United Coconut Planters Bank vs. Commissioner of Internal Revenue

Under Section 76 of the NIRC of 1997, the option to carry over excess creditable withholding taxes is irrevocable; once a taxpayer carries over the excess credits to succeeding taxable quarters, it cannot later claim a refund or tax credit certificate for the same excess amount.

UCPB is a banking institution and the CIR is the respondent. Section 76 of the NIRC of 1997 governs a corporation's options over excess quarterly income tax payments: pay the balance of tax still due, carry over the excess credit, or be credited/refunded, with the carry-over option irrevocable once made.

UCPB, being in the banking business, had to continuously dispose of real properties acquired as payments for unpaid principal and interests by defaulting clients-borrowers during taxable year 2004. Donabel R. Aala, UCPB's Tax Management and Compliance Department Head, stated in her Amended Judicial Affidavit that these sales of real properties, considered ordinary assets, were subject to 6% creditable withholding taxes; that some of UCPB's clients were BIR-designated Top Ten Thousand Corporations required under existing BIR regulations to deduct 2% creditable withholding tax on their income payments, i.e., interests, service charges, etc., for services rendered by UCPB; and that rental income from leases of UCPB's properties was subjected to 5% creditable withholding tax by its lessees. Because UCPB did not have taxable income for taxable year 2004, these creditable taxes withheld by its clients and lessees were not utilized.

On April 15, 2005, UCPB, through the BIR's Electronic Filing and Payment System (EFPS), filed its original Annual Income Tax Return (ITR) for the year ended December 31, 2004. During the filing, UCPB allegedly had difficulty accomplishing the ITR through the EFPS, resulting in errors, and the ITR was not entirely filled up. On the same day, UCPB refiled its Annual ITR to complete the necessary details; this refiled ITR was allegedly captured by the BIR's system as an amended return. Subsequently, on May 19, 2005 and October 13, 2006, UCPB filed its Amended Annual ITR, both reflecting losses and excess tax credits. UCPB claimed that since it had been posting net losses for the past several years including 2004, it was not liable for any income taxes for 2004, and the taxes withheld during the taxable year took on the nature of erroneously collected/overpaid taxes at the end of the taxable year.

On March 20, 2007, UCPB claimed a refund or the issuance of a tax credit certificate for its unutilized creditable withholding tax for taxable year 2004, pursuant to Section 58(D) of the NIRC of 1997, in the amount of ₱43,484,162.00 with the Large Taxpayers Audit & Investigation Division I of the BIR. Because the period to file a judicial claim for refund was expiring on April 15, 2007, a Sunday, and the CIR had not acted on its claim, UCPB filed a Petition for Review with the CTA Division on April 16, 2007. On May 23, 2007, the CIR filed an Answer interposing, among others, that the claim was subject to administrative routinary investigation/examination; that the amount claimed was not properly documented; that the burden of proof was on the taxpayer; that the petition was premature because UCPB did not submit complete documents under Section 112(D) of the NIRC, so the 120-day period started on March 27, 2007 and would expire on July 25, 2007, with the 30-day period to file the petition expiring on August 24, 2007; that UCPB must show compliance with Sections 204(C) and 229 on the prescriptive period; and that refund claims are construed strictly against the claimant.

UCPB submitted that it incurred/paid creditable withholding taxes in taxable year 2004 totaling ₱43,484,162.00 while it was unable to apply or utilize them during that year; that it clearly indicated in its amended 2004 Annual ITR the option to apply for refund/issuance of a tax credit certificate, making the amount a proper subject of a claim under Section 76 of the NIRC; and that the amount was not carried over and claimed as "prior year's excess tax credits" during the succeeding taxable years, so it was entitled to the refund/tax credit certificate. The CIR, on the other hand, contended that investigation disclosed that UCPB carried over its excess income tax for 2004 to the next quarter/s of 2005, as shown in all the originally filed Quarterly and Annual ITRs for 2005; that the amount of ₱67,660,606.00 per amended ITR for 2004 filed on May 19, 2005, including the ₱43,484,162.00 being claimed, was carried over to all the Quarterly and Annual ITRs originally filed by UCPB for 2005; and that although UCPB ticked the box "to be issued a tax credit certificate" in its Amended ITR for 2004, this was negated by the carrying-over of the excess credit to all the Quarterly and Annual ITRs originally filed for 2005.

