate proceedings, on October 11, 1990 the RTC allowed the will and appointed Jose Feria as Executor of the estate. On December 5, 1990, the executor submitted to the probate court an inventory of the estate with a motion for authority to withdraw funds for the payment of the estate tax.

Such authority was granted by the probate court on March 5, 1991 .Thereafter, on March 8, 1991 , the executor paid the estate tax in the amount of P1,676,432 as

reported in the Tax Return filed with the BIR. This was well within the six (6) months extension period granted by the BIR.

"On September 23, 1991, the widow of the deceased, Felisa L. San Agustin, received a Pre-Assessment Notice from the BIR, dated August 29, 1991, showing a deficiency estate tax of P538,509.50, which, including surcharge, interest and penalties, amounted to P976,540.00.

"On October 1, 1991, within the ten-day period given in the pre-assessment notice, the executor filed a letter with the petitioner Commissioner expressing readiness to pay the basic deficiency estate tax of P538,509.50 as soon as the Regional Trial Court approves withdrawal thereof, but, requesting that the surcharge, interest, and other penalties, amounting to P438,040.38 be waived, considering that the assessed deficiency arose only on account of the difference in zonal valuation used by the Estate and the BIR, and that the estate tax due per return of P1,676,432.00 was already paid in due time within the extension period.

"On October 4, 1991, the Commissioner issued an Assessment Notice reiterating the demand in the pre- assessment notice and requesting payment on or before thirty (30) days upon receipt thereof.

"In a letter, dated October 31, 1991, the executor requested the Commissioner a reconsideration of the assessment of P976,549.00 and waiver of the surcharge, interest, etc.

"On December 18, 1991, the Commissioner accepted payment of the basic deficiency tax in the amount of P538,509.50 through its Receivable Accounts Billing Division.

"The request for reconsideration was not acted upon until January 21, 1993, when the executor received a letter, dated September 21, 1992, signed by the Commissioner, stating that there is no legal justification for the waiver of the interests, surcharge and compromise penalty in this case, and requiring full payment of P438,040.38 representing such charges within ten (10) days from receipt thereof.

"In view thereof, the respondent estate paid the amount of P438,040.38 under protest on January 25, 1993.

"On February 18, 1993, a Petition for Review was filed by the executor with the CT A with the prayer that the Commissioner's letter/decision, dated September 21, 1992 be reversed and that a refund of the amount of P438,040.38 be ordered .

"The Commissioner opposed the said petition, alleging that the CTA's jurisdiction was not properly invoked inasmuch as no claim for a tax refund of the deficiency tax collected was filed with the Bureau of Internal Revenue before the petition was filed, in violation of Sections 204 and 230 of the National Internal Revenue Code. Moreover, there is no statutory basis for the refund of the deficiency surcharges,

interests and penalties charged by the Commissioner upon the estate of the decedent.

"Upholding its jurisdiction over the dispute, the CTA rendered its Decision, dated April 21, 1994, modifying the CIR's assessment for surcharge, interests and other penalties from P438,040.38 to P13,462.74, representing interest on the deficiency estate tax, for which reason the CTA ordered the reimbursement to the respondent estate the balance of P423,577.64, to wit:

"WHEREFORE, respondent's deficiency assessment for surcharge, interests, and other penalties is hereby modified and since petitioner has clearly paid the full amount of P438,040.38, respondent is hereby ordered to refund to the Estate of Jose San Agustin the overpayment amounting to P423,577.64."1

On 30 May 1994, the decision of the Court of Tax Appeals was appealed by the Commissioner of Internal Revenue to the Court of Appeals. There, the petition for review raised the following issues:

"1. Whether respondent Tax Court has jurisdiction to take cognizance of the case considering the failure of private respondent to comply with the mandatory requirements of Sections 204 and 230 of the National Internal Revenue Code.

"2. Whether or not respondent Tax Court was correct in ordering the refund to the Estate of Jose San Agustin the reduced amount of P423,577.64 as alleged overpaid surcharge, interests and compromise penalty imposed on the basic deficiency estate tax of P538,509.50 due on the transmission of the said Estate to the sole heir in 1990."2

In its decision of 24 February 1999, the Court of Appeals granted the petition of the Commissioner of Internal Revenue and held that the Court of Tax Appeals did not acquire jurisdiction over the subject matter and that, accordingly, its decision was null and void.

Hence, the instant petition where petitioner submits that -

"1. The filing of a claim for refund [is] not essential before the filing of the petition for review.

"2. The imposition by the respondent of surcharge, interest and penalties on the deficiency estate tax is not in accord with the law and therefore illegal."3

The Court finds the petition partly meritorious.

The case has a striking resemblance to the controversy in Roman Catholic Archbishop of Cebu vs. Collector of Internal Revenue.4

The petitioner in that case paid under protest the sum of P5,201.52 by way of income tax, surcharge and interest and, forthwith, filed a petition for review before the Court of Tax Appeals. Then respondent Collector (now Commissioner) of Internal Revenue set up

several defenses, one of which was that petitioner had failed to first file a written claim for refund, pursuant to Section 306 of the Tax Code, of the amounts paid. Convinced that the lack of a written claim for refund was fatal to petitioner's recourse to it, the Court of Tax Appeals dismissed the petition for lack of jurisdiction. On appeal to this Court, the tax court's ruling was reversed; the Court held:

"We agree with petitioner that Section 7 of Republic Act No.1125, creating the Court of Tax Appeals, in providing for appeals from -

'(1) Decisions of the Collector 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 law or part of the law administered by the Bureau of Internal Revenue -

allows an appeal from a decision of the Collector in cases involving' disputed assessments' as distinguished from cases involving' refunds of internal revenue taxes, fees or other charges, x x'; that the present action involves a disputed assessment'; because from the time petitioner received assessments Nos. 17-EC-00301-55 and 17-AC-600107-56 disallowing certain deductions claimed by him in his income tax returns for the years 1955 and 1956, he already protested and refused to pay the same, questioning the correctness and legality of such assessments; and that the petitioner paid the disputed assessments under protest before filing his petition for review with the Court a quo, only to forestall the SALE  of his properties that had been placed under distraint by the respondent Collector since December 4, 1957. To hold that the taxpayer has now lost the right to appeal from the ruling on, the disputed assessment but must prosecute his appeal under section 306 of the Tax Code, which requires a taxpayer to file a claim for refund of the taxes paid as a condition precedent to his right to appeal, would in effect require of him to go through a useless and needless ceremony that would only delay the ! disposition of the case, for the Collector (now Commissioner) would cer1ainly disallow the claim for refund in the same way as he disallowed the protest against the assessment. The law, should not be interpreted as to result in absurdities."5

The Court sees no cogent reason to abandon the above dictum and to require a useless formality that can serve the interest of neither the government nor the taxpayer. The tax court has aptly acted in taking cognizance of the taxpayer's appeal to it.

On the second issue, the National Internal Revenue Code, relative to the imposition of surcharges, interests, and penalties, provides thusly:

"Sec. 248. Civil Penalties. -

"(a) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent (25% ) of the amount due, in the following cases:

"(1) Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules and regulations on the date prescribed; or

"(2) Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other than those with whom the return is required to be filed; or

"(3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or

"(4) Failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of this Code or rules and regulations, or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment."

"Sec.249. Interest. -

"(A) In General. -There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations, from the date prescribed for payment until the amount is fully paid.

"(B) Deficiency Interest. - Any deficiency in the tax due, as the term is defined in this Code, shall be subject to the interest prescribed in Subsection (A) hereof, which interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof.

"(C) Delinquency Interest. -In case of failure to pay:

"(1) The amount of the tax due on any return to be filed, or

"(2) The amount of the tax due for which no return is required, or

"(3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner, there shall be assessed and collected on the unpaid amount, interest at the rate prescribed in Subsection (A) hereof until the amount is fully paid, which interest shall form part of the tax.

"(D) Interest on Extended Payment. -If any person required to pay the tax is qualified and elects to pay the tax on installment under the provisions of this Code, but fails to pay the tax or any installment hereof, or any part of such amount or installment on or before the date prescribed for its payment, or where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof, there shall be assessed and collected interest at the rate hereinabove prescribed on the tax or deficiency tax or any part thereof unpaid from the date of notice and demand until it is paid."

It would appear that, as early as 23 September 1991, the estate already received a pre-assessment notice indicating a deficiency estate tax of P538,509.50. Within the ten-day period given in the pre-assessment notice, respondent Commissioner received a letter from petitioner expressing the latter's readiness to pay the basic deficiency estate tax of P538,509.50 as soon as the trial court would have approved the withdrawal of that sum

from the estate but requesting that the surcharge, interests and penalties be waived. On 04 October 1991, however, petitioner received from the Commissioner notice insisting payment of the tax due on or before the lapse of thirty (30) days from receipt thereof. The deficiency estate tax of P538,509.50 was not paid until 19 December 1991.6

The delay in the payment of the deficiency tax within the time prescribed for its payment in the notice of assessment justifies the imposition of a 25% surcharge in consonance with Section 248A(3) of the Tax Code. The basic deficiency tax in this case being P538,509.50, the twenty-five percent thereof comes to P134,627.37. Section 249 of the Tax Code states that any deficiency in the tax due would be subject to interest at the rate of twenty percent (20%) per annum, which interest shall be assessed and collected from the date prescribed for its payment until full payment is made. The COMPUTATION  of interest by the Court of Tax Appeals -

"Deficiency estate tax

P538,509.50

x Interest Rate20% per annum

x Terms11/2 mo./12 mos

(11/04/91 to 12/19/91)

= P13,462.74"7

conforms with the law, i.e., COMPUTED  on the deficiency tax from the date prescribed for its payment until it is paid.

The Court of Tax Appeals correctly held that the compromise penalty of P20,000.00 could not be imposed on petitioner, a compromise being, by its nature, mutual in essence. The payment made under protest by petitioner could only signify that there was no agreement that had effectively been reached between the parties.

Regrettably for petitioner, the need for an authority from the probate court in the payment of the deficiency estate tax, over which respondent Commissioner has hardly any control, is not one that can negate the application of the Tax Code provisions aforequoted. Taxes, the lifeblood of the government, are meant to be paid without delay and often oblivious to contingencies or conditions.

In. sum, the tax liability of the estate includes a surcharge of P134,627.37 and interest of P13,462.74 or a total of P148,090.00.

WHEREFORE, the instant petition is partly GRANTED. The deficiency assessment for surcharge, interest and penalties is modified and recomputed to be in the amount of P148,090.00 surcharge of P134,627.37 and interest of P13,462.74. Petitioner estate having since paid the sum of P438,040.38, respondent Commissioner is hereby ordered to refund to the Estate of Jose San Agustin the overpaid amount of P289,950.38. No costs.

SO ORDERED.1âwphi1.nêt

G.R. No. 86785 November 21, 1991

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.COURT OF APPEALS and ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION,respondents.

Redentor G. Guyala for private respondent.

M.L. Gadioma Law Office collaborating counsel for private respondent.

REGALADO, J.:p

With commendable zeal, petitioner, through the Solicitor General, assails the decision in CA-G.R. No. 15429 of the Court of Appeals, 1 promulgated on January 20, 1989, affirming the decision of the Court of Tax Appeals in C.T.A. Case No. 2778 which granted a tax credit of P170,476.64 representing ad valorem taxes paid by private respondent for the period from the first quarter of 1974 to the third quarter of 1975.

The findings of fact of the Court of Tax Appeals, which were adopted by the Court of Appeals, are not disputed by petitioner and are hereunder reproduced:

1. Petitioner is a mining corporation duly organized and existing under and virtue of the laws of the Philippines, having its offices at A. Soriano Bldg., Ayala Avenue, Makati, Rizal. It is engaged primarily in the mining of copper ore from its mines property and concessions in a barrio called Don Andres Soriano, Toledo, Province of Cebu, and reputedly the biggest copper mine in Asia (t.s.n., pp. 6, 18-19, hearing 10/1/82.)

2. Petitioner used the open pit method digging away the copper ore deposits. This consists of removing all surface and top materials of limestone, soil and rocks to reach into the copper ore deposits found below. (t.s.n., pp. 19-21, 10/1/82; pp. 16-17, 2/17/83.)

3. Petitioner is the owner of the land or surface rights of the Biga Lime Quarry located on Toledo City containing limestone. (Exhs. G-1, H, H-1 to H-17, K; t.s.n., pp. 18, 22, 24, 31-32, 10/1/82) And as such owner, petitioner is not required, during the years covered in this case (1973-1975), to secure a government permit to dig out the limestone. (Sec. 67, P.D. 463; Sec. 63, Consolidated Mines Administrative Order; t.s.n., pp. 21-24, 10/1/82.)

4. Beneath the surface of the Biga Lime Quarry are deposits of copper ore, and to mine these copper deposits, petitioner had to remove and dig out the surface materials of limestone soil and rocks. Apparently, most of the limestone was left in the mine site as waste, although a small portion thereof was utilized by petitioner as a flotation agent in the conversion of the copper rocks into concentrates. On the basis of the evidence, the limestone was first

processed by petitioner into lime; and the lime became a cleansing reagent, by chemical reaction with water, in the conversion of the copper ore into copper concentrate. The effect of the lime mixed with water was to cause the copper mineral powder to float and caused the unwanted waste like lime and other materials to sink. This waste at the bottom of the conveyor was thrown away as tailings while the floating copper powder was accumulated and dried, known as copper concentrate. This was the mineral ore that was exported to Japan for processing into copper cathodes and rods. Evidently, the lime does not become part of the concentrate. (Exhs. I; J; t.s.n., p. 16, 5/4/81; pp. 16-17, 20-27, 10/1/82.)

5. As shown from the records, the limestone processed into lime and used as flotation agent was never removed from the mines concession of petitioner. Even the tailings, topsoil waste and rocks, were left in the mines site as waste. (t.s.n., pp. 21-27, 10/1/ 82; p. 6. 5/14/81.)

6. The processing by petitioner of the limestone was done completely inside the concession. (t.s.n., pp. 8, 10/29/83; pp. 28, 31, 10/1/82; pp. 21-22, 10/1/83.) And nobody PURCHASED  the limestone or the lime manufactured from it. (t.s.n., p. 29, 10/1/83/.) Seemingly, neither the limestone not the processed "lime" possessed market value. (t.s.n., pp. 5-7, 9/29/83; pp. 7-8, 13-14, 5/14/81; Exhs. D, D-11.)

7. The evidence presented shows that for cost accounting and internal management control, petitioner assigned "cost estimates" to each and every identifiable activity or process involved in the mining of copper from blasting and digging and hauling to loading for export. Invariably, cost was assigned to the process of digging out the copper rocks, crushing and pulverizing them, and converting the mineral into exportable copper concentrate to exporting the concentrate. It was from this assignment of cost estimate to the process of producing lime from the limestone, that petitioner established that the "production cost" of lime, during the period involved in this case, was P72,096.25. (Exhs. A-d, D-1, F-1 to F-3; t.s.n., pp. 7-14, 5/14/81; pp. 3-4, 8-9, 13-17, 2/17/83; pp. 5-8, 9/29/83.)

8. It was this production cost of "lime" that petitioner used in COMPUTING  the ad valorem tax of P181,925.25 representing tax on the lime, . . . 2

On December 22, 1975, petitioner filed with the Commissioner of Internal Revenue its claim for tax credit of the aforesaid sum of P181,925.25 which it paid as ad valorem tax. On February 18, 1976, since no action was seasonably taken by the Commissioner of Internal Revenue on the claim, petitioner filed a petition for review with the Court of Tax Appeals.

On February 16, 1988, the Court of Tax Appeals rendered judgment in favor of private respondent ordering therein respondent Commissioner of Internal Revenue "to grant a tax credit to petitioner Atlas Consolidated Mining & Development Corporation in the amount of

P170,476.64 representing erroneously paid ad valorem tax for the period from the 1st quarter of 1974 to the 3rd quarter of 1975." 3

Not satisfied therewith, petitioner filed with this Court a petition for review on certiorari, which petition was referred to the Court of Appeals and re-docketed therein as CA-G.R. SP No. 15429. On January 20, 1989, respondent Court of Appeals affirmed the decision of the Court of Tax Appeals and dismissed the petition for lack of merit. 4

Before us, petitioner raises the sole issue of whether limestone dug out and processed into lime used in the production of copper concentrates is subject to ad valorem tax imposed by Section 243 of the then applicable National Internal Revenue Code (Section 255 of the Internal Revenue Code of 1977, as amended). It is petitioner's submission that the aforementioned ad valorem tax is a severance tax and is due and payable upon removal of the mineral from its bed or mine.

The petition cannot prosper.

The ad valorem tax under Section 243 of the old Tax Code is a tax not on the minerals but upon the taxpayer's privilege of severing or extracting minerals or mineral products from the earth, the Government's right to exact said imposed springing from the Regalian theory of State ownership of its natural resources. 5

The pertinent provisions of the old Tax Code read as follows:

Sec. 243. Ad valorem taxes on output of mineral lands not covered by leases. — There is hereby imposed on the actual market value of the annual gross output of the minerals or mineral product extracted or produced from all mineral lands not covered by lease, an ad valorem tax in the amount of two per centum of the value of the output, except gold which shall pay one and one-half per centum.

Before the minerals or mineral products are removed from the mines, the Commissioner of Internal Revenue or his representatives shall first be notified of such removal on a form prescribed for the purpose. (As amended by Sec. 21, Republic Act No. 909, and Sec. 48, Republic Act No. 6110).

Sec. 245. Time and manner of payment of royalties or ad valorem taxes. — The royalties or ad valorem taxes, as the case may be, shall be due and payable upon the removal of the mineral products from the locality where mined. . . . .

Under the aforementioned provisions, although all minerals and mineral products extracted from the mineral lands are subject to ad valorem tax, however, the said tax becomes due and payable only upon removal of the same from the locality where mined. In the case at bar, the limestone were admittedly never removed from the mine site nor did they become component parts of the copper concentrates. Moreover, it should be noted that said tax is imposed only on the actual market value of mineral products extracted or produced. 6 This is confirmed by the second paragraph of said Section 243 which requires prior notification to the Commissioner of Internal Revenue or his representative before the minerals or mineral products are removed from the mines. Such requirements is obviously intended to enable him

to assess and collect the proper ad valorem taxes, which necessarily presupposes that such minerals or mineral product have an actual market value.

As found by both lower courts, in the case of private respondent the evidence shows that the limestone removed from its mineral lands, together with other surface materials, had no actual market value. The Court of Tax Appeals ramified that the utilization of waste limestone by herein private respondent, which is engaged in mining copper ore, by converting such waste into lime as a cleansing reagent in the conversion of copper into copper concentrate, was merely incidental to its mining copper ore operation for which it is adequately taxed. 7 It is not engaged i the district business of extracting limestone in order to serve other persons or commercial entities therewith.

Thus, respondent Court of Appeals oppositely declares:

It is clear from the above provision that the ad valorem tax charged therein is assessed and collected on "actual market value" of the annual gross output of the minerals extracted or the mineral products produced from the mineral lands of the taxpayer. But "to extract" as pointed out by respondent Atlas, means "to separate an ore or mineral from a deposit" (p. 80, Rollo), so that the word "extract" used in the above Sec. 243, when applied to the case of Atlas, means that its taxable operation is its business or activity of extracting copper minerals or ore from the deposit in its mining lands. The presence of limestone together with other surface materials as soil and rocks on its mineral lands is, however, only an accident; in the words of respondent Atlas, "in fact, as obstruction blocking the separation of the copper sought" by it from said lands (id). Hence, the removal of these obstructions, like the removal of other surface materials like soil and rocks, from the mineral lands where the copper ore is buried, cannot be the "extraction" contemplated by Sec. 243.

The process by which respondent Atlas extracts copper mineral or ore from its mineral lands in the course of which it digs away and removes all the surface top materials thereon including limestone, is very well described in the decision of the respondent CTA as follows:

1. Petitioner (Atlas Consolidated) had to dig away and remove all the surface top materials consisting of limestone, top soil and rocks to reach into the copper ore deposits found below. As a matter of fact, as stated above, petitioner as owner of the surface right was not even required to secure a government permit to dig out the limestone.

2. Most of the limestone was left in the mine site as waste, although a small portion thereof was utilized by petitioner as a flotation agent in the conversion of the copper rocks into concentrates. The limestone was first processed by petitioner into lime, and by chemical reaction with water, the lime became a cleansing reagent in the conversion of the copper ore into copper concentrate. It appears that the effect of the lime, mixed with water, was to cause the copper mineral powder to float and caused the unwanted waste like lime and other materials to sink which were thrown away as tailings. The

floating copper powder was accumulated and dried, known as copper concentrate which was the mineral exported to Japan for processing into copper cathodes and rods. The lime did not become part of the concentrate.

