Commissioner of Internal Revenue vs. TMX Sales, Inc.

The two-year prescriptive period for filing a judicial claim for refund of erroneously or illegally collected income tax, under Section 292 (now Section 230) of the National Internal Revenue Code, commences from the date of filing the Final Adjustment Return or Annual Income Tax Return, not from the date of each quarterly installment payment. Quarterly corporate income tax payments are treated as mere installments or advances of the total annual tax due, which is finally determined only upon the submission of the adjusted and audited annual return.

Private respondent TMX Sales, Inc., a domestic corporation, paid P247,010.00 as quarterly income tax for the first quarter of 1981 on May 15, 1981. It subsequently incurred net losses for the entire taxable year 1981, resulting in a net loss of P6,156,525.00 as declared in its Final Adjustment Return filed on April 15, 1982. On July 9, 1982, TMX Sales filed an administrative claim for refund of the P247,010.00. The Commissioner of Internal Revenue did not act on the claim, prompting TMX Sales to file a Petition for Review before the Court of Tax Appeals on March 14, 1984.

• Nature of Tax Payment: TMX Sales, Inc. filed and paid its quarterly income tax for the first quarter of 1981 on May 15, 1981, in the amount of P247,010.00.
• Subsequent Losses and Annual Return: The corporation suffered losses in the subsequent quarters. On April 15, 1982, it filed its Final Adjustment Return for the taxable year 1981, declaring a net loss of P6,156,525.00.
• Refund Claim: On July 9, 1982, TMX Sales filed an administrative claim for refund of the P247,010.00, representing its overpaid first-quarter tax.
• Commissioner's Defense: In his answer before the CTA, the Commissioner argued that the judicial claim, filed on March 14, 1984, was barred by the two-year prescriptive period under Section 292 of the NIRC, computed from the date of the quarterly payment (May 15, 1981).
• CTA Ruling: The Court of Tax Appeals ruled that the prescriptive period should be counted from the filing of the Final Adjustment Return (April 15, 1982), as quarterly payments are mere installments of the annual tax. It granted the refund.

• Prescription from Quarterly Payment: Petitioner Commissioner of Internal Revenue argued that the two-year prescriptive period under Section 292 of the NIRC commenced on May 15, 1981, the date the quarterly tax was paid. Since the judicial claim was filed on March 14, 1984, more than two years had elapsed, barring the refund.
• Reliance on Precedent: Petitioner cited the case of Pacific Procon Limited v. Commissioner of Internal Revenue (G.R. No. 68013), where a similar refund claim was denied in a minute resolution for being filed beyond the two-year period reckoned from the quarterly payment date.

• Prescription from Final Adjustment: Respondent TMX Sales, Inc. countered that the quarterly income tax payments are merely installments of the total annual tax liability. Therefore, the prescriptive period should commence from the date of filing the Final Adjustment Return (April 15, 1982), when the final tax due or overpayment is definitively determined.
• Avoidance of Absurdity: Respondent's position, adopted by the CTA, maintained that a literal interpretation of Section 292 would lead to absurdity and inconvenience, as it would be impossible to determine which quarterly payment gave rise to the overpayment until the annual adjustment is made.

• Prescriptive Period for Quarterly Tax Refund: Whether the two-year prescriptive period to file a judicial claim for refund of erroneously paid corporate income tax under Section 292 of the NIRC commences from the date of each quarterly payment or from the date of filing the Final Adjustment Return.

• Prescriptive Period for Quarterly Tax Refund: The two-year prescriptive period commences from the date of filing the Final Adjustment Return. Quarterly corporate income tax payments are computed on a cumulative basis and are mere installments of the annual tax. The final tax liability, and thus the existence of an overpayment, can only be ascertained upon the filing of the annual return, which is accompanied by audited financial statements. To rule otherwise would create uncertainty and potential absurdity, as a taxpayer might be forced to file multiple refund claims for each quarter even before knowing the final annual tax outcome.

• Quarterly Income Tax Payments as Installments — Quarterly corporate income tax payments, computed on a cumulative basis pursuant to Sections 85 and 87 of the NIRC, are not independent tax liabilities but are advances or installments of the total annual income tax. The final tax due is determined only upon the filing of the Final Adjustment Return. Consequently, the prescriptive period for claiming a refund of overpaid tax runs from the date of this final return, not from the dates of the quarterly payments.

• "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." — This passage from the CTA decision, affirmed by the Supreme Court, encapsulates the core rationale for the ruling.
• "A literal application of Section 292 (now Section 230) in the case at bar which involves quarterly income tax payments may lead to absurdity and inconvenience." — The Court emphasized that statutory interpretation must avoid unreasonable results, harmonizing all relevant provisions of the Tax Code.

• Collector of Internal Revenue v. Antonio Prieto, 2 SCRA 1007 (1961) — Cited as controlling precedent holding that when a tax is paid in installments, the two-year prescriptive period is counted from the date of the final payment.
• Commissioner of Internal Revenue v. Carlos Palanca, 18 SCRA 496 (1966) — Reiterated the Prieto ruling that the prescriptive period runs from the date of the last installment.
• Pacific Procon Limited v. Commissioner of Internal Revenue, G.R. No. 68013 (1984) — The Court's minute resolution denying a similar refund claim was re-examined and not followed, as a full-blown decision was deemed necessary to settle the issue categorically.

• Section 292 (now Section 230), National Internal Revenue Code — Provides the two-year period of limitation to bring a suit for recovery of an erroneously or illegally collected tax, counted "from the date of payment of the tax."
• Section 85 (now Section 68), NIRC — Mandates the method of computing corporate quarterly income tax on a cumulative basis, where the tax due is decreased by the amount of tax previously paid in preceding quarters.
• Section 87 (now Section 69), NIRC — Requires the filing of an Adjustment Return and provides for the final payment of income tax or refund of excess payments based on the total annual net taxable income.
• Section 321 (now Section 232), NIRC — Requires the annual audit of books of accounts by an independent CPA, reinforcing that the Final Adjustment Return, based on audited figures, is the true reflection of a business's tax liability.

Narvasa, C.J., Melencio-Herrera, Cruz, Paras, Padilla, Bidin, Griño-Aquino, Medialdea, Regalado, Davide, Jr. and Romero, JJ., concur.

N/A — Justices Feliciano and Nocon took no part. No dissenting opinion was recorded.