The CTA En Banc found that UCPB had marked the option "To be issued a Tax Credit Certificate" in its first and second 2004 Amended Income Tax Returns, but that its original quarterly income tax returns for the first, second, and third quarters of 2005 and its original Annual Income Tax Return for 2005 showed it carried over the excess credits and included them as prior year credits for taxable year 2005. The CTA En Banc also found that UCPB later amended its 2004 and 2005 Annual Income Tax Returns to reflect its choice of claim for refund. The SC noted that UCPB marked the option "To be issued a Tax Credit Certificate" in its first, second, and third amended annual ITRs for taxable year 2004, but in its original Quarterly Income Tax Returns for taxable year 2005, it carried over the same as "Prior Year's Excess Credits."

• Entitlement to Refund/Tax Credit: Petitioner argued that it incurred/paid creditable withholding taxes in taxable year 2004 totaling ₱43,484,162.00 and was unable to apply or utilize them during that year, entitling it to refund or issuance of a tax credit certificate.
• Exercise of Section 76 Option: Petitioner argued that it clearly indicated in its amended 2004 Annual ITR the option to apply for refund/issuance of a tax credit certificate, making the amount a proper subject of the claim under Section 76 of the NIRC of 1997.
• No Carry-Over: Petitioner argued that the amount of ₱43,484,162.00 was not carried over and claimed as "prior year's excess tax credits" during the succeeding taxable years.

• Prematurity/Jurisdiction: Respondent argued that the petition for review was premature because UCPB did not submit complete documents in support of its administrative claim under Section 112(D) of the NIRC; the 120-day period started on March 27, 2007 and would expire on July 25, 2007, and the 30-day period to file the petition would expire on August 24, 2007, so the CTA had no jurisdiction.
• Documentation/Burden of Proof: Respondent argued that the amount of ₱43,484,162.00 was not properly documented and that in an action for refund the burden of proof is on the taxpayer to establish its right to refund, with failure fatal to the claim.
• Carry-Over Negated Refund Option: Respondent contended that UCPB carried over its excess income tax for 2004 to the next quarter/s of 2005, as shown in all originally filed Quarterly and Annual ITRs for 2005; that the amount of ₱67,660,606.00 per amended ITR for 2004 filed on May 19, 2005, including the ₱43,484,162.00 claimed, was carried over to all the Quarterly and Annual ITRs originally filed for 2005; and that although UCPB ticked the box "to be issued a tax credit certificate" in its Amended ITR for 2004, this was negated by the carrying-over of the excess credit to all the Quarterly and Annual ITRs originally filed for 2005.
• Strict Construction/Prescription: Respondent argued that UCPB must show compliance with Sections 204(C) and 229 of the Tax Code on the prescriptive period for claiming tax refund/credit, and that claims for refund are construed strictly against the claimant because they partake of the nature of exemption from taxation and are looked upon with disfavor, citing Commissioner of Internal Revenue vs. Ledesma and Western Minolco Corp. vs. Commissioner of Internal Revenue.

• Refund/Tax Credit Certificate: Whether the CTA En Banc erred in affirming the denial of UCPB's claim for refund or issuance of a tax credit certificate for its unutilized creditable withholding taxes for taxable year 2004.

• Refund/Tax Credit Certificate: No. The CTA En Banc did not err. UCPB's act of carrying over the excess credits in its 2005 quarterly ITRs negated its earlier option for refund/tax credit, and the carry-over option is irrevocable under Section 76 of the NIRC of 1997.