3. The limestone processed into lime and used as flotation agent was never removed from the mine concession of petitioner. And the record reveals that neither the limestone not the processed lime possessed market value. 8

On the promise, therefore, that the extraction or removal by private respondent of limestone from its mineral lands is a mere incident in its copper ore mining operations for which it is already taxed, both courts held that to impose another set of tax on said limestone which has no commercial value would be tantamount to double taxation. Such an imposition, avers respondent court, has been repeatedly proscribed in our decisional pronouncements to the effect that where a taxpayer is engaged in a distinct business and, as a feature thereof, in an activity merely incidental which serves no other person or business, the incidental activity should not be separately or additionally taxed. 9 Petitioner takes vigorous exception thereto, stigmatizing the reliance on said cases as erroneous and misplaced since what is involved in the case at bar is a mining tax while

the cited cases DEAL  with privilege taxes.

We agree, for purposes of the issue involve in the present case, with the ratiocination of respondent court in holding that, under the factual situation obtaining herein, there is no substantial difference between privilege taxes and mining taxes, specifically the ad valorem tax imposed in Section 243 of the old Tax Code, insofar as the prohibition against double taxation is concerned. It calls our attention to petitioner's own admission that said ad valorem tax is really a tax on the privilege of extracting or producing minerals or mineral products from the earth, a principle taken from the Republic Cement Corporation case, supra. Respondent court plausibly concludes therefrom that the ad valorem tax in question is really in the nature of a privilege tax, hence, the aforesaid rulings in the cited cases, involving privilege taxes and the forbiddance against the imposition of another tax on an activity incidental to the principal business, should apply to the instant case.

Generally, statutes levying taxes or duties are to be construed strongly against the Government and in favor of the subject or citizens, because burdens are not to be imposed or presumed to be imposed beyond what statutes expressly and clearly declare. 10 No person or property is subject to taxation unless they fall within the terms or plain import of a taxing statute.11

Moreover, it has been the long standing policy and practice of this Court to respect the conclusions of quasi-judicial agencies, such as the Court of Tax Appeals which, by the nature of its functions, is dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of its authority. 12 Therefore, finding no such abuse or improvident exercise of authority or discretion, the decision of respondent court, affirming that of the Court of Tax Appeals, must consequently by upheld.

ON THE FOREGOING CONSIDERATIONS, the petition at bar is DENIED and the judgment of respondent Court of Appeals is hereby AFFIRMED.

SO ORDERED.

G.R. No. 96322 December 20, 1991

ACCRA INVESTMENTS CORPORATION, petitioner, vs.THE HONORABLE COURT OF APPEALS, COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents.

Angara, Abello, Concepcion, Regala & Cruz for petitioner.

 

GUTIERREZ, JR., J.:p

This petition for review on certiorari presents the issue of whether or not the petitioner corporation is barred from recovering the amount of P82,751.91 representing overpaid taxes for the taxable year 1981.

The petitioner corporation is a domestic corporation engaged in the business of real estate investment and management consultancy.

On April 15, 1982, the petitioner corporation filed with the Bureau of Internal Revenue its annual corporate income tax return for the calendar year ending December 31, 1981 reporting a net loss of P2,957,142.00 (Exhibits "B", "B-1" to "B-10"). In the said return, the petitioner corporation declared as creditable all taxes withheld at source by various withholding agents, as follows:

Withholding Agent Amount Withheld

a) Malayan Insurance Co., Inc. P1,429.97

(Exh. "C")

b) Angara Concepcion Regala

& Cruz Law Offices P73,588.00

(Exh. "D")

c) MJ Development Corp. P 1,155.00 (Exh. "E")

d) Philippine Global Communications,

Inc. (Exh. "F") 6,578.94

TOTAL P82,751.91

(CTA Decision, p. 4; Records, p. 10)

The withholding agents aforestated paid and remitted the above amounts representing taxes on rental, commission and consultancy income of the petitioner corporation to the Bureau of Internal Revenue from February to December 1981.

In a letter dated December 29, 1983 addressed to the respondent Commissioner of Internal Revenue (Exh. "G"), the petitioner corporation filed a claim for refund inasmuch as it had no tax liability against which to credit the amounts withheld.

Pending action of the respondent Commissioner on its claim for refund, the petitioner corporation, on April 13, 1984, filed a petition for review with the respondent Court of Tax Appeals (CTA) asking for the refund of the amounts withheld as overpaid income taxes.

On January 27, 1988, the respondent CTA dismissed the petition for review after a finding that the two-year period within which the petitioner corporation's claim for refund should have been filed had already prescribed pursuant to Section 292 of the National Internal Revenue Code of 1977, as amended.

Acting on the petitioner corporation's motion for reconsideration, the respondent CTA in its resolution dated September 27, 1988 denied the same for having been filed out of time. It ruled that the reckoning date for purposes of counting the two-year prescriptive period within which the petitioner corporation could file a claim for refund was December 31, 1981 when the taxes withheld at source were paid and remitted to the Bureau of Internal Revenue by its withholding agents, not April 15, 1982, the date when the petitioner corporation filed its final adjustment return.

On January 14, 1989, the petitioner corporation filed with us its petition for review which we referred to the respondent appellate court in our resolution dated February 15, 1990 for proper determination and disposition.

On May 28, 1990, the respondent appellate court affirmed the decision of the respondent CTA opining that the two-year prescriptive period in question commences "from the date of payment of the tax" as provided under Section 292 of the Tax Code of 1977 (now Sec. 230 of the National Internal Revenue Code of 1986), i.e., "from the end of the tax year when a taxpayer is deemed to have paid all taxes withheld at source", and not "from the date of the filing of the income tax return" as posited by the petitioner corporation (CA Decision, pp. 3-5; Rollo, pp. 27-29).

Its motion for reconsideration with the respondent appellate court having been denied in a resolution dated November 20, 1990, the petitioner corporation (ACCRAIN) elevated this case to us presenting as main arguments, to wit:

I

ACCRAIN'S JUDICIAL ACTION FOR RECOVERY OF CREDITABLE TAXES ERRONEOUSLY WITHHELD AT SOURCE WAS FILED ON TIME.

II

THE RECKONING DATE FOR THE COMMENCEMENT OF THE TWO-YEAR PRESCRIPTIVE PERIOD IS 15 APRIL 1982. ACCORDINGLY, THE 13 APRIL 1984 ACTION OFACCRAIN FOR THE RECOVERY OF TAXES ERRONEOUSLY WITHHELD AT SOURCE IN 1981 IS NOT BARRED AND ACCRAIN IS ENTITLED TO THE REFUND OF P82,751.91 OF SUCH TAXES. (Rollo, p. 116)

We find merit in the petitioner corporation's postures.

Crucial in our resolution of the instant case is the interpretation of the phraseology "from the date of payment of the tax" in the context of Section 230 (formerly sec. 292) of the National Internal Revenue Code of 1986, as amended, which provides that:

Sec. 230. Recovery of tax erroneously or illegally collected. — No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall begin after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, that the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears to have been erroneously paid. (Emphasis supplied)

The respondent appellate court citing the case of Gibbs v. Commissioner of Internal Revenue (155 SCRA 318 [1965]), construed the phrase "from the date of payment" as to be reckoned from "the end of the tax year" when the petitioner corporation was deemed to have paid its tax liabilities in question under the withholding tax system. (CA Decision, pp. 4-5; Rollo, pp. 28-29)

The respondent appellate court in this case has misapplied jurisprudential law. In the Gibbs case, supra, cited by the Court of Appeals, we have clearly stated that:

Payment is a mode of extinguishing obligations (Art. 1231, Civil Code) and it means not only the delivery of money but also the performance, in any other manner, of an obligation (id., Art. 1231). A taxpayer, resident or non-resident, does so not really to deposit an amount to the Commissioner of Internal Revenue, but, in truth, to perform and extinguish his tax obligation for the year concerned. In other words, he is paying his tax liabilities for that year. Consequently, a taxpayer whose income is withheld at source will be deemed to have paid his tax liability end of the tax year. It is from twhen the same falls due at the his latter date then, or when thtwo-year prescriptive period under

Section 306 (now pae tax liability falls due, that the rt of Section 230) of the Revenue Code starts to run with respect to payments effected through the withholding tax system. ... (At p. 325; Emphasis supplied)

The aforequoted ruling presents two alternative reckoning dates, i.e., (1) the end of the tax year; and (2) when the tax liability falls due. In the instant case, it is undisputed that the petitioner corporation's withholding agents had paid the corresponding taxes withheld at source to the Bureau of Internal Revenue from February to December 1981. In having applied the first alternative date - "the end of the tax year" in order to determine whether or not the petitioner corporation's claim for refund had been seasonably filed, the respondent appellate court failed to appreciate properly the attending circumstances of this case.

The petitioner corporation is not claiming a refund of overpaid withholding taxes, per se. It is asking for the recovery of the sum of P82,751.91.00, the refundable or creditable amount determined upon the petitioner corporation's filing of the its final adjustment tax return on or before 15 April 1982 when its tax liability for the year 1981 fell due. The distinction is essential in the resolution of this case for it spells the difference between being barred by prescription and entitlement to a refund.

Under Section 49 of the National Internal Revenue Code of 1986, as amended, it is explicitly provided that:

Sec. 49. Payment and assessment of income tax for individuals and corporations.

(a) Payment of tax — (1) In general. —- The total amount of tax imposed by this Title shall be paid by the person subject thereto at the time the return is filed. ...

Section 70, subparagraph (b) of the same Code states when the income tax return with respect to taxpayers like the petitioner corporation must be filed. Thus:

Sec. 70 (b) Time of filing the income return - The corporate quarterly declaration shall be filed within sixty (60) days following the close of each of the first three quarters of the taxable year. The final adjustment return shall be filed on or before the 15th day of the 4th month following the close of the fiscal year, as the case may be. The petitioner corporation's taxable year is on a calendar year basis, hence, with respect to the 1981 taxable year, ACCRAIN had until 15 April 1982 within which to file its final adjustment return. The petitioner corporation duly complied with this requirement. On the basis of the corporate income tax return which ACCRAIN filed on 15 April 1982, it reported a net loss of P2,957,142.00. Consequently, as reflected thereon, the petitioner corporation, after due COMPUTATION , had no tax liability for the year 1981. Had there been any, payment thereof would have been due at the time the return was filed pursuant to subparagraph (c) of the aforementioned codal provision which reads:

Sec. 70 (c) - Time payment of the income tax - The income tax due on the corporate quarterly returns and the final income tax returns COMPUTED  in accordance with Sections 68 and 69 shall be paid at the time the declaration or return is filed asprescribed by the Commissioner of Internal Revenue. If we were to uphold the respondent appellate court in making the "date of payment" coincide with the "end of the taxable year," the petitioner corporation at the end of the 1981 taxable year was in no position then to determine whether it was liable or not for the payment of its 1981 income tax.

Anent claims for refund, section 8 of Revenue Regulation No. 13-78 issued by the Bureau of Internal Revenue requires that:

Section 8. Claims for tax credit or refund — Claims for tax credit or refund of income tax deducted and withheld on income payments shall be given due course only when it is shown on the return that the income payment received was declared as part of the gross income and the fact of withholding is established by a copy of the statement, duly issued by the payor to the payee (BIR Form No. 1743-A) showing the amount paid and the amount of tax withheld therefrom.

The term "return" in the case of domestic corporations like ACCRAIN refers to the final adjustment return as mentioned in Section 69 of the Tax Code of 1986, as amended, which partly reads:

Sec. 69. Final Adjustment Return - Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year the corporation shall either:

(a) Pay the excess tax still due; or

(b) Be refunded the excess amount paid, as the case may be.

Clearly, there is the need to file a return first before a claim for refund can prosper inasmuch as the respondent Commissioner by his own rules and regulations mandates that the corporate taxpayer opting to ask for a refund must show in its final adjustment return the income it received from all sources and the amount of withholding taxes remitted by its withholding agents to the Bureau of Internal Revenue. The petitioner corporation filed its final adjustment return for its 1981 taxable year on April 15, 1982. In our Resolution dated April 10, 1989 in the case ofCommissioner of Internal Revenue v. Asia Australia Express, Ltd. (G. R. No. 85956), we ruled that the two-year prescriptive period within which to claim a refund commences to run, at the earliest, on the date of the filing of the adjusted final tax return. Hence, the petitioner corporation had until April 15, 1984 within which to file its claim for refund. Considering that ACCRAIN filed its claim for refund as early as December 29, 1983 with the respondent Commissioner who failed to take any action thereon and considering further that the non-resolution of its claim for refund with the said Commissioner prompted ACCRAIN to reiterate its claim before the Court of Tax Appeals through a petition

for review on April 13, 1984, the respondent appellate court manifestly committed a reversible error in affirming the holding of the tax court that ACCRAIN's claim for refund was barred by prescription.

It bears emphasis at this point that the rationale in COMPUTING  the two-year prescriptive period with respect to the petitioner corporation's claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations. The "date of payment", therefore, in ACCRAIN's case was when its tax liability, if any, fell due upon its filing of its final adjustment return on April 15, 1982.

WHEREFORE, in view of the foregoing, the petition is GRANTED. The decision of the Court of Appeals dated May 28, 1990 and its resolution of November 20, 1990 are hereby REVERSED and SET ASIDE. The respondent Commissioner of Internal Revenue is directed to refund to the petitioner corporation the amount of P82,751.91.

SO ORDERED.

G.R. No. 83736 January 15, 1992

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.

TMX SALES , INC. and THE COURT OF TAX APPEALS, respondents.

F.R. Quiogue for private respondent.

 

GUTIERREZ, JR., J.:

In a case involving corporate quarterly income tax, does the two-year prescriptive period to claim a refund of erroneously collected tax provided for in Section 292 (now Section 230) of the National Internal Revenue Code commence to run from the date the quarterly income tax was paid, as contended by the petitioner, or from the date of filing of the Final Adjustment Return (final payment), as claimed by the private respondent?

Section 292 (now Section 230) of the National Internal Revenue Code provides:

Sec. 292. Recovery of tax erroneously or illegally collected. — No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any

manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner of Internal Revenue; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case no such suit or proceeding shall be begun after the expiration of two years from the date of payment of that tax or penalty regardless of any supervening cause that may arise after payment: . . . (Emphasis supplied)

The facts of this case are uncontroverted.

Private respondent TMX SALES , Inc., a domestic corporation, filed its quarterly income tax return for the first quarter of 1981, declaring an income of P571,174.31, and consequently paying an income tax thereon of P247,010.00 on May 15, 1981. During the subsequent quarters, however, TMX SALES , Inc. suffered losses so that when it filed on April 15, 1982 its Annual Income Tax Return for the year ended December 31, 1981, it declared a gross income of P904,122.00 and total deductions of P7,060,647.00, or a net loss of P6,156,525.00 (CTA Decision, pp. 1-2; Rollo, pp. 45-46).

Thereafter, on July 9, 1982, TMX SALES , Inc. thru its external auditor, SGV & Co. filed with the Appellate Division of the Bureau of Internal Revenue a claim for refund in the amount of P247,010.00 representing overpaid income tax. (Rollo, p. 30)

This claim was not acted upon by the Commissioner of Internal Revenue. On March 14, 1984, TMX SALES , Inc. filed a petition for review before the Court of Tax Appeals against the Commissioner of Internal Revenue, praying that the petitioner, as private respondent therein, be ordered to refund to TMX SALES , Inc. the amount of P247,010.00, representing overpaid income tax for the taxable year ended December 31, 1981.

In his answer, the Commissioner of Internal Revenue averred that "granting, without admitting, the amount in question is refundable, the petitioner (TMX SALES , Inc.) is already barred from claiming the same considering that more than two (2) years had already elapsed between the payment (May 15, 1981) and the filing of the claim in Court (March 14, 1984). (Sections 292 and 295 of the Tax Code of 1977, as amended)."

On April 29, 1988, the Court of Tax Appeals rendered a decision granting the petition of TMX Sales, Inc. and ordering the Commissioner of Internal Revenue to refund the amount claimed.

The Tax Court, in granting the petition, viewed the quarterly income tax paid as a portion or installment of the total annual income tax due. Said the Tax Court in its assailed decision:

xxx xxx xxx

When a tax is paid in installments, the prescriptive period of two years provided in Section 306 (now Section 292) of the Revenue Code should be counted from the date of the final payment or last installment. . . . This rule proceeds from the theory that in contemplation of tax laws, there is no

payment until the whole or entire tax liability is completely paid. Thus, a payment of a part or portion thereof, cannot operate to start the commencement of the statute of limitations. In this regard the word "tax" or words "the tax" in statutory provisions comparable to section 306 of our Revenue Code have been uniformly held to refer to the entire tax and not a portion thereof (Clark v. U.S., 69 F. 2d 748; A.S. Kriedner Co. v. U.S., 30 F Supp. 274; Hills v. U.S., 50 F 2d 302, 55 F 2d 1001), and the vocable "payment of tax" within statutes requiring refund claim, refer to the date when all the tax was paid, not when a portion was paid (Braun v. U.S., 8 F supp. 860, 863; Collector of Internal Revenue v. Prieto, 2 SCRA 1007; Commissioner of Internal Revenue v. Palanca, 18 SCRA 496).

Petitioner Commissioner of Internal Revenue is now before this Court seeking a reversal of the above decision. Thru the Solicitor General, he contends that the basis in COMPUTING  the two-year period of prescription provided for in Section 292 (now Section 230) of the Tax Code, should be May 15, 1981, the date when the quarterly income tax was paid and not April 15, 1982, when the Final Adjustment Return for the year ended December 31, 1981 was filed.

He cites the case of Pacific Procon Limited v. Commissioner of Internal Revenue (G.R. No. 68013, November 12, 1984) involving a similar set of facts, wherein this Court in a minute resolution affirmed the Court of Appeals' decision denying the claim for refund of the petitioner therein for being barred by prescription.

A re-examination of the aforesaid minute resolution of the Court in the Pacific Procon case is warranted under the circumstances to lay down a categorical pronouncement on the question as to when the two-year prescriptive period in cases of quarterly corporate income tax commences to run. A full-blown decision in this regard is rendered more imperative in the light of the reversal by the Court of Tax Appeals in the instant case of its previous ruling in the Pacific Procon case.

Section 292 (now Section 230) of the National Internal Revenue Code should be interpreted in relation to the other provisions of the Tax Code in order to give effect to legislative intent and to avoid an application of the law which may lead to inconvenience and absurdity. In the case of People vs. Rivera (59 Phil 236 [1933]), this Court stated that statutes should receive a sensible construction, such as will give effect to the legislative intention and so as to avoid an unjust or an absurd conclusion. INTERPRETATIO TALIS IN AMBIGUIS SEMPER FRIENDA EST, UT EVITATUR INCONVENIENS ET ABSURDUM. Where there is ambiguity, such interpretation as will avoid inconvenience and absurdity is to be adopted. Furthermore, courts must give effect to the general legislative intent that can be discovered from or is unraveled by the four corners of the statute, and in order to discover said intent, the whole statute, and not only a particular provision thereof, should be considered. (Manila Lodge No. 761, et al. v. Court of Appeals, et al., 73 SCRA 162 [1976]) Every section, provision or clause of the statute must be expounded by reference to each other in order to arrive at the effect contemplated by the legislature. The intention of the legislator must be ascertained from the whole text of the law and every part of the act is to be taken into view. (Chartered Bank v. Imperial, 48 Phil. 931 [1921]; Lopez v. El Hogar Filipino, 47 Phil. 249, cited in Aboitiz Shipping Corporation v. City of Cebu, 13 SCRA 449 [1965]).

Thus, in resolving the instant case, it is necessary that we consider not only Section 292 (now Section 230) of the National Internal Revenue Code but also the other provisions of the Tax Code, particularly Sections 84, 85 (now both incorporated as Section 68), Section 86 (now Section 70) and Section 87 (now Section 69) on Quarterly Corporate Income Tax Payment and Section 321 (now Section 232) on keeping of books of accounts. All these provisions of the Tax Code should be harmonized with each other.

Section 292 (now Section 230) provides a two-year prescriptive period to file a suit for a refund of a tax erroneously or illegally paid, counted from the tile the tax was paid. But a literal application of this provision in the case at bar which involves quarterly income tax payments may lead to absurdity and inconvenience.

Section 85 (now Section 68) provides for the method of COMPUTING  corporate quarterly income tax which is on a cumulative basis, to wit:

Sec. 85. Method of COMPUTING  corporate quarterly income tax. — Every corporation shall file in duplicate a quarterly summary declaration of its gross income and deductions on a cumulative basisfor the preceding quarter or quarters upon which the income tax, as provided in Title II of this Code shall be levied, collected and paid. The tax so COMPUTED  shall be decreased by the amount of tax previously paid or assessed during the preceding quarters and shall be paid not later than sixty (60) days from the close of each of the first three (3) quarters of the taxable year, whether calendar or fiscal year. (Emphasis supplied)

while Section 87 (now Section 69) requires the filing of an adjustment returns and final payment of income tax, thus:

Sec. 87. Filing of adjustment returns final payment of income tax. — On or before the fifteenth day of April or on or before the fifteenth day of the fourth month following the close of the fiscal year, every taxpayer covered by this Chapter shall file an Adjustment Return covering the total net taxable income of the preceding calendar or fiscal year and if the sum of the quarterly tax payments made during that year is not equal to the tax due on the entire net taxable income of that year the corporation shall either (a) pay the excess tax still due or (b) be refunded the excess amount paid as the case may be. . . . (Emphasis supplied)

In the case at bar, the amount of P247,010.00 claimed by private respondent TMX SALES, Inc. based on its Adjustment Return required in Section 87 (now Section 69), is equivalent to the tax paid during the first quarter. A literal application of Section 292 (now Section 230) would thus pose no problem as the two-year prescriptive period reckoned from the time the quarterly income tax was paid can be easily determined. However, if the quarter in which the overpayment is made, cannot be ascertained, then a literal application of Section 292 (Section 230) would lead to absurdity and inconvenience.

The following application of Section 85 (now Section 68) clearly illustrates this point:

FIRST QUARTER:

Gross Income 100,000.00

Less: Deductions 50,000.00

—————

Net Taxable Income 50,000.00

=========

Tax Due & Paid [Sec. 24 NIRC (25%)] 12,500.00

=========

SECOND QUARTER:

Gross Income 1st Quarter 100,000.00

2nd Quarter 50,000.00 150,000.00

—————

Less: Deductions 1st Quarter 50,000.00

2nd Quarter 75,000.00 125,000.00

—————

Net Taxable Income 25,000.00

=========

Tax Due Thereon 6,250.00

Less: Tax Paid 1st Quarter 12,500.00

—————

Creditable Income Tax (6,250.00)

—————

THIRD QUARTER:

Gross Income 1st Quarter 100,000.00

2nd Quarter 50,000.00

3rd Quarter 100,000.00 250,000.00

—————

Less: Deductions 1st Quarter 50,000.00

2nd Quarter 75,000.00

3rd Quarter 25,000.00 150,000.00

————— —————

100,000.00

=========

Tax Due Thereon 25,000.00

Less: Tax Paid 1st Quarter 12,500.00

2nd Quarter — 12,500.00

————— =========

FOURTH QUARTER: (Adjustment Return required in Sec. 87)

Gross Income 1st Quarter 100,000.00

2nd Quarter 50,000.00

3rd Quarter 100,000.00

4th Quarter 75,000.00 325,000.00

————— —————

Less: Deductions 1st Quarter 50,000.00

2nd Quarter 75,000.00

3rd Quarter 25,000.00

4th Quarter 100,000.00 250,000.00

————— —————

Net Taxable Income 75,000.00

=========

Tax Due Thereon 18,750.00

Less: Tax Paid 1st Quarter 12,500.00

2nd Quarter —

3rd Quarter 12,500.00 25,000.00

————— —————

Creditable Income Tax (to be REFUNDED) (6,250.00)

=========

Based on the above hypothetical data appearing in the Final Adjustment Return, the taxpayer is entitled under Section 87 (now Section 69) of the Tax Code to a refund of P6,250.00. If Section 292 (now Section 230) is literally applied, what then is the reckoning date in COMPUTING  the two-year prescriptive period? Will it be the 1st quarter when the taxpayer paid P12,500.00 or the 3rd quarter when the taxpayer also paid P12,500.00? Obviously, the most reasonable and logical application of the law would be to COMPUTE  the two-year prescriptive period at the time of filing the Final Adjustment Return or the Annual Income Tax Return, when it can be finally ascertained if the taxpayer has still to pay additional income tax or if he is entitled to a refund of overpaid income tax.

Furthermore, Section 321 (now Section 232) of the National Internal Revenue Code requires that the books of accounts of companies or persons with gross quarterly SALES  or earnings exceeding Twenty Five Thousand Pesos (P25,000.00) be audited and examined yearly by an independent Certified Public Accountant and their income tax returns be accompanied by certified balance sheets, profit and loss statements, schedules listing income producing properties and the corresponding incomes therefrom and other related statements.

It is generally recognized that before an accountant can make a certification on the financial statements or render an auditor's opinion, an audit of the books of accounts has to be conducted in accordance with generally accepted auditing standards.

Since the audit, as required by Section 321 (now Section 232) of the Tax Code is to be conducted yearly, then it is the Final Adjustment Return, where the figures of the gross receipts and deductions have been audited and adjusted, that is truly reflective of the results of the operations of a business enterprise. Thus, it is only when the Adjustment Return covering the whole year is filed that the taxpayer would know whether a tax is still due or a refund can be claimed based on the adjusted and audited figures.

Therefore, the filing of quarterly income tax returns required in Section 85 (now Section 68) and implemented per BIR Form 1702-Q and payment of quarterly income tax should only be considered mere installments of the annual tax due. These quarterly tax payments which are COMPUTED  based on the cumulative figures of gross receipts and deductions in order to arrive at a net taxable income, should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal year. This is reinforced by Section 87 (now Section 69) which provides for the filing of adjustment returns and final payment of income tax. Consequently, the two-year prescriptive period provided in Section 292 (now Section 230) of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax.

In the case of Collector of Internal Revenue v. Antonio Prieto (2 SCRA 1007 [1961]), this Court held that when a tax is paid in installments, the prescriptive period of two years provided in Section 306 (Section 292) of the National internal Revenue Code should be counted from the date of the final payment. This ruling is reiterated inCommission of Internal Revenue v. Carlos Palanca (18 SCRA 496 [1966]), wherein this Court stated that where the tax account was paid on installment, the COMPUTATION  of the two-year prescriptive period under Section 306 (Section 292) of the Tax Code, should be from the date of the last installment.

In the instant case, TMX SALES , Inc. filed a suit for a refund on March 14, 1984. Since the two-year prescriptive period should be counted from the filing of the Adjustment Return on April 15, 1982, TMX SALES , Inc. is not yet barred by prescription.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DENIED. The decision of the Court of Tax Appeals dated April 29, 1988 is AFFIRMED. No costs.

SO ORDERED

SYSTRA PHILIPPINES, INC., Petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, Respondent.

R E S O L U T I O N

CORONA, J.:

This resolves petitioner Systra Philippines, Inc.’s (1) motion for leave to file a second motion for reconsideration and (2) second motion for reconsideration of the Court’s March 28, 2007 resolution.

On March 9, 2007, petitioner filed a petition for review on certiorari assailing the January 18, 2007 decision1 of the Court of Tax Appeals (CTA) in CTA EB Case No. 135. The Court denied the petition in its March 28, 2007 resolution on the following grounds:

(a) failure of petitioner’s counsel to submit his IBP2 O.R.3 number showing proof of payment of IBP dues for the current year (the IBP O.R. No. was for 2006, i.e., it was dated November 20, 2006);

(b) submitting a verification of the petition, certification of non-forum SHOPPING  and affidavit of service that failed to comply with the 2004 Rules on Notarial Practice with respect to competent evidence of affiants’ identities and

(c) failure to give an explanation why service was not done personally as required by Section 11, Rule 13 in relation to Section 3, Rule 45 and Section 5(d), Rule 56 of the Rules of Court.

On July 5, 2007, petitioner’s motion for reconsideration was denied with finality as there was no compelling reason to warrant a modification of the March 28, 2007 resolution. Thus, the present motions.

Petitioner claims that this Court has granted second and even third motions for reconsideration for "extraordinarily persuasive reasons." It avers that this Court should look into the importance of the issues involved in deciding whether leave to file a second motion for reconsideration should be granted or not. It prays that its petition should not be denied on the basis of procedural lapses alone and points out that the substantial amount involved in the petition justifies relaxation of technical rules. It asserts that there is an important legal issue involved in this case: whether the exercise of the option to carry over excess income tax credits under Section 76 of the National Internal Revenue Code of 1997, as amended (Tax Code) bars a taxpayer from claiming the excess tax credits for refund even if the amount remains unutilized in the succeeding taxable year. Finally, it contends that the assailed CTA decision was contradictory to the decisions of the Court of Appeals (CA)4 in Bank of the Philippine Islands v. Commissioner of Internal Revenue5 and Raytheon Ebasco Overseas Ltd. Philippine Branch v. Commissioner of Internal Revenue6 which involved the same issue as that in this case. According to petitioner, in view of those CA decisions, it is unjust to deprive it of the right to claim a refund.

We deny petitioner’s motions.

A Second Motion ForReconsideration IsProhibited

The denial of a motion for reconsideration is final. It means that the Court will no longer entertain and consider further arguments or submissions from the parties respecting the correctness of its decision or resolution.7 It signifies that, in the Court’s considered view, nothing more is left to be discussed, clarified or done in the case since all issues raised have been passed upon and definitely resolved. Any other issue which could and should have been raised is deemed waived and is no longer available as ground for a second motion. A denial with finality underscores that the case is considered closed.8 Thus, as a rule, a second motion for reconsideration is a prohibited pleading.9 The Court stressed in Ortigas and Company Limited Partnership v. Velasco:10

A second motion for reconsideration is forbidden except for extraordinarily persuasive reasons, and only upon express leave first obtained.11 (emphasis supplied)

It is true that procedural rules may be relaxed in the interest of substantial justice. They are not, however, to be disdained as mere technicalities that may be ignored at will to suit the convenience of a party.12 They are intended to ensure the orderly administration of justice and the protection of substantive rights in judicial proceedings.13 Thus, procedural rules are not to be belittled or dismissed simply because their non-observance may have resulted in prejudicing a party’s substantive rights.14 Like all rules, they are required to be followed except only when, for the most persuasive of reasons, they may be relaxed to relieve a litigant of negative consequences commensurate with the degree of thoughtlessness in not complying with the prescribed procedure.15

In this case, contrary to petitioner’s claim, there was no compelling reason to excuse non-compliance with the rules. Nor were the grounds raised by it extraordinarily persuasive.16

Moreover, petitioner can neither properly nor successfully rely on the decisions of the CA in the Bank of the Philippine Islands and Raytheon Ebasco Overseas Ltd. Philippine Branch cases. First, the CA and the CTA are now of the same level pursuant to RA 9282.17 Decisions of the CA are thus no longer superior to nor reversive of those of the CTA. Second, a decision of the CA in an action in personam binds only the parties in that case. A third party in an action in personam cannot claim any right arising from a decision therein. Finally and most importantly, while a ruling of the CA on any question of law is not conclusive on this Court, all rulings of this Court on questions of law are conclusive and binding on all courts including the CA. All courts must take their bearings from the decisions of this Court.18

On The Substantive Aspect, The Petition Has No Merit

The antecedents of this case are as follows:

On April 16, 2001, petitioner filed with the [Bureau of Internal Revenue (BIR)] its Annual Income Tax Return ("ITR") for the taxable year ended December 31, 2000 declaring revenues in the amount of [P18,252,719] the bulk of which consists of income from management consultancy services rendered to the Philippine Branch of Group Systra SA, France. Subjecting said income from consultancy services of petitioner to 5% creditable withholding tax, a total amount of [P4,703,019] was declared by petitioner as creditable taxes withheld for the taxable year 2000.

For the same period, petitioner reflected a total gross income of [P3,752,129], a net loss of [P17,930] and a minimum corporate income tax (MCIT) of [P75,043]. Said MCIT of P75,043 was offset against its total tax credits for the year 2000 amounting to [P4,703,019] thereby leaving a total unutilized tax credits of [P4,627,976], COMPUTED  as follows:

Gross Income P3,752,129.00

Less: Deductions P3,770,059.00

Net loss P 17,930.00

Minimum Corporate Income Tax Due P75,043.00

Less: Tax Credits

Prior year’s excess credits P -

Creditable taxes withheld during the year

P 4,703,019.00 P 4,703,019.00

Tax Overpayment P 4,627,976.00

Petitioner opted to carry over the said excess tax credit to the succeeding taxable year 2001.

For the taxable year ended December 31, 2001, petitioner filed with the BIR its Annual ITR on April 12, 2002, reflecting a total gross income of [P4,771,419] and a total creditable taxes withheld of [P1,111,587] for consultancy services. It likewise declared a taxable income of [P1,936,851] with corresponding normal income tax due in the amount of [P619,792]. After deducting the unexpired excess of the previous year MCIT [1999 and 2000] in the amount of [P222,475] from the normal income tax due for the period, petitioner’s net tax due of [P397,317] was applied against the accumulated tax credits of [P5,739,563]. Said reported tax credits comprised of prior year’s excess tax credits in the amount of [P4,627,976] and creditable taxes withheld during the year 2001 in the sum of [P1,111,587]. These excess tax credits were utilized to pay off the income tax still due of [P397,317] resulting to an overpayment of [P5,342,246], COMPUTED  as follows:

Gross Income P4,771,419.00

Less: Deductions P 2,834,568.00

Taxable Income P 1,936,851.00

Income Tax Due at the Normal Rate of 32% P 619,792.00

Less: Unexpired Excess of Prior Year’s MCITOver Normal Income Tax Rate P 222,475.00

P 397,317.00

Income Tax Still Due

Less: Tax Credits

Prior year’s excess credits P4,627,976.00

Creditable taxes withheldduring the year

1,111,587.00 P 5,739,563.00

Tax OverpaymentP 5,342,246.00

Petitioner indicated in the 2001 ITR the option "To be issued a Tax Credit Certificate" relative to its tax overpayments.

On August 9, 2002, petitioner instituted a claim for refund or issuance of a tax credit certificate with the BIR of its unutilized creditable withholding taxes in the amount of P5,342,246.00 as of December 31, 2001."

Due to the inaction of the BIR on petitioner’s claim for refund and to preserve its right to claim for the refund to its unutilized CWT for CYs 2000 and 2001 by judicial action, petitioner filed a petition for review with the Court in Division on April 14, 2003.19

In its August 3, 2005 decision, the First Division of the CTA partially granted the petition and ordered the issuance of a tax credit certificate to petitioner in the amount of P1,111,587 representing the excess or unutilized creditable withholding taxes for taxable year 2001. The CTA, however, denied petitioner’s claim for refund of the excess tax credits for the year 2000 in the amount of P4,627,976. It ruled that petitioner was precluded from claiming a refund thereof or requesting a tax credit certificate therefor. Once it was made for a particular taxable period, the option to carry over became irrevocable.1avvphi1

Petitioner moved for reconsideration but it was denied. Petitioner elevated the case to the CTA en banc which rendered the assailed decision. Thus, this petition.

As already stated, petitioner formulated the issue in this petition as follows: whether the exercise of the option to carry-over excess income tax credits under Section 76 of the Tax Code bars a taxpayer from claiming the excess tax credits for refund even if the amount remains unutilized in the succeeding taxable year. Petitioner contends that it does not.

We disagree.

Section 76 of the Tax Code provides:

SEC. 76. Final Adjustment Return. – Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either:

(A) Pay the balance of tax still due; or

(B) Carry-over the excess credit; or

(C) Be credited or refunded with the excess amount paid, as the case may be.

In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefor. (emphasis supplied)

A corporation entitled to a tax credit or refund of the excess estimated quarterly income taxes paid has two options: (1) to carry over the excess credit or (2) to apply for the issuance of a tax credit certificate or to claim a cash refund. If the option to carry over the excess credit is exercised, the same shall be irrevocable for that taxable period.

In exercising its option, the corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention either to carry over the excess credit or to claim a refund. To facilitate tax collection, these remedies are in the alternative and the choice of one precludes the other.20

This is known as the irrevocability rule and is embodied in the last sentence of Section 76 of the Tax Code. The phrase "such option shall be considered irrevocable for that taxable period" means that the option to carry over the excess tax credits of a particular taxable year can no longer be revoked.

The rule prevents a taxpayer from claiming twice the excess quarterly taxes paid: (1) as automatic credit against taxes for the taxable quarters of the succeeding years for which no tax credit certificate has been issued and (2) as a tax credit either for which a tax credit certificate will be issued or which will be claimed for cash refund.21

In this case, it was in the year 2000 that petitioner derived excess tax credits and exercised the irrevocable option to carry them over as tax credits for the next taxable year. Under Section 76 of the Tax Code, a claim for refund of such excess credits can no longer be made. The excess credits will only be applied "against income tax due for the taxable quarters of the succeeding taxable years."

The legislative intent to make the option irrevocable becomes clearer when Section 76 is viewed in comparison to Section 69 of the (old) 1977 Tax Code:

SECTION 69. Final Adjustment Return. – Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is

not equal to the total tax due on the entire taxable net income of that year the corporation shall either:

(A) Pay the excess tax still due; or

(B) Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year.

Under Section 69 of the 1977 Tax Code, there was no irrevocability rule. Instead of claiming a refund, the excess tax credits could be "credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year," that is, the immediately following year only. In contrast, Section 76 of the present Tax Code formulates an irrevocability rule which stresses and fortifies the nature of the remedies or options as alternative, not cumulative. It also provides that the excess tax credits "may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years" until fully utilized.

Furthermore, this case is closely similar to Philam Asset Management, Inc. v. Commissioner of Internal Revenue.22 In that case, Philam Asset Management, Inc. had an unapplied creditable withholding tax in the amount of P459,756.07 for the year 1998. It carried over the said excess tax to the following taxable year, 1999. In the next succeeding year, it had a tax due in the amount of P80,042 and a creditable withholding tax in the amount of P915,995.1âwphi1 As such, the amount due for the year 1999 (P80,042) was credited to its P915,995 creditable withholding tax for that year. Thus, its 1998 creditable withholding tax in the amount of P459,756.07 remained unutilized. Thereafter, it filed a claim for refund with respect to the unapplied creditable withholding tax of P459,756.07 for the year 1998. The Court denied the claim and ruled:

Section 76 [is] clear and unequivocal. Once the carry-over option is taken, actually or constructively, it becomes irrevocable. Petitioner has chosen that option for its 1998 creditable withholding taxes. Thus, it is no longer entitled to a tax refund of P459,756.07, which corresponds to its 1998 excess tax credit. Nonetheless, the amount will not be forfeited in the government’s favor, because it may be claimed by petitioner as tax credits in the succeeding taxable years. (emphasis supplied)

Since petitioner elected to carry over its excess credits for the year 2000 in the amount of P4,627,976 as tax credits for the following year, it could no longer claim a refund. Again, at the risk of being repetitive, once the carry over option was made, actually or constructively, it became forever irrevocable regardless of whether the excess tax credits were actually or fully utilized. Nevertheless, as held in Philam Asset Management, Inc., the amount will not be forfeited in favor of the government but will remain in the taxpayer’s account. Petitioner may claim and carry it over in the succeeding taxable years, creditable against future income tax liabilities until fully utilized.23

WHEREFORE, petitioner’s motion for leave to file a second motion for reconsideration and the second motion for reconsideration are hereby DENIED.

Costs against petitioner.

No further pleadings shall be entertained. Let entry of judgment be made in due course.

SO ORDERED.

G.R. No. 122480             April 12, 2000

BPI-FAMILY SAVINGS  BANK, Inc., petitioner, vs.COURT OF APPEALS, COURT OF TAX APPEALS and the COMMISSIONER OF INTERNAL REVENUE,respondents.

 

PANGANIBAN, J.:

If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding excess payments. When it is undisputed that a taxpayer is entitled to a refund, the State should not invoke technicalities to keep money not belonging to it. No one, not even the State, should enrich oneself at the expense of another.

The Case

Before us is a Petition for Review assailing the March 31, 1995 Decision of the Court of Appeals1 (CA) in CA-GR SP No. 34240, which affirmed the December 24, 1993 Decision2 of the Court of Tax Appeals (CTA). The CA disposed as follows:

WHEREFORE, foregoing premises considered, the petition is hereby DISMISSED for lack of merit.3

On the other hand, the dispositive portion of the CTA Decision affirmed by the CA reads as follows:

WHEREFORE, in [view of] all the foregoing, Petitioner's claim for refund is hereby DENIED and this Petition for Review is DISMISSED for lack of merit.4

Also assailed is the November 8, 1995 CA Resolution5 denying reconsideration.

The Facts

The facts of this case were summarized by the CA in this wise:

This case involves a claim for tax refund in the amount of P112,491.00 representing petitioner's tax withheld for the year 1989.

In its Corporate Annual Income Tax Return for the year 1989, the following items are reflected:

Income P1,017,931,831.00

Deductions P1,026,218,791.00

Net Income (Loss) (P8,286,960.00)

Taxable Income (Loss) (P8,286,960.00)

Less:

1988 Tax Credit P185,001.00

1989 Tax Credit P112,491.00

TOTAL AMOUNT P297,492.00

REFUNDABLE

It appears from the foregoing 1989 Income Tax Return that petitioner had a total refundable amount of P297,492 inclusive of the P112,491.00 being claimed as tax refund in the present case. However, petitioner declared in the same 1989 Income Tax Return that the said total refundable amount of P297,492.00 will be applied as tax credit to the succeeding taxable year.

On October 11, 1990, petitioner filed a written claim for refund in the amount of P112,491.00 with the respondent Commissioner of Internal Revenue alleging that it did not apply the 1989 refundable amount of P297,492.00 (including P112,491.00) to its 1990 Annual Income Tax Return or other tax liabilities due to the alleged business losses it incurred for the same year.

Without waiting for respondent Commissioner of Internal Revenue to act on the claim for refund, petitioner filed a petition for review with respondent Court of Tax Appeals, seeking the refund of the amount of P112,491.00.

The respondent Court of Tax Appeals dismissed petitioner's petition on the ground that petitioner failed to present as evidence its corporate Annual Income Tax Return for 1990 to establish the fact that petitioner had not yet credited the amount of P297,492.00 (inclusive of the amount P112,491.00 which is the subject of the present controversy) to its 1990 income tax liability.

Petitioner filed a motion for reconsideration, however, the same was denied by respondent court in its Resolution dated May 6, 1994.6

As earlier noted, the CA affirmed the CTA. Hence, this Petition.7

Ruling of the Court of Appeals

In affirming the CTA, the Court of Appeals ruled as follows:

It is incumbent upon the petitioner to show proof that it has not credited to its 1990 Annual income Tax Return, the amount of P297,492.00 (including P112,491.00), so as to refute its previous declaration in the 1989 Income Tax Return that the said amount will be applied as a tax credit in the succeeding year of 1990. Having failed to submit such requirement, there is no basis to grant the claim for refund. . . .

Tax refunds are in the nature of tax exemptions. As such, they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption. In other words, the burden of proof rests upon the taxpayer to establish by sufficient and competent evidence its entitlement to the claim for refund.8

Issue

In their Memorandum, respondents identify the issue in this wise:

The sole issue to be resolved is whether or not petitioner is entitled to the refund of P112,491.90, representing excess creditable withholding tax paid for the taxable year 1989.9

The Court's Ruling

The Petition is meritorious.

Main Issue:

Petitioner Entitled to Refund

It is undisputed that petitioner had excess withholding taxes for the year 1989 and was thus entitled to a refund amounting to P112,491. Pursuant to Section 69 10 of the 1986 Tax Code which states that a corporation entitled to a refund may opt either (1) to obtain such refund or (2) to credit said amount for the succeeding taxable year, petitioner indicated in its 1989 Income Tax Return that it would apply the said amount as a tax credit for the succeeding taxable year, 1990. Subsequently, petitioner informed the Bureau of Internal Revenue (BIR) that it would claim the amount as a tax refund, instead of applying it as a tax credit. When no action from the BIR was forthcoming, petitioner filed its claim with the Court of Tax Appeals.

The CTA and the CA, however, denied the claim for tax refund. Since petitioner declared in its 1989 Income Tax Return that it would apply the excess withholding tax as a tax credit for the following year, the Tax Court held that petitioner was presumed to have done so. The CTA and the CA ruled that petitioner failed to overcome this presumption because it did not present its 1990 Return, which would have shown that the amount in dispute was not applied as a tax credit. Hence, the CA concluded that petitioner was not entitled to a tax refund.

We disagree with the Court of Appeals. As a rule, the factual findings of the appellate court are binding on this Court. This rule, however, does not apply where, inter alia, the judgment is premised on a misapprehension of facts, or when the appellate court failed to notice certain relevant facts which if considered would justify a different conclusion. 11 This case is one such exception.

In the first place, petitioner presented evidence to prove its claim that it did not apply the amount as a tax credit. During the trial before the CTA, Ms. Yolanda Esmundo, the manager of petitioner's accounting department, testified to this fact. It likewise presented its claim for refund and a certification issued by Mr. Gil Lopez, petitioner's vice-president, stating that the amount of P112,491 "has not been and/or will not be automatically credited/offset against any succeeding quarters' income tax liabilities for the rest of the calendar year ending December 31, 1990." Also presented were the quarterly returns for the first two quarters of 1990.

The Bureau of Internal Revenue, for its part, failed to controvert petitioner's claim. In fact, it presented no evidence at all. Because it ought to know the tax records of all taxpayers, the CIR could have easily disproved petitioner's claim. To repeat, it did not do so.

More important, a copy of the Final Adjustment Return for 1990 was attached to petitioner's Motion for Reconsideration filed before the CTA. 12 A final adjustment return shows whether a corporation incurred a loss or gained a profit during the taxable year. In this case, that Return clearly showed that petitioner incurred P52,480,173 as net loss in 1990. Clearly, it could not have applied the amount in dispute as a tax credit.

Again, the BIR did not controvert the veracity of the said return. It did not even file an opposition to petitioner's Motion and the 1990 Final Adjustment Return attached thereto. In denying the Motion for Reconsideration, however, the CTA ignored the said Return. In the same vein, the CA did not pass upon that significant document.

True, strict procedural rules generally frown upon the submission of the Return after the trial.1âwphi1 The law creating the Court of Tax Appeals, however, specifically provides that proceedings before it "shall not be governed strictly by the technical rules of evidence." 13 The paramount consideration remains the ascertainment of truth. Verily, the quest for orderly presentation of issues is not an absolute. It should not bar courts from considering undisputed facts to arrive at a just determination of a controversy.

In the present case, the Return attached to the Motion for Reconsideration clearly showed that petitioner suffered a net loss in 1990. Contrary to the holding of the CA and the CTA, petitioner could not have applied the amount as a tax credit. In failing to consider the said

Return, as well as the other documentary evidence presented during the trial, the appellate court committed a reversible error.

It should be stressed that the rationale of the rules of procedure is to secure a just determination of every action. They are tools designed to facilitate the attainment of justice. 14 But there can be no just determination of the present action if we ignore, on grounds of strict technicality, the Return submitted before the CTA and even before this Court. 15 To repeat, the undisputed fact is that petitioner suffered a net loss in 1990; accordingly, it incurred no tax liability to which the tax credit could be applied. Consequently, there is no reason for the BIR and this Court to withhold the tax refund which rightfully belongs to the petitioner.

Public respondents maintain that what was attached to petitioner's Motion for Reconsideration was not the final adjustment Return, but petitioner's first two quarterly returns for 1990. 16 This allegation is wrong. An examination of the records shows that the 1990 Final Adjustment Return was attached to the Motion for Reconsideration. On the other hand, the two quarterly returns for 1990 mentioned by respondent were in fact attached to the Petition for Review filed before the CTA. Indeed, to rebut respondents' specific contention, petitioner submitted before us its Surrejoinder, to which was attached the Motion for Reconsideration and Exhibit "A" thereof, the Final Adjustment Return for 1990. 17

CTA Case No. 4897

Petitioner also calls the attention of this Court, as it had done before the CTA, to a Decision rendered by the Tax Court in CTA Case No. 4897, involving its claim for refund for the year 1990. In that case, the Tax Court held that "petitioner suffered a net loss for the taxable year 1990 . . . ." 18 Respondent, however, urges this Court not to take judicial notice of the said case. 19

As a rule, "courts are not authorized to take judicial notice of the contents of the records of other cases, even when such cases have been tried or are pending in the same court, and notwithstanding the fact that both cases may have been heard or are actually pending before the same judge." 20

Be that as it may, Section 2, Rule 129 provides that courts may take judicial notice of matters ought to be known to judges because of their judicial functions. In this case, the Court notes that a copy of the Decision in CTA Case No. 4897 was attached to the Petition for Review filed before this Court. Significantly, respondents do not claim at all that the said Decision was fraudulent or nonexistent. Indeed, they do not even dispute the contents of the said Decision, claiming merely that the Court cannot take judicial notice thereof.

To our mind, respondents' reasoning underscores the weakness of their case. For if they had really believed that petitioner is not entitled to a tax refund, they could have easily proved that it did not suffer any loss in 1990. Indeed, it is noteworthy that respondents opted not to assail the fact appearing therein — that petitioner suffered a net loss in 1990 — in the same way that it refused to controvert the same fact established by petitioner's other documentary exhibits.

In any event, the Decision in CTA Case No. 4897 is not the sole basis of petitioner's case. It is merely one more bit of information showing the stark truth: petitioner did not use its 1989 refund to pay its taxes for 1990.

Finally, respondents argue that tax refunds are in the nature of tax exemptions and are to be construedstrictissimi juris against the claimant. Under the facts of this case, we hold that petitioner has established its claim. Petitioner may have failed to strictly comply with the rules of procedure; it may have even been negligent. These circumstances, however, should not compel the Court to disregard this cold, undisputed fact: that petitioner suffered a net loss in 1990, and that it could not have applied the amount claimed as tax credits.

Substantial justice, equity and fair play are on the side of petitioner. Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens. If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding excess payments of such taxes. Indeed, the State must lead by its own example of honor, dignity and uprightness.

WHEREFORE, the Petition is hereby GRANTED and the assailed Decision and Resolution of the Court of Appeals REVERSED and SET ASIDE. The Commissioner of Internal Revenue is ordered to refund to petitioner the amount of P112,491 as excess creditable taxes paid in 1989. No costs.1âwphi1.nêt

SO ORDERED.

G.R. Nos. 156637/162004 December 14, 2005

PHILAM ASSET MANAGEMENT, INC., Petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, Respondent.

D E C I S I O N

PANGANIBAN, J.:

Under Section 76 of the National Internal Revenue Code, a taxable corporation with excess quarterly income tax payments may apply for either a tax refund or a tax credit, but not both. The choice of one precludes the other. Failure to indicate a choice, however, will not bar a valid request for a refund, should this option be chosen by the taxpayer later on.

The Case

Before us are two consolidated Petitions for Review1 under Rule 45 of the Rules of Court, seeking to review and reverse the December 19, 2002 Decision2 of the Court of Appeals (CA) in CA-GR SP No. 69197 and its January 30, 2004 Decision3 in CA-GR SP No. 70882.

The dispositive portion of the assailed December 19, 2002 Decision, on the one hand, reads as follows:

"WHEREFORE, the petition is hereby DENIED. The assailed decision and resolution of the Court of Tax Appeals are AFFIRMED."4

That of the assailed January 30, 2004 Decision, on the other hand, was similarly worded, except that it referred to the May 2, 2002 Decision of the Court of Tax Appeals (CTA).5

The Facts

In GR No. 156637, the CA adopted the CTA’s narration of the facts as follows:

"Petitioner, formerly Philam Fund Management, Inc., is a domestic corporation duly organized and existing under the laws of the Republic of the Philippines. It acts as the investment manager of both Philippine Fund, Inc. (PFI) and Philam Bond Fund, Inc. (PBFI), which are open-end investment companies[,] in the sale of their shares of stocks and in the investment of the proceeds of these SALES  into a diversified portfolio of debt and equity securities. Being an investment manager, [p]etitioner provides management and technical services to PFI and PBFI. Petitioner is, likewise, PFI’s and PBFI’s principal distributor which takes charge of the sales of said companies’ shares to prospective investors. Pursuant to the separate [m]anagement and [d]istribution agreements between the [p]etitioner and PFI and PBFI, both PFI and PBFI [agree] to pay the [p]etitioner, by way of compensation for the latter’s services and facilities, a monthly management fee from which PFI and PBFI withhold the amount equivalent to [a] five percent (5%) creditable tax[,] pursuant to the Expanded Withholding Tax Regulations.

"On April 3, 1998, [p]etitioner filed its [a]nnual [c]orporate [i]ncome [t]ax [r]eturn for the taxable year 1997 representing a net loss of P2,689,242.00. Consequently, it failed to utilize the creditable tax withheld in the amount of Five Hundred Twenty-Two Thousand Ninety-Two Pesos (P522,092.00) representing [the] tax withheld by [p]etitioner’s withholding agents, PFI and PBFI[,] on professional fees.

"The creditable tax withheld by PFI and PBFI in the amount of P522,092.00 is broken down as follows:

PFI P496,702.05

PBFI 25,389.66_

Total P522,091.71

"On September 11, 1998, [p]etitioner filed an administrative claim for refund with the [Bureau of Internal Revenue (BIR)] -- Appellate Division in the amount of P522,092.00

representing unutilized excess tax credits for calendar year 1997. Thereafter, on July 28, 1999, a written request was filed with the same division for the early resolution of [p]etitioner’s claim for refund.

"Respondent did not act on [p]etitioner’s claim for refund[;] hence, a Petition for Review was filed with this Court6on November 29, 1999 to toll the running of the two-year prescriptive period."7

On October 9, 2001, the CTA rendered a Decision denying petitioner’s Petition for Review. Its Motion for Reconsideration was likewise denied in a Resolution dated January 29, 2002.

In GR No. 162004, the antecedents are narrated by the CA in this wise:

"On April 13, 1999, [petitioner] filed its Annual Income Tax Return with the [BIR] for the taxable year 1998 declaring a net loss of P1,504,951.00. Thus, there was no tax due against [petitioner] for the taxable year 1998. Likewise, [petitioner] had an unapplied creditable withholding tax in the amount of P459,756.07, which amount had been previously withheld in that year by petitioner’s withholding agents[,] namely x x x [PFI], x x x [PBFI], and Philam Strategic Growth Fund, Inc. (PSGFI).

"In the next succeeding year, [petitioner] had a tax due in the amount of P80,042.00, and a creditable withholding tax in the amount of P915,995.00. [Petitioner] likewise declared in its 1999 tax return the amount of P459,756.07, which represents its prior excess credit for taxable year 1998.

"Thereafter, on November 14, 2000, [petitioner] filed with the Revenue District Office No. 50, Revenue Region No. 8, a written administrative claim for refund with respect to the unapplied creditable withholding tax of P459,756.07. According to [petitioner,] the amount of P80,042.00, representing the tax due for the taxable year 1999 has been credited from its P915,995.00 creditable withholding tax for taxable year 1999, thus leaving its 1998 creditable withholding tax in the amount of P459,756.07 still unapplied.

"The claim for refund yielded no action on the part of the BIR. [Petitioner] then filed a Petition for Review before the CTA on December 26, 2000, asserting that it is entitled [to] the refund [of P459,756.07,] since said amount has not been applied against its tax liabilities in the taxable year 1998.

"On May 2, 2002, the CTA rendered [a] x x x decision denying [petitioner’s] Petition for Review. x x x."8

Ruling of the Court of Appeals

The CA denied the claim of petitioner for a refund of the latter’s excess creditable taxes withheld for the years 1997 and 1998, despite compliance with the basic requirements of Revenue Regulations (RR) No. 12-94. The appellate court pointed out that, in the respective Income Tax Returns (ITRs) for both years, petitioner did not indicate its option to have the amounts either refunded or carried over and applied to the succeeding year. It was held that to request for either a refund or a credit of income tax paid, a corporation must

signify its intention by marking the corresponding option box on its annual corporate adjustment return.

The CA further held in GR No. 156637 that the failure to present the 1998 ITR was fatal to the claim for a refund, because there was no way to verify if the tax credit for 1997 could not have been applied against the 1998 tax liabilities of petitioner.

In GR No. 162004, however, the subsequent acts of petitioner demonstrated its option to carry over its tax credit for 1998, even if it again failed to tick the appropriate box for that option in its 1998 ITR. Under RR 12-94, its failure to indicate that option resulted in the automatic carry-over of any excess tax credit for the prior year. The appellate court said that the government would not be unjustly enriched by denying a refund, because there would be no forfeiture of the amount in its favor. The amount claimed as a refund would remain in the account of the taxpayer until utilized in succeeding taxable years.

Hence, these Petitions.9

The Issues

Petitioner raises two issues in GR No. 156637 for the Court’s consideration:

"A.

"Whether or not the failure of the [p]etitioner to indicate in its [a]nnual [i]ncome [t]ax [r]eturn the option to refund its creditable withholding tax is fatal to its claim for refund.

"B.

"Whether or not the presentation in evidence of the [p]etitioner’s [a]nnual [i]ncome [t]ax [r]eturn for the succeeding calendar year is a legal requisite in a claim for refund of unapplied creditable withholding tax."10

In GR No. 162004, petitioner raises one question only:

"Whether or not the petitioner is entitled to the refund of its unutilized creditable withholding tax in the taxable year 1998 in the amount of P459,756.07."11

In both cases, a simple issue needs to be resolved: whether petitioner is entitled to a refund of its creditable taxes withheld for taxable years 1997 and 1998.

The Court’s Ruling

The Petition in GR No. 156637 is meritorious, but that in GR No. 162004 is not.

Main Issue:

Entitlement to Refund

The provision on the final adjustment return (FAR) was originally found in Section 69 of Presidential Decree (PD) No. 1158, otherwise known as the "National Internal Revenue Code of 1977."12 On August 1, 1980, this provision was restated as Section 8613 in PD 1705.14

On November 5, 1985, all prior amendments and those introduced by PD 199415 were codified16 into the National Internal Revenue Code (NIRC) of 1985, as a result of which Section 86 was renumbered17 as Section 79.18

On July 31, 1986, Section 24 of Executive Order (EO) No. 37 changed all "net income" phrases appearing in Title II of the NIRC of 1977 to "taxable income." Section 79 of the NIRC of 1985,19 however, was not amended.

On July 25, 1987, EO 27320 renumbered21 Section 86 of the NIRC22 as Section 76,23 which was also rearranged24 to fall under Chapter 10 of Title II of the NIRC. Section 79, which had earlier been renumbered by PD 1994, remained unchanged.

Thus, Section 69 of the NIRC of 1977 was renumbered as Section 86 under PD 1705; later, as Section 79 under PD 1994;25 then, as Section 76 under EO 273.26 Finally, after being renumbered and reduced to the chaff of a grain, Section 69 was repealed by EO 37.

Subsequently, Section 69 reappeared in the NIRC (or Tax Code) of 1997 as Section 76, which reads:

"Section 76. Final Adjustment Return. -- Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income27 for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income28 of that year the corporation shall either:

"(a) Pay the excess tax still due; or

"(b) Be refunded the excess amount paid, as the case may be.

"In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year."

GR No. 156637

This section applies to the first case before the Court. Differently numbered in 1977 but similarly worded 20 years later (1997), Section 76 offers two options to a taxable corporation whose total quarterly income tax payments in a given taxable year exceeds its total income tax due. These options are (1) filing for a tax refund or (2) availing of a tax credit.

The first option is relatively simple. Any tax on income that is paid in excess of the amount due the government may be refunded, provided that a taxpayer properly applies for the refund.

The second option works by applying the refundable amount, as shown on the FAR of a given taxable year, against the estimated quarterly income tax liabilities of the succeeding taxable year.

These two options under Section 76 are alternative in nature.29 The choice of one precludes the other. Indeed, inPhilippine Bank of Communications v. Commissioner of Internal Revenue,30 the Court ruled that a corporation must signify its intention -- whether to request a tax refund or claim a tax credit -- by marking the corresponding option box provided in the FAR.31 While a taxpayer is required to mark its choice in the form provided by the BIR, this requirement is only for the purpose of facilitating tax collection.

One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid. Failure to signify one’s intention in the FAR does not mean outright barring of a valid request for a refund, should one still choose this option later on. A tax credit should be construed merely as an alternative remedy to a tax refund under Section 76, subject to prior verification and approval by respondent.32

The reason for requiring that a choice be made in the FAR upon its filing is to ease tax administration,33particularly the self-assessment and collection aspects. A taxpayer that makes a choice expresses certainty or preference and thus demonstrates clear diligence. Conversely, a taxpayer that makes no choice expresses uncertainty or lack of preference and hence shows simple negligence or plain oversight.

In the present case, respondent denied the claim of petitioner for a refund of excess taxes withheld in 1997, because the latter (1) had not indicated in its ITR for that year whether it was opting for a credit or a refund; and (2) had not submitted as evidence its 1998 ITR, which could have been the basis for determining whether its claimed 1997 tax credit had not been applied against its 1998 tax liabilities.

Requiring that the ITR or the FAR of the succeeding year be presented to the BIR in requesting a tax refund has no basis in law and jurisprudence.

First, Section 76 of the Tax Code does not mandate it. The law merely requires the filing of the FAR for thepreceding -- not the succeeding -- taxable year. Indeed, any refundable amount indicated in the FAR of the preceding taxable year may be credited against the estimated income tax liabilities for the taxable quarters of the succeeding taxable year. However, nowhere is there even a tinge of a hint in any of the provisions of the Tax Code that the FAR of the taxable year following the period to which the tax credits are originally being applied should also be presented to the BIR.

Second, Section 534 of RR 12-94, amending Section 10(a) of RR 6-85, merely provides that claims for the refund of income taxes deducted and withheld from income payments shall be given due course only (1) when it is shown on the ITR that the income payment received

is being declared part of the taxpayer’s gross income; and (2) when the fact of withholding is established by a copy of the withholding tax statement, duly issued by the payor to the payee, showing the amount paid and the income tax withheld from that amount.35

Undisputedly, the records do not show that the income payments received by petitioner have not been declared as part of its gross income, or that the fact of withholding has not been established. According to the CTA, "[p]etitioner substantially complied with the x x x requirements" of RR 12-94 "[t]hat the fact of withholding is established by a copy of a statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom; and x x x [t]hat the income upon which the taxes were withheld were included in the return of the recipient."36

The established procedure is that a taxpayer that wants a cash refund shall make a written request for it, and the ITR showing the excess expanded withholding tax credits shall then be examined by the BIR. For the grant of refund, RRs 12-94 and 6-85 state that all pertinent accounting records should be submitted by the taxpayer. These records, however, actually refer only to (1) the withholding tax statements; (2) the ITR of the present quarter to which the excess withholding tax credits are being applied; and (3) the ITR of the quarter for the previous taxable year in which the excess credits arose.37 To stress, these regulations implementing the law do not require the proffer of the FAR for the taxable year following the period to which the tax credits are being applied.

Third, there is no automatic grant of a tax refund. As a matter of procedure, the BIR should be given the opportunity "to investigate and confirm the veracity"38 of a taxpayer’s claim, before it grants the refund. Exercising the option for a tax refund or a tax credit does not ipso facto confer upon a taxpayer the right to an immediate availment of the choice made. Neither does it impose a duty on the government to allow tax collection to be at the sole control of a taxpayer.39

Fourth, the BIR ought to have on file its own copies of petitioner’s FAR for the succeeding year, on the basis of which it could rebut the assertion that there was a subsequent credit of the excess income tax payments for the previous year. Its failure to present this vital document to support its contention against the grant of a tax refundto petitioner is certainly fatal.

Fifth, the CTA should have taken judicial notice40 of the fact of filing and the pendency of petitioner’s subsequent claim for a refund of excess creditable taxes withheld for 1998. The existence of the claim ought to be known by reason of its judicial functions. Furthermore, it is decisive to and will easily resolve the material issue in this case. If only judicial notice were taken earlier, the fact that there was no carry-over of the excess creditable taxes withheld for 1997 would have already been crystal clear.

Sixth, the Tax Code allows the refund of taxes to a taxpayer that claims it in writing within two years after payment of the taxes erroneously received by the BIR.41 Despite the failure of petitioner to make the appropriate marking in the BIR form, the filing of its written claim effectively serves as an expression of its choice to request a tax refund, instead of a tax credit. To assert that any future claim for a tax refund will be instantly hindered by a failure to signify

one’s intention in the FAR is to render nugatory the clear provision that allows for a two-year prescriptive period.

In fact, in BPI-Family SAVINGS  Bank v. CA,42 this Court even ordered the refund of a taxpayer’s excess creditable taxes, despite the express declaration in the FAR to apply the excess to the succeeding year.43 When circumstances show that a choice of tax credit has been made, it should be respected. But when indubitable circumstances clearly show that another choice -- a tax refund -- is in order, it should be granted. "Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens."44

In the present case, although petitioner did not mark the refund box in its 1997 FAR, neither did it perform any act indicating that it chose a tax credit. On the contrary, it filed on September 11, 1998, an administrative claim for the refund of its excess taxes withheld in 1997. In none of its quarterly returns for 1998 did it apply the excess creditable taxes. Under these circumstances, petitioner is entitled to a tax refund of its 1997 excess tax credits in the amount of P522,092.

GR No. 162004

As to the second case, Section 76 also applies. Amended by Republic Act (RA) No. 8424, otherwise known as the "Tax Reform Act of 1997," it now states:

"SEC. 76. Final Adjustment Return. -- Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either:

(A) Pay the balance of tax still due; or

(B) Carry over the excess credit; or

(C) Be credited or refunded with the excess amount paid, as the case may be.

"In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefor."

The carry-over option under Section 76 is permissive. A corporation that is entitled to a tax refund or a tax creditfor excess payment of quarterly income taxes may carry over and credit the excess income taxes paid in a given taxable year against the estimated income tax liabilities of the succeeding quarters. Once chosen, the carry-over option shall be

considered irrevocable45 for that taxable period, and no application for a tax refund or issuance of a tax credit certificate shall then be allowed.

According to petitioner, it neither chose nor marked the carry-over option box in its 1998 FAR.46 As this option was not chosen, it seems that there is nothing that can be considered irrevocable. In other words, petitioner argues that it is still entitled to a refund of its 1998 excess income tax payments.

This argument does not hold water. The subsequent acts of petitioner reveal that it has effectively chosen the carry-over option.

First, the fact that it filled out the portion "Prior Year’s Excess Credits" in its 1999 FAR means that it categorically availed itself of the carry-over option. In fact, the line that precedes that phrase in the BIR form clearly states "Less: Tax Credits/Payments." The contention that it merely filled out that portion because it was a requirement -- and that to have done otherwise would have been tantamount to falsifying the FAR -- is a long shot.

The FAR is the most reliable firsthand evidence of corporate acts pertaining to income taxes. In it are found the itemization and summary of additions to and deductions from income taxes due. These entries are not without rhyme or reason. They are required, because they facilitate the tax administration process.

Failure to indicate the amount of "prior year’s excess credits" does not mean falsification by a taxpayer of its current year’s FAR. On the contrary, if an application for a tax refund has been -- or will be -- filed, then that portion of the BIR form should necessarily be blank, even if the FAR of the previous taxable year already shows an overpayment in taxes.

Second, the resulting redundancy in the claim of petitioner for a refund of its 1998 excess tax credits on November 14, 200047 cannot be countenanced. It cannot be allowed to avail itself of a tax refund and a tax creditat the same time for the same excess income taxes paid. Besides, disallowing it from getting a tax refund of those excess tax credits will not enervate the two-year prescriptive period under the Tax Code. That period will apply if the carry-over option has not been chosen.

Besides, "tax refunds x x x are construed strictly against the taxpayer."48 Petitioner has failed to meet the burden of proof required in order to establish the factual basis of its claim for a tax refund.

Third, the "first-in first-out" (FIFO) principle enunciated by the CTA49 does not apply.50 Money is fungible property.51 The amount to be applied against the P80,042 income tax due in the 1998 FAR52 of petitioner may be taken from its excess credits in 1997 or from those withheld in 1998 or from both. Whichever of these the amount will be taken from will not make a difference.

Even if the FIFO principle were to be applied, the tax credits would have to be in consonance with the usual and normal course of events. In fact, the FAR is cumulative in nature.53 Following a natural sequence, the prior year’s excess tax credits will have to be reduced first to answer for any current tax liabilities before the current year’s withheld

amounts can be applied. Otherwise, there will be no sense in requiring a taxpayer to fill out the line items in the FAR to segregate its sources of tax credits.

Whether the FIFO principle is applied or not, Section 76 remains clear and unequivocal. Once the carry-over option is taken, actually or constructively, it becomes irrevocable. Petitioner has chosen that option for its 1998 creditable withholding taxes. Thus, it is no longer entitled to a tax refund of P459,756.07, which corresponds to its 1998 excess tax credit. Nonetheless, the amount will not be forfeited in the government’s favor, because it may be claimed by petitioner as tax credits in the succeeding taxable years.

WHEREFORE, the Petition in GR No. 156637 is GRANTED and the assailed December 19, 2002 DecisionREVERSED and SET ASIDE. No pronouncement as to costs.

The Petition in GR No. 162004 is, however, DENIED and the assailed January 30, 2004 Decision AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 178490               July 7, 2009

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs.BANK OF THE PHILIPPINE ISLANDS, Respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

This is a Petition for Review assailing the Decision1 dated 29 April 2005 and the Resolution dated 20 April 2007 of the Court of Appeals in CA-G.R. SP No. 77655, which annulled and set aside the Decision dated 12 March 2003 of the Court of Tax Appeals (CTA) in CTA Case No. 6276, wherein the CTA held that respondent Bank of the Philippine Islands (BPI) already exercised the irrevocable option to carry over its excess tax credits for the year 1998 to the succeeding years 1999 and 2000 and was, therefore, no longer entitled to claim the refund or issuance of a tax credit certificate for the amount thereof.

On 15 April 1999, BPI filed with the Bureau of Internal Revenue (BIR) its final adjusted Corporate Annual Income Tax Return (ITR) for the taxable year ending on 31 December 1998, showing a taxable income ofP1,773,236,745.00 and a total tax due of P602,900,493.00.

For the same taxable year 1998, BPI already made income tax payments for the first three quarters, which amounted to P563,547,470.46.2 The bank also received income in 1998 from various third persons, which, were already subjected to expanded withholding taxes

amounting to P7,685,887.90. BPI additionally acquired foreign tax credit when it paid the United States government taxes in the amount of $151,467.00, or the equivalent ofP6,190,014.46, on the operations of former’s New York Branch. Finally, respondent BPI had carried over excess tax credit from the prior year, 1997, amounting to P59,424,222.00.

Crediting the aforementioned amounts against the total tax due from it at the end of 1998, BPI computed an overpayment to the BIR of income taxes in the amount of P33,947,101.00. The computation of BPI is reproduced below:

Total Income Taxes Due P602,900,493.00

Less: Tax Credits:

Prior year’s tax credits P59,424,222.00

Quarterly payments 563,547,470.46

Creditable taxes withheld 7,685,887.90

Foreign tax credit 6,190,014.00 636,847,594.00

Net Tax Payable/(Refundable) P(33,947,101.00)

BPI opted to carry over its 1998 excess tax credit, in the amount of P33,947,101.00, to the succeeding taxable year ending 31 December 1999.3 For 1999, however, respondent BPI ended up with (1) a net loss in the amount of P615,742,102.00; (2) its still unapplied excess tax credit carried over from 1998, in the amount ofP33,947,101.00; and (3) more excess tax credit, acquired in 1999, in the sum of P12,975,750.00. So in 1999, the total excess tax credits of BPI increased to P46,922,851.00, which it once more opted to carry over to the following taxable year.

For the taxable year ending 31 December 2000, respondent BPI declared in its Corporate Annual ITR: (1) zero taxable income; (2) excess tax credit carried over from 1998 and 1999, amounting to P46,922,851.00; and (3) even more excess tax credit, gained in 2000, in the amount of P25,207,939.00. This time, BPI failed to indicate in its ITR its choice of whether to carry over its excess tax credits or to claim the refund of or issuance of a tax credit certificate for the amounts thereof.

On 3 April 2001, BPI filed with petitioner Commissioner of Internal Revenue (CIR) an administrative claim for refund in the amount of P33,947,101.00, representing its excess creditable income tax for 1998.

The CIR failed to act on the claim for tax refund of BPI. Hence, BPI filed a Petition for Review before the CTA, docketed as CTA Case No. 6276.

The CTA promulgated its Decision in CTA Case No. 6276 on 12 March 2003, ruling therein that since BPI had opted to carry over its 1998 excess tax credit to 1999 and 2000, it was barred from filing a claim for the refund of the same.

The CTA relied on the irrevocability rule laid down in Section 76 of the National Internal Revenue Code (NIRC) of 1997, which states that once the taxpayer opts to carry over and apply its excess income tax to succeeding taxable years, its option shall be irrevocable for that taxable period and no application for tax refund or issuance of a tax credit shall be allowed for the same.

The CTA Decision adjudged:

A close scrutiny of the 1998 income tax return of [BPI] reveals that it opted to carry over its excess tax credits, the amount subject of this claim, to the succeeding taxable year by placing an "x" mark on the corresponding box of said return (Exhibits A-2 & 3-a). For the year 1999, [BPI] again manifested its intention to carry over to the succeeding taxable period the subject claim together with the current excess tax credits (Exhibit J). Still unable to apply its prior year’s excess credits in 1999 as it ended up in a net loss position, petitioner again carried over the said excess credits in the year 2000 (Exhibit K).

The court already categorically ruled in a number of cases that once the option to carry-over and apply the excess quarterly income tax against the income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable and no application for cash refund or issuance of a tax credit certificate shall be allowed therefore (Pilipinas Transport Industries vs. Commissioner of Internal Revenue, CTA Case No. 6073, dated March 1, 2002; Pilipinas Hino, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 6074, dated April 19, 2002; Philam Asset Management, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 6210, dated May 2, 2002; The Philippine Banking Corporation (now known as Global Business Bank, Inc.) vs. Commissioner of Internal Revenue, CTA Resolution, CTA Case No. 6280, August 16, 2001. Since [BPI] already exercised the irrevocable option to carry over its excess tax credits for the year 1998 to the succeeding years 1999 and 2000, it is, therefore, no longer entitled to claim for a refund or issuance of a tax credit certificate.4

In the end, the CTA decreed:

IN VIEW OF ALL THE FOREGOING, the instant petition for review is hereby DENIED for lack of merit.5

BPI filed a Motion for Reconsideration of the foregoing Decision, but the CTA denied the same in a Resolution dated 3 June 2003.

BPI filed an appeal with the Court of Appeals, docketed as CA-G.R. SP No. 77655. On 29 April 2005, the Court of Appeals rendered its Decision, reversing that of the CTA and holding that BPI was entitled to a refund of the excess income tax it paid for 1998.

The Court of Appeals conceded that BPI indeed opted to carry over its excess tax credit in 1998 to 1999 by placing an "x" mark on the corresponding box of its 1998 ITR. Nonetheless, there was no actual carrying over of the excess tax credit, given that BPI suffered a net loss in 1999, and was not liable for any income tax for said taxable period, against which the 1998 excess tax credit could have been applied.

The Court of Appeals added that even if Section 76 was to be construed strictly and literally, the irrevocability rule would still not bar BPI from seeking a tax refund of its 1998 excess tax credit despite previously opting to carry over the same. The phrase "for that taxable period" qualified the irrevocability of the option of BIR to carry over its 1998 excess tax credit to only the 1999 taxable period; such that, when the 1999 taxable period expired, the irrevocability of the option of BPI to carry over its excess tax credit from 1998 also expired.

The Court of Appeals further reasoned that the government would be unjustly enriched should the appellate court hold that the irrevocability rule barred the claim for refund of a taxpayer, who previously opted to carry-over its excess tax credit, but was not able to use the same because it suffered a net loss in the succeeding year.

Finally, the appellate court cited BPI-Family Savings Bank, Inc. v. Court of Appeals6 wherein this Court held that if a taxpayer suffered a net loss in a year, thus, incurring no tax liability to which the tax credit from the previous year could be applied, there was no reason for the BIR to withhold the tax refund which rightfully belonged to the taxpayer.7

In a Resolution dated 20 April 2007, the Court of Appeals denied the Motion for Reconsideration of the CIR.8

Hence, the CIR filed the instant Petition for Review, alleging that:

I

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT THE "IRREVOCABILITY RULE" UNDER SECTION 76 OF THE TAX CODE DOES NOT OPERATE TO BAR PETITIONER FROM ASKING FOR A TAX REFUND.

II

THE COURT OF APPEALS COMMITTED GRAVE ERROR WHEN IT REVERSED AND SET ASIDE THE DECISION OF THE COURT OF TAX APPEALS AND HELD THAT RESPONDENT IS ENTITLED TO THE CLAIMED TAX REFUND.

The Court finds merit in the instant Petition.

The Court of Appeals erred in relying on BPI-Family, missing significant details that rendered said case inapplicable to the one at bar.

In BPI-Family, therein petitioner BPI-Family declared in its Corporate Annual ITR for 1989 excess tax credits ofP185,001.00 from 1988 and P112,491.00 from 1989, totaling P297,492.00. BPI-Family clearly indicated in the same ITR that it was carrying over said excess tax credits to the following year. But on 11 October 1990, BPI-Family filed a claim for refund of its P112,491.00 tax credit from 1989. When no action from the BIR was forthcoming, BPI-Family filed its claim with the CTA. The CTA denied the claim for refund of BPI-Family on the ground that, since the bank declared in its 1989 ITR that it would carry over its tax credits to the following year, it should be presumed to have done so. In its Motion for Reconsideration filed with the CTA, BPI-Family submitted its final adjusted ITR

for 1989 showing that it incurred P52,480,173.00 net loss in 1990. Still, the CTA denied the Motion for Reconsideration of BPI-Family. The Court of Appeals likewise denied the appeal of BPI-Family and merely affirmed the judgment of the CTA. The Court, however, reversed the CTA and the Court of Appeals.

This Court decided to grant the claim for refund of BPI-Family after finding that the bank had presented sufficient evidence to prove that it incurred a net loss in 1990 and, thus, had no tax liability to which its tax credit from 1989 could be applied. The Court stressed in BPI Family that "the undisputed fact is that [BPI-Family] suffered a net loss in 1990; accordingly, it incurred no tax liability to which the tax credit could be applied. Consequently, there is no reason for the BIR and this Court to withhold the tax refund which rightfully belongs to the [BPI-Family]." It was on the basis of this fact that the Court granted the appeal of BPI-Family, brushing aside all procedural and technical objections to the same through the following pronouncements:

Finally, respondents argue that tax refunds are in the nature of tax exemptions and are to be construed strictissimi juris against the claimant. Under the facts of this case, we hold that [BPI-Family] has established its claim. [BPI-Family] may have failed to strictly comply with the rules of procedure; it may have even been negligent. These circumstances, however, should not compel the Court to disregard this cold, undisputed fact: that petitioner suffered a net loss in 1990, and that it could not have applied the amount claimed as tax credits.

Substantial justice, equity and fair play are on the side of [BPI-Family]. Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens. If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding excess payments of such taxes. Indeed, the State must lead by its own example of honor, dignity and uprightness.9

It is necessary for this Court, however, to emphasize that BPI-Family involved tax credit acquired by the bank in 1989, which it initially opted to carry over to 1990. The prevailing tax law then was the NIRC of 1985, Section 7910of which provided:

Sec. 79. Final Adjustment Return. - Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either:

(a) Pay the excess tax still due; or

(b) Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to a refund of the excess estimated quarterly income taxes-paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year. (Emphases ours.)

By virtue of the afore-quoted provision, the taxpayer with excess income tax was given the option to either (1) refund the amount; or (2) credit the same to its tax liability for succeeding taxable periods.

Section 79 of the NIRC of 1985 was reproduced as Section 76 of the NIRC of 1997,11 with the addition of one important sentence, which laid down the irrevocability rule:

Section 76. Final Adjustment Return. - Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either:

(a) Pay the excess tax still due; or

(b) Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for tax refund or issuance of a tax credit certificate shall be allowed therefor. (Emphases ours.)

When BPI-Family was decided by this Court, it did not yet have the irrevocability rule to consider. Hence, BPI-Family cannot be cited as a precedent for this case.

The factual background of Philam Asset Management, Inc. v. Commissioner of Internal Revenue,12 cited by the CIR, is closer to the instant Petition. Both involve tax credits acquired and claims for refund filed more than a decade after those in BPI-Family, to which Section 76 of the NIRC of 1997 already apply.

The Court, in Philam, recognized the two options offered by Section 76 of the NIRC of 1997 to a taxable corporation whose total quarterly income tax payments in a given taxable year exceeds its total income tax due. These options are: (1) filing for a tax refund or (2) availing of a tax credit. The Court further explained:

The first option is relatively simple. Any tax on income that is paid in excess of the amount due the government may be refunded, provided that a taxpayer properly applies for the refund.

The second option works by applying the refundable amount, as shown on the [Final Adjustment Return (FAR)] of a given taxable year, against the estimated quarterly income tax liabilities of the succeeding taxable year.

These two options under Section 76 are alternative in nature. The choice of one precludes the other. Indeed, in Philippine Bank of Communications v. Commissioner of Internal Revenue, the Court ruled that a corporation must signify its intention -- whether to request a tax refund or claim a tax credit -- by marking the corresponding option box provided in the FAR. While a taxpayer is required to mark its choice in the form provided by the BIR, this requirement is only for the purpose of facilitating tax collection.

One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid.13 x x x

The Court categorically declared in Philam that: "Section 76 remains clear and unequivocal. Once the carry-over option is taken, actually or constructively, it becomes irrevocable." It mentioned no exception or qualification to the irrevocability rule.

Hence, the controlling factor for the operation of the irrevocability rule is that the taxpayer chose an option; and once it had already done so, it could no longer make another one. Consequently, after the taxpayer opts to carry-over its excess tax credit to the following taxable period, the question of whether or not it actually gets to apply said tax credit is irrelevant. Section 76 of the NIRC of 1997 is explicit in stating that once the option to carry over has been made, "no application for tax refund or issuance of a tax credit certificate shall be allowed therefor."

The last sentence of Section 76 of the NIRC of 1997 reads: "Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for tax refund or issuance of a tax credit certificate shall be allowed therefor." The phrase "for that taxable period" merely identifies the excess income tax, subject of the option, by referring to the taxable period when it was acquired by the taxpayer. In the present case, the excess income tax credit, which BPI opted to carry over, was acquired by the said bank during the taxable year 1998. The option of BPI to carry over its 1998 excess income tax credit is irrevocable; it cannot later on opt to apply for a refund of the very same 1998 excess income tax credit.

The Court of Appeals mistakenly understood the phrase "for that taxable period" as a prescriptive period for the irrevocability rule. This would mean that since the tax credit in this case was acquired in 1998, and BPI opted to carry it over to 1999, then the irrevocability of the option to carry over expired by the end of 1999, leaving BPI free to again take another option as regards its 1998 excess income tax credit. This construal effectively renders nugatory the irrevocability rule. The evident intent of the legislature, in adding the last sentence to Section 76 of the NIRC of 1997, is to keep the taxpayer from flip-flopping on its options, and avoid confusion and complication as regards said taxpayer’s excess tax credit. The interpretation of the Court of Appeals only delays the flip-flopping to the end of each succeeding taxable period.

The Court similarly disagrees in the declaration of the Court of Appeals that to deny the claim for refund of BPI, because of the irrevocability rule, would be tantamount to unjust enrichment on the part of the government. The Court addressed the very same argument in Philam, where it elucidated that there would be no unjust enrichment in the event of denial

of the claim for refund under such circumstances, because there would be no forfeiture of any amount in favor of the government. The amount being claimed as a refund would remain in the account of the taxpayer until utilized in succeeding taxable years,14 as provided in Section 76 of the NIRC of 1997. It is worthy to note that unlike the option for refund of excess income tax, which prescribes after two years from the filing of the FAR, there is no prescriptive period for the carrying over of the same. Therefore, the excess income tax credit of BPI, which it acquired in 1998 and opted to carry over, may be repeatedly carried over to succeeding taxable years, i.e., to 1999, 2000, 2001, and so on and so forth, until actually applied or credited to a tax liability of BPI.

Finally, while the Court, in Philam, was firm in its position that the choice of option as regards the excess income tax shall be irrevocable, it was less rigid in the determination of which option the taxpayer actually chose. It did not limit itself to the indication by the taxpayer of its option in the ITR.

Thus, failure of the taxpayer to make an appropriate marking of its option in the ITR does not automatically mean that the taxpayer has opted for a tax credit. The Court ratiocinated in G.R. No. 15663715 of Philam:

One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid. Failure to signify one’s intention in the FAR does not mean outright barring of a valid request for a refund, should one still choose this option later on. A tax credit should be construed merely as an alternative remedy to a tax refund under Section 76, subject to prior verification and approval by respondent.

The reason for requiring that a choice be made in the FAR upon its filing is to ease tax administration, particularly the self-assessment and collection aspects. A taxpayer that makes a choice expresses certainty or preference and thus demonstrates clear diligence. Conversely, a taxpayer that makes no choice expresses uncertainty or lack of preference and hence shows simple negligence or plain oversight.

x x x x

x x x Despite the failure of [Philam] to make the appropriate marking in the BIR form, the filing of its written claim effectively serves as an expression of its choice to request a tax refund, instead of a tax credit. To assert that any future claim for a tax refund will be instantly hindered by a failure to signify one’s intention in the FAR is to render nugatory the clear provision that allows for a two-year prescriptive period.16 (Emphases ours.)

Philam reveals a meticulous consideration by the Court of the evidence submitted by the parties and the circumstances surrounding the taxpayer’s option to carry over or claim for refund. When circumstances show that a choice has been made by the taxpayer to carry over the excess income tax as credit, it should be respected; but when indubitable circumstances clearly show that another choice – a tax refund – is in order, it should be granted. "Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens."

Therefore, as to which option the taxpayer chose is generally a matter of evidence. It is axiomatic that a claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund. Tax refunds, like tax exemptions, are construed strictly against the taxpayer.17

In the Petition at bar, BPI was unable to discharge the burden of proof necessary for the grant of a refund. BPI expressly indicated in its ITR for 1998 that it was carrying over, instead of refunding, the excess income tax it paid during the said taxable year. BPI consistently reported the said amount in its ITRs for 1999 and 2000 as credit to be applied to any tax liability the bank may incur; only, no such opportunity arose because it suffered a net loss in 1999 and incurred zero tax liability in 2000. In G.R. No. 162004 of Philam, the Court found:

First, the fact that it filled out the portion "Prior Year’s Excess Credits" in its 1999 FAR means that it categorically availed itself of the carry-over option. In fact, the line that precedes that phrase in the BIR form clearly states "Less: Tax Credits/Payments." The contention that it merely filled out that portion because it was a requirement – and that to have done otherwise would have been tantamount to falsifying the FAR – is a long shot.

The FAR is the most reliable firsthand evidence of corporate acts pertaining to income taxes. In it are found the itemization and summary of additions to and deductions from income taxes due. These entries are not without rhyme or reason. They are required, because they facilitate the tax administration process.18

BPI itself never denied that its original intention was to carry over the excess income tax credit it acquired in 1998, and only chose to refund the said amount when it was unable to apply the same to any tax liability in the succeeding taxable years. There can be no doubt that BPI opted to carry over its excess income tax credit from 1998; it only subsequently changed its mind – which it was barred from doing by the irrevocability rule.

The choice by BPI of the option to carry over its 1998 excess income tax credit to succeeding taxable years, which it explicitly indicated in its 1998 ITR, is irrevocable, regardless of whether it was able to actually apply the said amount to a tax liability. The reiteration by BPI of the carry over option in its ITR for 1999 was already a superfluity, as far as its 1998 excess income tax credit was concerned, given the irrevocability of the initial choice made by the bank to carry over the said amount. For the same reason, the failure of BPI to indicate any option in its ITR for 2000 was already immaterial to its 1998 excess income tax credit.

WHEREFORE, the instant Petition for Review of the Commissioner for Internal Revenue is GRANTED. The Decision dated 29 April 2005 and the Resolution dated 20 April 2007 of the Court of Appeals in CA-G.R. SP No. 77655 are REVERSED and SET ASIDE. The Decision dated 12 March 2003 of the Court of Tax Appeals in CTA Case No. 6276, denying the claim of respondent Bank of the Philippine Islands for the refund of its 1998 excess income tax credits, is REINSTATED. No costs.

SO ORDERED.

G.R. No. 171766               July 29, 2010

ASIAWORLD PROPERTIES PHILIPPINE CORPORATION, Petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, Respondent.

D E C I S I O N

CARPIO, J.:

The Case

This petition for review1 assails the 24 August 2005 Decision2 and the 31 January 2006 Resolution3 of the Court of Appeals in CA-G.R. SP No. 82027.

The Facts

Petitioner Asiaworld Properties Philippine Corporation (petitioner) is a domestic corporation with principal office at Asiaworld City, Aguinaldo Boulevard, Parañaque, Metro Manila. Petitioner is engaged in the business of real estate development.

For the calendar year ending 31 December 2001, petitioner filed its Annual Income Tax Return (ITR) on 5 April 2002. Petitioner declared a minimum corporate income tax (MCIT) due in the amount of P1,222,066.00, but with a refundable income tax payment in the sum of P6,473,959.00 computed as follows:

Income:

Realized Gross Profit P49,234,453.00

Add: Other Income 11,868,847.00

Gross Income P61,103,300.00

Less: Deductions 58,148,630.00

Taxable Income P 2,954,670.00

Tax Due (MCIT) P 1,222,066.00

Less: Tax Credit/Payments

a. Prior Year’s Excess Credit P7,468,061.00

b. Tax Payments For the

First Three Quarters -

c. Creditable Tax Withheld

For the First Three Quarters 160,000.00

d. Creditable Tax Withheld

For the Fourth Quarter 67,964.00 7,696,025.00

Total Amount of Overpayment P6,473,959.00

In its 2001 ITR,4 petitioner stated that the amount of P7,468,061.00 representing Prior Year’s Excess Credits was net of year 1999 excess creditable withholding tax to be refunded in the amount of P18,477,144.00. Petitioner also indicated in its 2001 ITR its option to carry-over as tax credit next year/quarter the overpayment ofP6,473,959.00.

On 9 April 2002, petitioner filed with the Revenue District Office No. 52, BIR Region VIII, a request for refund in the amount of P18,477,144.00, allegedly representing partial excess creditable tax withheld for the year 2001. Petitioner claimed that it is entitled to the refund of its unapplied creditable withholding taxes.

On 12 April 2002, before the BIR Revenue District Office could act on petitioner’s claim for refund, petitioner filed a Petition for Review with the Court of Tax Appeals to toll the running of the two-year prescriptive period provided under Section 2295 of the National Internal Revenue Code (NIRC) of 1997.

In its Decision dated 11 September 2003, the Court of Tax Appeals denied the petition for lack of merit. Petitioner moved for reconsideration, which the Court of Tax Appeals denied in its Resolution dated 17 December 2003. In denying the petition, the Court of Tax Appeals explained:

While we agree with the findings of the commissioned independent CPA that petitioner has unapplied creditable withholding taxes at source as of December 31, 2001, still the excess income tax payment cannot be refunded.

Upon scrutiny of the records of the case, this court noted that the amount sought to be refunded ofP18,477,144.00 actually represents petitioner’s excess creditable withholding taxes for the year 1999 which petitioner opted to apply as tax credit to the succeeding taxable year as evidenced by its 1999 income tax return(Exhibit K). Under Section 76 of the Tax Code, petitioner is precluded to claim the refund or credit of the excess income tax payment once it has chosen the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding years.6

Petitioner appealed to the Court of Appeals, which affirmed the Decision and Resolution of the Court of Tax Appeals.

The Ruling of the Court of Appeals

The Court of Appeals held that under Section 76 of the NIRC of 1997, when the income tax payment is in excess of the total tax due for the entire taxable income of the year, a corporate taxpayer may either carry-over the excess credit to the succeeding taxable years or ask for tax credit or refund of the excess income taxes paid. Section 76 explicitly provides that once the option to carry-over is chosen, such option is irrevocable for that taxable period and the taxpayer is no longer allowed to apply for cash refund or tax credit. In this case, petitioner chose to carry-over the excess tax payment it had made in the taxable year 1999 to be applied to the taxes due for the succeeding taxable years. The Court of Appeals ruled that petitioner’s choice to carry-over its tax credits for the taxable year 1999 to be applied to its tax liabilities for the succeeding taxable years is irrevocable and petitioner is not allowed to change its choice in the following year. The carry-over of petitioner’s tax credits is not limited only to the following year of 2000 but should be carried-over to the succeeding years until the whole amount has been fully applied.

On 27 April 2006, petitioner filed a petition for review with this Court.

The Issue

The primary issue in this case is whether the exercise of the option to carry-over the excess income tax credit, which shall be applied against the tax due in the succeeding taxable years, prohibits a claim for refund in the subsequent taxable years for the unused portion of the excess tax credits carried over.

The Ruling of the Court

The petition has no merit.

The resolution of the case involves the interpretation of Section 76 of the NIRC of 1997, which reads:

SEC. 76. Final Adjustment Return. – Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either:

(A) Pay the balance of tax still due; or

(B) Carry-over the excess credit; or

(C) Be credited or refunded with the excess amount paid,

as the case may be.

In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to

carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefore. (Emphasis supplied)

The confusion lies in the interpretation of the last sentence of the provision which imposes the irrevocability rule.

Petitioner maintains that the option to carry-over and apply the excess quarterly income tax against the income tax due in the succeeding taxable years is irrevocable only for the next taxable period when the excess payment was carried over. Thus, petitioner posits that the option to carry-over its 1999 excess income tax payment is irrevocable only for the succeeding taxable year 2000 and that for the taxable year 2001, petitioner is not barred from seeking a refund of the unused tax credits carried over from year 1999.1awphi1

The Court cannot subscribe to petitioner’s view. Section 76 of the NIRC of 1997 clearly states: "Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of thesucceeding taxable years has been made, such option shall be considered irrevocable for that taxable periodand no application for cash refund or issuance of a tax credit certificate shall be allowed therefore." Section 76 expressly states that "the option shall be considered irrevocable for that taxable period" – referring to the period comprising the "succeeding taxable years." Section 76 further states that "no application for cash refund or issuance of a tax credit certificate shall be allowed therefore" – referring to "that taxable period" comprising the "succeeding taxable years."

Section 76 of the NIRC of 1997 is different from the old provision, Section 69 of the 1977 NIRC, which reads:

SEC. 69. Final Adjustment Return. – Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either:

(a) Pay the excess tax still due; or

(b) Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year. (Emphasis supplied)

Under this old provision, the option to carry-over the excess or overpaid income tax for a given taxable year is limited to the immediately succeeding taxable year only.7 In contrast, under Section 76 of the NIRC of 1997, the application of the option to carry-over the excess creditable tax is not limited only to the immediately following taxable year but extends to the

next succeeding taxable years. The clear intent in the amendment under Section 76 is to make the option, once exercised, irrevocable for the "succeeding taxable years."

Thus, once the taxpayer opts to carry-over the excess income tax against the taxes due for the succeeding taxable years, such option is irrevocable for the whole amount of the excess income tax, thus, prohibiting the taxpayer from applying for a refund for that same excess income tax in the next succeeding taxable years.8 The unutilized excess tax credits will remain in the taxpayer’s account and will be carried over and applied against the taxpayer’s income tax liabilities in the succeeding taxable years until fully utilized.9

In this case, petitioner opted to carry-over its 1999 excess income tax as tax credit for the succeeding taxable years. As correctly held by the Court of Appeals, such option to carry-over is not limited to the following taxable year 2000, but should apply to the succeeding taxable years until the whole amount of the 1999 creditable withholding tax would be fully utilized.

WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 24 August 2005 and the Resolution dated 31 January 2006 of the Court of Appeals in CA-G.R. SP No. 82027.

SO ORDERED.

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, respondents.

MENDOZA, J.:

This is a petition for review on certiorari of the decision, dated April 14, 2000, of the Court of Appeals,1 affirming the decision of the Court of Tax Appeals (which denied petitioner Bank of the Philippine Islands' claim for tax refund for 1985), and the appeals court's resolution, dated August 21, 2000, denying reconsideration.

The facts are as follows:

Prior to its merger with petitioner Bank of the Philippine Islands (BPI) on July 1985, The Family Bank and Trust Co. (FBTC) earned income consisting of rentals from its leased properties and interest from its treasury notes for the period January 1 to June 30, 1985. As required by the Expanded Withholding Tax Regulation, the lessees of FBTC withheld 5 percent of the rental income, in the amount of P118,609.17, while the Central Bank, from which the treasury notes were purchased by FBTC, withheld P55,456.60 from the interest earned thereon. Creditable withholding taxes in the total amount of P174,065.77 were remitted to respondent Commissioner of Internal Revenue.

FBTC, however, suffered a new loss of about P64,000,000.00 during the period in question. It also had an excess credit of P2,146,072.57 from the previous year. Thus, upon its dissolution in 1985, FBTC had a refundable of P2,320,138.34, representing that year's tax credit of P174,065.77 and the previous year's excess credit of P2,146,072.57.

As FBTC's successor-in-interest, petitioner BPI claimed this amount as tax refund, but respondent Commissioner of Internal Revenue refunded only the amount of P2,146,072.57, leaving a balance of P174,065.77. Accordingly, petitioner filed a petition for review in the Court of Tax Appeals on December 29, 1987, seeking the refund of the aforesaid amount.2 However, in its decision rendered on July 19, 1994, the Court of Tax Appeals dismissed petitioner's petition for review and denied its claim for refund on the ground that the claim had already prescribed.3 In its resolution, dated August 4, 1995, the Court of Tax Appeals denied petitioner's motion for reconsideration.4

Petitioner appealed to the Court of Appeals, but, in its decision rendered on April 14, 2000, the appeals court affirmed the decision of the CTA.5 The appeals court subsequently denied petitioner's motion for reconsideration.6 Hence this petition.

The sole issue in this case is whether petitioner's claim is barred by prescription. The resolution of this question requires determination of when the two-year period of prescription under §292 of the Tax Code started to run. This provision states:

Recovery of tax erroneously or illegally collected. – No suit or proceedings shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.

There is no dispute that FBTC ceased operations on June 30, 1985 upon its merger with petitioner BPI. The merger was approved by the Securities and Exchange Commission on July 1, 1985. Petitioner contends, however that its claim for refund has yet prescribed because the two-year prescriptive period commenced to run only after it had filed FBTC's Final Adjustment Return on April 15 1986, pursuant to §46(a) of the National Internal Revenue Code of 1977 (the law applicable at the time of this transaction) which provided that –

Corporation returns. – (a) Requirement. – Every corporation, subject to the tax herein imposed, except foreign corporations not engaged in trade or business in the

Philippines shall render, in duplicate, a true and accurate quarterly income tax return and final or adjustment return in accordance with the provisions of Chapter X of this Title. The return shall be filed by the president, vice-president, or other principal officer, and shall be sworn to by such officer and by the treasurer or assistant treasurer.

On the other hand, the Court of Tax Appeals ruled that the prescriptive period should be counted from July 31, 1985, 30 days after the approval by the SEC of the plan of dissolution in view of §78 of the Code which provided that –

Every corporation shall, within thirty days after the adoption by the corporation of a resolution or plan for the dissolution of the corporation or for the liquidation of the whole or any part of its capital stock, including corporations which have been notified of the possible involuntary dissolution by the Securities and Exchange Commission, render a correct return to the Commission of Internal Revenue, verified under oath, setting forth the terms of such resolution or plan and such other information as the Minister of Finance shall, by regulations, prescribe. The dissolving corporation prior to the issuance of the Certificate of Dissolution by the Securities and Exchange Commission shall secure a certificate of tax clearance from the Bureau of Internal Revenue which certificate shall be submitted to the Securities and Exchange Commission.

Failure to render the return and secure the certificate of tax clearance as above-mentioned shall subject the officer (s) of the corporation required by law to file the return under Section 46(a) of this Code, to a fine of not less than Five Thousand Pesos or imprisonment of not less than two years and shall make them liable for all outstanding or unpaid tax liabilities of the dissolving corporation.

Its ruling was sustained by the Court of Appeals.

After due consideration of the parties' arguments, we are of the opinion that, in case of the dissolution of a corporation, the period of prescription should be reckoned from the date of filing of the return required by §78 of the Tax Code. Accordingly, we hold that petitioner's claim for refund is barred by prescription.

First. Generally speaking, it is the Final Adjustment Return, in which amounts of the gross receipts and deductions have been audited and adjusted, which is reflective of the results of the operations of a business enterprise. It is only when the return, covering the whole year, is filed that the taxpayer will be able to ascertain whether a tax is still due or a refund can be claimed based on the adjusted and audited figures.7 Hence, this Court has ruled that at the earliest, the two-year prescriptive period for claiming a refund commences to run on the date of filing of the adjusted final tax return.8

In the case at bar, however, the Court of Tax Appeals, applying §78 of the Tax Code, held:

Before this Court can be rule on the issue of prescription, it is noteworthy to point out that based on the financial statements of FBTC and the independent auditor's opinion (Exh. "A-7" to "A-17"), FBTC operates on a calendar year basis. Its twelve

(12) months accounting period was shortened at the time it was merged with BPI. Thereby, losing its corporate existence on July 1, 1985 when the Articles of Merger was approved by the Security and Exchange Commission. Thus, respondent('s) stand that FBTC operates on a fiscal year basis, based on its income tax return, holds no ground. Third Court believes that FBTC is operating on a calendar year period based on the audited financial statements and the opinion thereof. The fiscal period ending June 30, 1985 on the upper left corner of the income tax return can be concluded as an error on the part of FBTC. It should have been for the six month period ending June 30, 1985. It should also be emphasized that "where one corporation succeeds another both are separate entities and the income earned by the predecessor corporation before organization of its successor is not income to the successor" (Mertens, Law of Federal Income Taxation, Vol. 7 S 38.36).

Ruling now on the issue of prescription, this Court finds that the petition for review is filed out of time. FBTC, after the end of its corporate life on June 30, 1985, should have filed its income tax return within thirty days after the cessation of its business or thirty days after the approval of the Articles of Merger. This is bolstered by Sec. 78 of the tax Code and under Sec. 244 of Revenue Regulation No. 2…9

As the FBTC did not file its quarterly income tax returns for the year 1985, there was no need for it to file a Final adjustment Return because there was nothing for it to adjust or to audit. After it ceased operations on June 30, 1985, its taxable year was shortened to six months, from January 1, 1985 to June 30, 1985 The situation of FBTC is precisely what was contemplated under §78 of the Tax Code. It thus became necessary for FBTC to file its income tax return within 30 days after approval by the SEC of its plan or resolution of dissolution. Indeed, it would be absurd for FBTC to wait until the fifteenth day of April, or almost 10 months after it ceased its operations, before filing its income tax return.

Thus, §46(a) of the Tax Code applies only to instances in which the corporation remains subsisting and its business operations are continuing. In instances in which the corporation is contemplating dissolution, §78 of the Tax Code applies. It is a rule of statutory construction that "[w]here there is in the same statute a particular enactment and also a general one which in its most comprehensive sense would include what is embraced in the former, the particular enactment must be operative, and the general enactment must be taken to affect only such cases within its general language as are not within the provisions of the particular enactment.10

Petitioner argues that to hold, as the Court of Tax Appeals and the Court of Appeals do, that §78 applies in case a corporation contemplates dissolution would lead to absurd results. It contends that it is not feasible for the certified public accountants to complete their report and audited financial statements, which are required to be submitted together with the plan of dissolution to the SEC, within the period contemplated by §78. It maintains that, in turn, the SEC would not have sufficient time to process the papers considering that §78 also requires the submission of a tax clearance certificate before the SEC can approve the plan of dissolution.

As the Court of Tax Appeals observed, however, petitioner could have asked for an extension of time of file its income tax return under §47 of the NIRC which provides:

Extension of time to file returns. – The Commissioner of Internal Revenue may, in meritorious cases, grant a reasonable extension of time for filing returns of income (or final and adjustment returns in the case of corporations), subject to the provisions of section fifty-one of this Code.

Petitioner further argues that the filing of a Final Adjustment Return would fall due on July 30, 1985, even before the due date for filing the quarterly return. This argument begs the question. It assumes that a quarterly return was required when the fact is that, because its taxable year was shortened, the FBTC did not have to file a quarterly return. In fact, petitioner presented no evidence that the FBTC ever filed such quarterly return in 1985.

Finally, petitioner cites a hypothetical situation wherein the directors of a corporation would convene on June 30, 2000 to plan the dissolution of the corporation on December 31, 2000, but would submit the plan for dissolution earlier with the SEC, which, in turn, would approve the same on October 1, 2000. Following §78 of the Tax Code, the corporation would be required to submit its complete return on October 31, 2000, although its actual dissolution would take place only on December 31, 2000.

Suffice it to say that such a situation may likewise be remedied by resort to §47 of the Tax Code. The corporation can ask for an extension of time to file a complete income tax return until December 31, 2000, when it would cease operations. This would obviate any difficulty which may arise out of the discrepancies not covered by §78 of the Tax Code.

In any case, as held in Commissioner of Internal Revenue v. Santos,11 "Debatable questions are for the legislature to decide. The courts do not sit to resolve the merits of conflicting issues."

Second. Petitioner contends that what §78 required was an information return, not an income tax return. It cites Revenue Memorandum Circular No. 14-85, of then Acting Commissioner of Internal Revenue Ruben B. Ancheta, referring to an "information return" in interpreting Executive Order No. 1026, which amended §78.12

The contention has no merit. The circular in question must be considered merely as an administrative interpretation of the law which in no case is binding on the courts.13 The opinion in question cannot be given any effect inasmuch as it is contrary to 244 of Revenue Regulation No. 2, as amended, which was issued by the Minister of Finance pursuant to the authority to him by §78 of the Tax Code. This provision states:

SEC. 244. Return of corporations contemplating dissolution or retiring from business. – All corporations, partnership joint accounts and associations, contemplating dissolution or retiring from business without formal dissolution shall, within 30 days after the approval of such resolution authorizing their dissolution, and within the same period after their retirement from business, file their income tax returns covering the profit earned or business done by them from the beginning of the year up to the date of such dissolution or retirement and pay the corresponding income tax due thereon upon demand by the Commissioner of Internal Revenue …

This regulation prevails over the memorandum circular of the Acting Commissioner of Internal Revenue, which petitioner invokes.

Thus, as required by §244 of Revenue Regulation No. 2, any corporation contemplating dissolution must submit tax return on the income earned by it from the beginning of the year up to the date of its dissolution or retirement and pay the corresponding tax due upon demand by the Commissioner of Internal Revenue. Nothing in §78 of the Tax Code limited the return to be filed by the corporation concerned to a mere information return.

It is noteworthy that §78 of the Tax Code was substantially reproduced first in §45 (c), of the amendments to the same tax Code, and later in §52 (C) of the National Internal Revenue Code of 1997. Through all the re-enactments of the law, there has been no change in the authority granted to the Secretary (formerly Minister) of Finance to require corporations to submit such other information as he may prescribe. Indeed, Revenue Regulation No. 2 had been in existence prior to these amendments. Had Congress intended only information returns, it would have expressly provided so.

Third. Considering that §78 of the Tax Code, in relation to §244 of Revenue Regulation No. 2 applies to FBTC, the two-year prescriptive period should be counted from July 30, 1985, i.e., 30 days after the approval by the SEC of its plan for dissolution. In accordance with §292 of the Tax Code, July 30, 1985 should be considered the date of payment by FBTC of the taxes withheld on the earned income. Consequently, the two-year period of prescription ended on July 30, 1987. As petitioner's claim for tax refund before the Court of Tax Appeals was filed only on December 29, 1987, it is clear that the claim is barred by prescription.

WHEREFORE, the petition is DENIED for lack of merit. 1âwphi1.nêt

SO ORDERED.

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs.PHILIPPINE NATIONAL BANK, Respondent.

D E C I S I O N

GARCIA, J.:

Thru this appeal by way of a petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Commissioner of Internal Revenue seeks to set aside the Decision dated October 14, 20031 of the Court of Appeals (CA) in CA-G.R. SP No. 76488 and its Resolution dated January 26, 20042 denying petitioner’s motion for reconsideration.

The petition is cast against the following factual setting:

In early April 1991, respondent Philippine National Bank (PNB) issued to the Bureau of Internal Revenue (BIR) PNB Cashier’s Check No. 109435 for P180,000,000.00. The check represented PNB’s advance income tax payment for the bank’s 1991 operations and was remitted in response to then President Corazon C. Aquino’s call to generate more revenues for national development. The BIR acknowledged receipt of the amount by issuing Payment Order No. C-10151465 and BIR Confirmation Receipt No. 22063553, both dated April 15, 1991.3

Via separate letters dated April 19 and 29, 1991 and May 14, 19914 to then BIR Commissioner Jose C. Ong, PNB requested the issuance of a tax credit certificate (TCC) to be utilized against future tax obligations of the bank.

For the first and second quarters of 1991, PNB also paid additional taxes amounting to P6,096,150.00 and P26,854,505.80, respectively, as shown in its corporate quarterly income tax return filed on May 30, 1991.5Inclusive of the P180 Million aforementioned, PNB paid and BIR received in 1991 the aggregate amount of P212, 950,656.79.6 This final figure, if tacked to PNB’s prior year’s excess tax credit (P1,385,198.30) and the creditable tax withheld for 1991 (P3,216,267.29), adds up to P217,552,122.38.

By the end of CY 1991, PNB’s annual income tax liability, per its 1992 annual income tax return,7 amounted to P144,253,229.78, which, when compared to its claimed total credits and tax payments of P217,552,122.38, resulted to a credit balance in its favor in the amount of P73,298,892.60.8 This credit balance was carried-over to cover tax liability for the years 1992 to 1996, but, as PNB alleged, was never applied owing to the bank’s negative tax position for the said inclusive years, having incurred losses during the 4-year period.

On July 28, 1997, PNB wrote then BIR Commissioner Liwayway Vinzons-Chato, Attention: Appellate Division, to inform her about the above developments and to reiterate its request for the issuance of a TCC, this time for the "unutilized balance of its advance payment made in 1991 amounting to P73,298,892.60".9 This request was forwarded for review and further processing to the Office of the Deputy Commissioner for Legal and Inspection Group, Lilian B. Hefti, and then to the BIR’s Large Taxpayers Service.

In a letter dated July 26, 2000, PNB sought reconsideration of the decision of Deputy Commissioner Hefti not to take cognizance of the bank’s claim for tax credit certificate on the ground that the jurisdiction of the Appellate Division is limited to claims for tax refund and credit "involving erroneous or illegal collection of taxes whenever there are questions of law and/or facts and does not include claims for refund of advance payment, pursuant to Revenue Administrative Order [RAO] No. 7-95 dated October 10, 1995."10 In her letter-reply dated August 8, 2008,11 Deputy Commissioner Hefti denied PNB’s request for reconsideration with the following explanations:

In reply, please be advised that upon review . . . of your case, this Office finds that the same presents no legal question for resolution. Rather, what is involved is the verification of factual matters, i.e., the existence of material facts to establish your entitlement to refund. Such facts were initially verified through the proper audit of your refund case by the investigating unit under the functional control and supervision of the Deputy Commissioner,

Operations Group of this Bureau. It is therefore right and proper for the Operations Group to review, confirm and/or pass judgment upon the findings of the unit under it.

At any rate, sound management practices demand that issues as crucial as refund cases be subjected to complete staff work. There might be a little delay in the transition of cases but expect the new procedures to be well-established in no time. Allow us, however, to allay your concern about delayed processing of your claim. In fact, the undersigned has made representations with the Operations Group about your case and if you would check the status of your case again, you will find that the same has been duly acted upon." (Emphasis supplied)

On August 14, 2001, PNB again wrote the BIR requesting that it be allowed to apply its unutilized advance tax payment of P73,298,892.60 to the bank’s future gross receipts tax liability.12

Replying, the BIR Commissioner denied PNB’s claim for tax credit for the following reasons stated in his letter of May 21, 2002, to wit:13

1. The amount subject of claim for [TCC] is being carried over from your 1991 to 1996 Annual Income Tax Returns. xxx. To grant your claim would result into granting it twice – first for tax carry over as shown in your 1991 amended Income Tax Return and second for granting a tax credit.

2. When you requested for a refund on April 19, 1991, reiterated on April 29, 1991 and again on May 14, 1991 on alleged excess income taxes, the same was considered premature since the determination . . . of your income tax liability can only be ascertained upon filing of your Final or Adjusted Income Tax Return for 1991 on or before April 15, 1992.

3. When you carried over the excess tax payments from 1991 to 1996 Annual Income Tax Return, you had already abandoned your original intention of claiming for a [TCC]. Furthermore, the 1991 amended Income Tax Return you filed on April 14, 1994 clearly showed that the amount being claimed has already been applied as tax credit against your 1992 income tax liability.

4. Although there was already a recommendation for the issuance of a [TCC] by the Chief, Appellate Division and concurred in by the Assistant Commissioner, Legal Service, the recommendation was for . . . year 1992 and not for the taxable year 1991, which is the taxable year involved in this case.

5. Even if you reiterated your claim for tax credit certificate when you filed your claim on July 28, 1997, the same has already prescribed on the ground that it was filed beyond the two (2) year prescriptive period as provided for under Section 204 of NIRC. [Words in bracket and emphasis added]

On June 20, 2002, PNB, via a petition for review, appealed the denial action of the BIR Commissioner to the Court of Tax Appeals (CTA). There, its appellate recourse was docketed as C.T.A. Case No. 6487.

The Revenue Commissioner filed a motion to dismiss PNB’s aforementioned petition on ground of prescription under the 1977 National Internal Revenue Code (NIRC)14. To this motion, PNB interposed an opposition, citingCommissioner of Internal Revenue vs. Philippine American Life Insurance Co.15

In its Resolution of October 10, 2002,16 the CTA granted the Commissioner’s motion to dismiss and, accordingly, denied PNB’s petition for review, pertinently stating as follows:

To reiterate, both the claim for refund and the subsequent appeal to this court must be filed within the same two (2)-year period [provided in Sec. 230 of the NIRC]. This is not subject to qualification. The court is bereft of any jurisdiction or authority to hear the instant Petition for Review, considering that the above stated action for refund was filed beyond the two (2)-year prescriptive period as allowed under the Tax Code. (Words in bracket added)

PNB’s motion for reconsideration was denied by the tax court in its subsequent Resolution of March 20, 2003.17

In time, PNB filed a petition for review with the Court of Appeals (CA), thereat docketed as CA-G.R. SP No. 76488, arguing that the applicability of the two (2)-year prescriptive period is not jurisdictional and that said rule admits of certain exceptions.18 Following the filing by the Commissioner Internal Revenue of his Comment to PNB’s petition in CA-G.R. in SP No. 76488, respondent PNB filed a Supplement to its Petition for Review.19

In the herein assailed Decision dated October 14, 2003,20 the appellate court reversed the ruling of the CTA, disposing as follows:

WHEREFORE, premises considered, the present petition is hereby GIVEN DUE COURSE. Consequently, the assailed Resolutions dated October 10, 2002 and March 30, 2003 of the Court of Tax Appeals in C.T.A. Case No. 6487 are hereby ANNULLED and SET ASIDE. The case is hereby REMANDED to the respondent Commissioner for issuance with deliberate dispatch of the tax credit certificate after completion of processing of petitioner’s claim/request by the concerned BIR officer/s as to the correct amount of tax credit to which petitioner is entitled.

No pronouncements as to costs.

SO ORDERED.

In gist, the appellate court predicated its disposition on the following main premises:

1. Considering the "special circumstance" that the tax credit PNB has been seeking is to be sourced not from any tax erroneously or illegally collected but from advance income tax payment voluntarily made in response to then President Aquino’s call to generate more revenues for the government, in no way can the amount of P180 million advanced by PNB in 1991 be considered as erroneously or illegally paid tax.21

2. The BIR is deemed to have waived the two (2)-year prescriptive period when its officials led the PNB to believe that its request for tax credit had not yet prescribed since the matter

was not being treated as an ordinary claim for tax refund/credit or a simple case of excess payment.

3. Commissioner of Internal Revenue vs. Philippine American Life Insurance Co.22 instructs that even if the two (2)-year prescriptive period under the Tax Code had already lapsed, the same is not jurisdictional, and may be suspended for reasons of equity and other special circumstances. PNB’s failure to apply the advance income tax payment due to its negative tax liability in the succeeding taxable years i.e., 1992-1996, should not be subject to the two (2)-year limitation as to bar its claim for tax credit. The advance income tax payment, made as it were under special circumstances, warrants a suspension of the two (2)-year limitation, underscoring the fact that PNB’s claim is not even a simple case of excess payment.

In time, the BIR Commissioner moved for a reconsideration, but its motion was denied by the appellate court in its equally challenged Resolution of January 26, 2004.23

Hence, the Commissioner’s present recourse on the following substantive submissions:

1. A prior tax assessment before respondent PNB can apply for tax credit is unnecessary;

2. PNB’s letter dated April 19, 29 and May 14, 1991 cannot be legally interpreted as claims for refund or tax credit as required by the NIRC;

3. PNB’s claim for tax credit is barred by prescription; and

4. The equitable principle of estoppel does bar the BIR petitioner from collecting taxes due. 24

Petitioner first scores the CA for concluding that "the amount of advance income tax payment voluntarily remitted to the BIR by the [respondent] was not a consequence of a prior tax assessment or computation by the taxpayer based on business income" and, therefore, it cannot "be treated as similar to those national revenue taxes erroneously, illegally or wrongfully paid as to be automatically covered by the two (2)-year limitation under Sec. 230 [of the NIRC] for the right to its recovery." Petitioner invokes the all too-familiar principle that the collection of taxes, being the lifeblood of the nation,25 should be summary and with the least interference from the courts.

Pressing its point, petitioner asserts that what transpired under the premises is a case of excessive collection not arising from an erroneous, illegal of wrongful assessment and collection. According to petitioner, respondent PNB, after making a prepayment of taxes in 1991, had realized, upon filing, in 1992, of its 1991 final annual income tax return, the excess payment by simple process of mathematical computation; hence, it was unnecessary to make any assessment of overpaid taxes. Moreover, petitioner points out that the tenor of PNB’s letters of April 19, 29, and May 14, 199126 indicated a mere request for an issuance of a TCC covering the advance payments of taxes, not a claim for refund or tax credit of overpaid national internal revenue taxes.

Citing Revenue Regulation No. 10-77, petitioner likewise argues that any excess or overpaid income tax for a given taxable year may be carried to the succeeding taxable year

only. It cannot, petitioner expounds, go beyond, as what respondent PNB attempted to do in 1997, when, after realizing the inapplicability of the excess carry-forward scheme for its 1992 income tax liabilities owing to its negative tax position for the 1992 to 1996 tax period, it belatedly requested for a TCC issuance.

Lastly, petitioner urges the Court to make short shrift of the invocation of equity and estoppel, on the postulate that the erroneous application and enforcement of tax laws by public officers does not preclude the subsequent correct application of such laws.27

In its Comment, respondent PNB contends that its claim for tax credit did not arise from overpayment resulting from erroneous, illegal or wrongful collection of tax. And obviously having in mind the holding of this Court in Juan Luna Subdivision Inc. vs. Sarmiento,28 respondent stresses that its P180 Million advance income tax payment for 1991 partakes of the nature of a deposit made in anticipation of taxes not yet due or levied. Accordingly, respondent adds, the P180 Million was strictly not a payment of a valid and existing tax liability, let alone an erroneous payment, the refund of which is governed by Section 230 of the NIRC.

Taking a different tack, respondent PNB would also argue that, even assuming, in gratia argumenti that the two (2)-year limitation in Section 230 of the NIRC is of governing application, still the prescriptive period set forth therein is not jurisdictional. The suspension of the statutory limitation in this case, PNB adds, is justified under exceptional circumstance.

We rule for respondent PNB.

As may be recalled, both the CTA’s and the BIR’s refusal to grant PNB’s claim for refund or credit was based on the proposition that such claim was time-barred. On the other hand, the CA rejected both the CTA’s and BIR’s stance for reasons as shall be explained shortly.

As we see it then, the core issue in this case pivots on the applicability hereto of the two (2)-year prescriptive period under in Section 230 (now Sec. 229) of the NIRC, reading:

"SEC. 230. Recovery of tax erroneously or illegally collected. – No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected , . . , or of any sum, alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be begun after the expiration of two [(2)] years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. (Underscoring added.)

Here, respondent PNB requested the BIR to issue a TCC on the remaining balance of the advance income tax payment it made in 1991. It should be noted that the request was made considering that, while PNB carried over such credit balance to the succeeding taxable years, i.e., 1992 to 1996, its negative tax position during said tax period prevented it from actually applying the credit balance of P73, 298,892.60. It is fairly correct to say then that the claim for tax credit was specifically pursued to enable the respondent bank to utilize the same for future tax liabilities. However, petitioner ruled that the claim in question is time-barred, the bank having filed such claim only in 1997, or more than two (2) years from 1992 when the overpayment of annual income tax for 1991 was realized by the bank and the amount of excess payment ascertained with the filing of its final 1991 income tax return.

In rejecting petitioner’s ruling, as seconded by the CTA, the CA stated that PNB’s request for issuance of a tax credit certificate on the balance of its advance income tax payment cannot be treated as a simple case of excess payment as to be automatically covered by the two (2)-year limitation in Section 230, supra of the NIRC.

We agree with the Court of Appeals.

Section 230 of the Tax Code, as couched, particularly its statute of limitations component, is, in context, intended to apply to suits for the recovery of internal revenue taxes or sums erroneously, excessively, illegally or wrongfully collected.

Black defines the term erroneous or illegal tax as one levied without statutory authority.29 In the strict legal viewpoint, therefore, PNB’s claim for tax credit did not proceed from, or is a consequence of overpayment of tax erroneously or illegally collected. It is beyond cavil that respondent PNB issued to the BIR the check for P180 Million in the concept of tax payment in advance, thus eschewing the notion that there was error or illegality in the payment. What in effect transpired when PNB wrote its July 28, 1997 letter30 was that respondent sought the application of amounts advanced to the BIR to future annual income tax liabilities, in view of its inability to carry-over the remaining amount of such advance payment to the four (4) succeeding taxable years, not having incurred income tax liability during that period.

The instant case ought to be distinguished from a situation where, owing to net losses suffered during a taxable year, a corporation was also unable to apply to its income tax liability taxes which the law requires to be withheld and remitted. In the latter instance, such creditable withholding taxes, albeit also legally collected, are in the nature of "erroneously collected taxes" which entitled the corporate taxpayer to a refund under Section 230 of the Tax Code. So it is that in Citibank, N.A. vs. Court of Appeals31, we held:

The taxes thus withheld and remitted are provisional in nature. We repeat: five percent of the rental income withheld and remitted to the BIR pursuant to Rev. Reg. No. 13-78 is, unlike the withholding of final taxes on passive incomes, a creditable withholding tax; that is, creditable against income tax liability if any, for that taxable year.

In Commissioner of Internal Revenue vs. TMX Sales, Inc., this Court ruled that the payments of quarterly income taxes (per Section 68, NIRC) should be considered mere installments on the annual tax due. These quarterly tax payments . . . should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the

calendar or fiscal year. The same holds true in the case of the withholding of creditable tax at source. Withholding taxes are "deposits" which are subject to adjustments at the proper time when the complete tax liability is determined.

In this case, the payments of the withholding taxes for 1979 and 1980 were creditable to the income tax liability, if any, of petitioner-bank, determined after the filing of the corporate income tax returns on April 15, 1980 and April 15, 1981. As petitioner posted net losses in its 1979 and 1980 returns, it was not liable for any income taxes. Consequently and clearly, the taxes withheld during the course of the taxable year, while collected legally under the aforecited revenue regulation, became untenable and took on the nature of erroneously collected taxes at the end of the taxable year. (Underscoring added)

Analyzing the underlying reason behind the advance payment made by respondent PNB in 1991, the CA held that it would be improper to treat the same as erroneous, wrongful or illegal payment of tax within the meaning of Section 230 of the Tax Code. So that even if the respondent’s inability to carry-over the remaining amount of its advance payment to taxable years 1992 to 1996 resulted in excess credit, it would be inequitable to impose the two (2)-year prescriptive period in Section 230 as to bar PNB’s claim for tax credit to utilize the same for future tax liabilities. We quote with approval the CA’s disquisition on this point:

Thus, in no sense can the subject amount of advance income tax voluntarily remitted to the BIR by the [respondent], not as a consequence of prior tax assessment or computation by the taxpayer based on business income, be treated as similar to those national revenue taxes erroneously, illegally or wrongfully paid as to be automatically covered by the two (2)-year limitation under Sec. 230 for the right to its recovery. When the P180 million advance income tax payment was tendered by [respondent], no tax had been assessed or due, or actually imposed and collected by the BIR. Neither can such payment be considered as illegal having been made in response to a call of patriotic duty to help the national government …. We therefore hold that the tax credit sought by [respondent] is not simply a case of excess payment, but rather for the application of the balance of advance income tax payment for subsequent taxable years after failure or impossibility to make such application or carry over the preceding four (4)-year period when no tax liability was incurred by petitioner due to losses in its operations. It is truly inequitable to strictly impose the two (2)-year prescriptive period as to legally bar any request for such tax credit certificate considering the special circumstances under which the advance income tax payment was made and the unexpected event (four years of business losses) which prevented such application or carry over. Ironically, both the [petitioner] and CTA would fault the [respondent] for electing to credit or carry over the excess amount of tax payment advanced instead of choosing to refund any such excess amount, holding thatsuch decision on the part of petitioner caused the two (2)-year period to lapse without the petitioner filing such a request for the issuance of a tax credit certificate. They emphasized that the advance tax payment was made with the understanding that any excess amount will be either carried over to the next taxable year or refunded. It appears then that the request for issuance of a tax credit certificate was arbitrarily interpreted by respondent as a simple claim for refund instead of a request for application of the balance (excess amount) to tax liability for the succeeding taxable years, as was the original intention of [respondent] when it tendered the advance payment in 1991."32 (Emphasis in the original; words in bracket added)

Petitioner insists that a prior tax assessment in this case was unnecessary, the excess tax payment having already been ascertained by the end of 1992 upon the filing by respondent of its adjusted final return. Thus, petitioner adds, the two (2)-year prescriptive period to recover said excess credit balance had begun to run from the accomplishment of the said final return and, ergo, PNB’s claim for tax credit asserted in 1997 is definitely belated. Additionally, petitioner, citing Revenue Regulation No. 10-77, contends that the carrying forward of any excess or overpaid income tax for a given taxable year is limited to the succeeding taxable year only.

We do not agree.

Revenue Regulation No. 10-7733 governs the method of computing corporate quarterly income tax on a cumulative basis. Section 7 thereof provides:

SEC. 7. Filing of final or adjustment return and final payment of income tax. -- A final or an adjustment return . . . covering the total taxable income of the corporation for the preceding calendar or fiscal year shall be filed on or before the 15th day of the fourth month following the close of the calendar or fiscal year. xxxx. The amount of income tax to be paid shall be the balance of the total income tax shown on the final or adjustment return after deducting therefrom the total quarterly income taxes paid during the preceding first three quarters of the same calendar or fiscal year.

"Any excess of the total quarterly payments over the actual income tax computed and shown in the adjustment or final corporate income tax return shall either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year. The corporation must signify in its annual corporate adjustment return its intention whether to request for the refund of the overpaid income or claim for automatic tax credit to be applied against its income tax liabilities for the quarters of the succeeding taxable year by filling the appropriate box on the corporate tax return. (B.I.R. Form No. 1702) [Emphasis added]

As can be gleaned from the above, the mandate of Rev. Reg. No. 10-77 is hardly of any application to PNB’s advance payment which, needless to stress, are not "quarterly payments" reflected in the adjusted final return, but a lump sum payment to cover future tax obligations. Neither can such advance lump sum payment be considered overpaid income tax for a given taxable year, so that the carrying forward of any excess or overpaid income tax for a given taxable year is limited to the succeeding taxable year only.34 Clearly, limiting the right to carry-over the balance of respondent’s advance payment only to the immediately succeeding taxable year would be unfair and improper considering that, at the time payment was made, BIR was put on due notice of PNB’s intention to apply the entire amount to its future tax obligations.

In Commissioner vs. Phi-am Life35, the Court ruled that an availment of a tax credit due for reasons other than the erroneous or wrongful collection of taxes may have a different prescriptive period. Absent any specific provision in the Tax Code or special laws, that period would be ten (10) years under Article 1144 of the Civil Code. Significantly, Commissioner vs. Phil-Am is partly a reiteration of a previous holding that even if the two (2)-year prescriptive period, if applicable, had already lapsed, the same is

not jurisdictional36 and may be suspended for reasons of equity and other special circumstances.37

While perhaps not in all fours because it involved the refund of overpayment due to misinterpretation of the law on franchise, our ruling in Panay Electric Co. vs. Collector of Internal Revenue38, is apropos. There, the Court stated:

"xxx(L)egally speaking, the decision of the Tax Court [on the two-year prescriptive period for tax refund] is therefore correct, being in accordance with law. However, one’s conscience does not and cannot rest easy on this strict application of the law, considering the special circumstances that surround this case. Because of his erroneous interpretation of the law on franchise taxes, the Collector, from the year 1947 had illegally collected from petitioner the respectable sum of . . . . From a moral standpoint, the Government would be enriching itself of this amount at the expense of the taxpayer. (Words in bracket added and underscoring added.)

Like the CA, this Court perceives no compelling reason why the principle enunciated in Panay Electric andCommissioner vs. Phil-Am Life should not be applied in this case, more so since the amount over which tax credit is claimed was theoretically booked as advance income tax payment. It bears stressing that respondent PNB remitted the P180 Million in question as a measure of goodwill and patriotism, a gesture noblesse oblige, so to speak, to help the cash-strapped national government. It would thus indeed, be unfair, as the CA correctly observed, to leave respondent PNB to suffer losing millions of pesos advanced by it for future tax liabilities. The cut becomes all the more painful when it is considered that PNB’s failure to apply the balance of such advance income tax payment from 1992 to 1996 was, to repeat, due to business downturn experienced by the bank so that it incurred no tax liability for the period.

The rule of long standing is that the Court will not set aside lightly the conclusions reached by the CTA which, by the very nature of its functions, is dedicated exclusively to the resolution of tax problems and has, accordingly, developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority.39 It is likewise settled that to a claimant rests the onus to establish the factual basis of his or her claim for tax credit or refund.40 In this case, however, petitioner does not dispute that a portion of the P180 Million PNB remitted to the BIR in 1991 as advance payment remains unutilized for the purpose for which it was intended in the first place. But petitioner asserts that respondent’s right to recover the same is already time-barred. The CTA upheld the position of petitioner. The CA ruled otherwise. We find the CA’s position more in accord with the facts on record and is consistent with applicable laws and jurisprudence.

Verily, the suspension of the two (2)-year prescriptive period is warranted not solely by the objective or purpose pursuant to which respondent PNB made the advance income tax payment in 1991. Records show that petitioner’s very own conduct led the bank to believe all along that its original intention to apply the advance payment to its future income tax obligations will be respected by the BIR. Notwithstanding respondent PNB’s failure to request for tax credit after incurring negative tax position in 1992, up to taxable year 1996, there appears to be a valid reason to assume that the agreed carrying forward of the balance of the advance payment extended to succeeding taxable years, and not only in

1992. Thus, upon posting a net income in 1997 and regaining a profitable business operation, respondent bank promptly sought the issuance of a TCC for the reason that its credit balance of P73, 298,892.60 remained unutilized. If ever, petitioner’s pose about respondent PNB never having made a written claim for refund only serves to buttress the latter’s position that it was not out to secure a refund or recover the aforesaid amount, but for the BIR to issue a TCC so it can apply the same to its future tax obligations.

Lest it be overlooked, petitioner peremptorily denied the request for tax credit on the ground of its having been filed beyond the two (2)-year prescriptive period. In the same breath, however, petitioner appears to have glossed over an incident which amounts to an earlier BIR ruling that "there is no legal question to be resolved but only a factual investigation" in the processing of PNB’s claim. Even as petitioner concluded such administrative investigation, it did not deny the request for issuance of a tax credit certificate on any factual finding, such as the veracity of alleged business losses in the taxable years 1992 to 1996, during which the respondent bank alleged the credit balance was not applied. Lastly, there is no indication that petitioner considered respondent’s request as an ordinary claim for refund, the very reason why the same was referred by the BIR for processing to the Operations Group of the Bureau.

Hence, no reversible error was committed by the CA in holding that, upon basic considerations of equity and fairness, respondent’s request for issuance of a tax credit certificate should not be subject to the two (2)-year limitation in Section 230 of the NIRC.

With the foregoing disquisitions, the Court finds it unnecessary to delve on the question of whether or not mistakes of tax officers constitute a bar to collection of taxes by the BIR Commissioner.

The procedural issue presently raised by petitioner, i.e., respondent PNB’s alleged non-compliance with the forum shopping rule when its petition for review filed with the CTA did not contain the requisite authority of PNB Vice President Ligaya R. Gagolinan to sign the certification, need not detain us long.

Petitioner presently faults the CA for not having taken notice that PNB’s initiatory pleading before the CTA suffers from an infirmity that justifies the dismissal thereof. But it is evident that the issue of forum shopping is being raised for the first time in this appellate proceedings. Accordingly, the Court loathes to accommodate petitioner’s urging for the dismissal of respondent’s basic claim on the forum-shopping angle. As earlier ruled by this Court, a party ought to invoke the issue of forum shopping, assuming its presence, at the first opportunity in his motion to dismiss or similar pleading filed in the trial court. Else, he is barred from raising the ground of forum shopping in the Court of Appeals and in this Court.41 So it must be here.

WHEREFORE, the petition is DENIED for lack of merit and the assailed decision and resolution of the Court of Appeals in CA-G.R. SP No. 76488 AFFIRMED.

No pronouncement as to costs.

SO ORDERED.

G.R. No. L-23611             April 24, 1967

THE GUAGUA ELECTRIC LIGHT PLANT COMPANY, INC., petitioner, vs.THE COLLECTOR OF INTERNAL REVENUE and THE HONORABLE COURT OF TAX APPEALS, respondents.

Eligio Lagman for petitioner.Office of the Solicitor General for respondents.

BENGZON, J.P., J.:

Guagua Electric Light Plant Co. (hereinafter called Guagua Electric Company for short), a grantee of municipal franchise by the municipal council of Guagua, Pampanga under Resolution No. 42 dated December 13, 1927 and by the municipal council of Sexmoan, Pampanga under Resolution No. 48 dated November 15, 1928 pursuant to Act 667, as amended, realized and reported a gross income in the sum of P1,133,003.44 during the period from January 1, 1947 to November 1956 and paid thereon a franchise tax in the amount of P56,664.97 computed at 5% thereof in accordance with Section 259 of the National Internal Revenue Code.

Believing that it should pay franchise tax at the lower rates provided for in its franchises1 instead of 5% fixed by Section 259 of the Tax Code, it filed on March 25, 1957 a claim for refund for allegedly overpaid franchise tax amounting to P35,593.98 on its gross receipts realized from January 1, 1947 to November 1956. The Commissioner of Internal Revenue denied refund of franchise tax corresponding to the period prior to the fourth quarter of 1951 on the ground that the right to its refund had prescribed. 2 He however granted refund of the following amounts:

Period Sum Refunded4th quarter, 1951 to 3rd quarter, 1953 P7,482.171st quarter, 1955 to Sept. 1956 P8,232.39Oct. and Nov. 1956 879.31

TOTAL P16,593.87============

Not satisfied with the determination of the Commissioner, Guagua Electric appealed to the Court of Tax Appeals. However, its appeal, docketed as C.T.A. Case No. 508 was dismissed upon motion of the Commissioner of Internal Revenue, interposed before filing his answer to the petition for review on the ground that the same was instituted beyond the 30-days, period provided for in Section 11 of Republic Act 1125.

Subsequently, this Court held in Hoa Hin Co., Inc. vs. David3 that electric franchise holders under Act 567 are liable for franchise tax at the rate fixed by Section 259 of the Tax Code, that is, 5% of the gross receipts. Accordingly, on March 2, 1961 the Commissioner of Internal Revenue assessed against Guagua Electric deficiency franchise tax computed thus:

1. Gross receipts, Guagua and Sexmoan, Oct. 1, 1952 to June 30, 1959 P1,116,138.01

Gross receipts, Sexmoan July 1, 1959 to Oct. 31, 1959 5,543.25

Gross receipts, Guagua, July 1, 1959 to June 30, 1960 181,354.57

Total gross receiptsP1,303,035.81

5% franchise tax due 65,151.79

Less: amount paid 43,941.64

Tax still due 21,210.15

Less: Overpayment, Sexmoan, Nov. 1, 1959 to June 30, 1960 181.71

Deficiency tax 21,028.44

Add: 25% surcharge 3,257.11

2 Add: Amount refunded 16,593.87

Total tax due 42,879.42============

Guagua Electric contested the deficiency assessment in its letter dated March 30, 1961 contending that the same is violative of its franchises; that the computation of the gross receipts is contrary to rules; and that the right to assess and/or collect the tax has prescribed. On August 21, 1961 the appellate division of the Bureau of Internal Revenue recommended that the right to assess and collect the tax corresponding to the period prior to January 1, 1956 has prescribed. Consequently, the Commissioner issued the following revised assessment eliminating therefrom the deficiency tax for the period prior to January 1, 1956, as recommended:

Gross receipts, Jan. 1, 1956 to June 30, 1962 P858,070.67

5% franchise tax and 3% percentage tax due thereon 42,662.71

Less: Tax already paid 22,724.59

Balance still due P19,938.12

Add: 25% surcharge 4,984.53

Amount refunded 16,593.87

Total tax due P41,516.52=============

Guagua Electric appealed from the aforesaid Commissioner's decision to the Court of Tax Appeals which in turn affirmed the same. Still not satisfied, it elevated the case to Us and submitted the following propositions:

1. The application of the rate of 5% as provided for in Section 259 of the Tax Code, instead of 1% or 2% as provided for in its franchises granted under Act 667, impairs the obligation of contract and is therefore unconstitutional.

2. The government is precluded from recovering the sum of P16,593.87 representing the amount refunded to it on grounds of prescription and failure to set up as counterclaim in C.T.A. Case No. 508.

The constitutionality of collecting franchise tax at the rate of 5% of the gross receipts as provided for in Section 259 of the Tax Code instead of at the lower rates fixed by the franchise granted under Act 667, has already been settled in several cases.4 Guagua Electric, whose franchises were similarly granted under Act 667, being similarly situated as the taxpayers-franchise holders in those cases already decided by Us, shall likewise be subject to the 5% rate imposed in Section 259 of the Tax Code.

The Commissioner of Internal Revenue seeks the recovery of the amount of P16,593.87 allegedly erroneously refunded to Guagua Electric. Said amount represents the difference between the tax computed at 5% pursuant to Section 259 of the Tax Code and the tax at 1% or 2% under its franchises covering the period from September 1951 through November 1956. This, in effect, is an assessment for deficiency franchise tax.

It should be noted that the deficiency assessment of P19,638.12 in this case for the difference between the franchise tax paid at 1% or 2% under taxpayer's franchises and the tax computed at 5% pursuant to Section 259 of the Tax Code covers the period from January 1, 1956 to June 30, 1962. Obviously, if Guagua Electric were required to pay P16,593.87 in addition to the sum of P19,938.12, it would be paying twice for the same deficiency tax for the period from January 1 to November 30, 1956.

As afore-stated, moreover, the Commissioner of Internal Revenue revised his first deficiency assessment dated March 2, 1961 by eliminating therefrom the deficiency tax for the period prior to January 1, 1956 because the right to assess the same has prescribed. By insisting on the payment of the amount of P16,593.87 (which covers the period from September 1951 to November 1956), he is, in fact, trying to collect the same deficiency tax, the right to assess the same he had found to have been lost by prescription.

The Court of Tax Appeals however stated in its decision that Guagua Electric did not raise the issue of prescription of the right of the Government to assess and collect the sum of P16,593.87. This finding of the lower court is not supported by the pleadings. In its letter dated March 30, 1961 contesting the first assessment dated March 2, 1961 Guagua Electric assailed the right to assess and/or collect the tax on grounds of prescription. In paragraph 20 of its petition for review (C.T.A. Rec. p. 4), it raised the defense of prescription of the Commissioner's right to assess and collect the tax.

Anent the contention of the Commissioner of Internal Revenue that Guagua Electric failed to adduce evidence to prove prescription of his right to assess and collect the P16.593.87, suffice it to state that in paragraph 10 of the Commissioner's answer he admitted the allegations in paragraph 13 of the petition for review. Paragraph 13 alleged the facts, supported by annexes, constituting prescription. There was therefore no need for the taxpayer to present further evidence in the point.

The Commissioner of Internal Revenue further maintains that the prescription of his right to recover the amount of P16,593.87 is governed by Article 1145(2) in relation to Articles 1154 and 1155 of the Civil Code. Hence, prescription will set in only after the expiration of six years from 1957 and 1959, the dates refunds were granted. Since the petition for review and answer thereto were filed in the Court of Tax Appeals on February 14, and May 4, 1962, he concludes that the prescriptive period of six years has not expired.1äwphï1.ñët

As stated above, the demand on the taxpayer to pay the sum of P16,593.87 is in effect an assessment for deficiency franchise tax. And being so, the right to assess or collect the same is governed by Section 331 of the Tax Code5 rather than by Article 1145 of the Civil Code. A special law (Tax Code) shall prevail over a general law (Civil Code).6

Our above conclusion absolving Guagua Electric from the payment of the sum of P16,593.87 has removed the necessity of discussing Guagua Electric's assertion that the Government is precluded from recovering the said sum because it failed to set it up as a counterclaim in C.T.A. Case No. 508.

With regard to the 25% surcharge in the amount of P4,984.53, it is patently unfair on the part of the Government to require its payment inasmuch as the taxpayer acted in good faith in paying the franchise tax at the lower rates fixed by its franchises. As a matter of fact, the Bureau of Internal Revenue shared with the taxpayer the view that Section 259 of the Tax Code does not apply. Guagua Electric should not therefore be made to pay the 25% surcharge.7 Wherefore, the judgment appealed from is affirmed with the modification that the amount of P16,593.87 representing franchise tax allegedly refunded erroneously and the 25% surcharge imposed on petitioner should be, and are eliminated, thereby reducing the tax from a total of P41,516.52 to P19,938.12. No costs. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Zaldivar, Sanchez and Castro, JJ., concur.