• Refund/Tax Credit Certificate: Section 76 of the NIRC of 1997 provides that if the sum of quarterly tax payments is not equal to the total tax due, the corporation shall either pay the balance, carry over the excess credit, or be credited/refunded with the excess amount paid. Its last sentence states that once the option to carry over and apply the excess quarterly income tax against income tax due for succeeding taxable quarters has been made, the option is irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed. The SC cited Asiaworld Properties Philippine Corporation vs. CIR for the rule that once a taxpayer opts to carry over the excess income tax against taxes due for succeeding taxable years, the option is irrevocable for the whole amount, prohibiting a refund for the same excess in the next succeeding taxable years; the unutilized excess tax credits remain in the taxpayer's account and are carried over until fully utilized. The SC also cited Rhombus Energy, Inc. vs. CIR, which in turn cited Republic vs. Team (Phils.) Energy Corporation, for the controlling-factor rule that once the taxpayer chooses an option, it can no longer make another; after opting to carry over, whether it actually gets to apply the tax credit is irrelevant, because Section 76 explicitly states that once the carry-over option is made, no application for tax refund or tax credit certificate shall be allowed. The SC noted that Rhombus had held that Rhombus's marking of the "To be refunded" box in its 2005 annual ITR constituted its exercise of the option and precluded it from carrying over, and that the reporting of prior year's excess credits in its 2006 quarterly ITRs did not reverse the option. However, the SC declared that, contrary to the pronouncement in Rhombus, a reading of the law unmistakably discloses that the irrevocability rule applies exclusively to the carry-over option; if the lawmakers intended the refund/TCC option to be irrevocable, they would have clearly provided so, applying expressio unius est exclusion alterius. The SC quoted jurisprudence holding that the law does not prevent a taxpayer who originally opted for refund or tax credit certificate from shifting to the carry-over of excess creditable taxes to succeeding taxable quarters; however, if the taxpayer decides to shift to carry-over, it may no longer revert to its original choice due to the irrevocability rule. Thus, the taxpayer's options under Section 76 are qualified by the irrevocability rule only as to the carry-over option, not the refund option. In UCPB's case, it marked the option "To be issued a Tax Credit Certificate" in its first, second, and third amended annual ITRs for taxable year 2004, but in its original Quarterly Income Tax Returns for taxable year 2005, it carried over the same as "Prior Year's Excess Credits." UCPB's option to be issued a tax credit certificate was negated by its very act of carrying over the excess amount as excess tax credits in its 2005 Quarterly ITRs; since UCPB used the carry-over option, it could no longer revert to its original choice due to the irrevocability rule. The CTA En Banc therefore did not err in denying UCPB's claim.

• Irrevocability of Carry-Over Option under Section 76 — Under Section 76 of the NIRC of 1997, a corporation entitled to a tax credit or refund of excess estimated quarterly income taxes may carry over the excess amount and credit it against estimated quarterly income tax liabilities for the taxable quarters of succeeding taxable years. Once the option to carry over and apply the excess quarterly income tax against income tax due for succeeding taxable quarters is made, the option is irrevocable for that taxable period, and no application for cash refund or issuance of a tax credit certificate shall be allowed. The SC applied this to UCPB, which marked "To be issued a Tax Credit Certificate" in its 2004 amended ITRs but carried over the same excess as "Prior Year's Excess Credits" in its 2005 quarterly ITRs; the carry-over negated the refund/TCC option and barred reversion.
• Expressio Unius Est Exclusion Alterius — The express mention of one thing excludes others. The SC used this principle to hold that because Section 76 expressly makes only the carry-over option irrevocable, the refund/tax credit option is not covered by the irrevocability rule; if the lawmakers intended the refund/TCC option to be irrevocable, they would have clearly provided so.
• Shifting from Refund/TCC to Carry-Over — A taxpayer who originally opted for refund or tax credit certificate may shift to the carry-over of excess creditable taxes to succeeding taxable quarters; however, once it decides to shift to carry-over, it may no longer revert to its original choice because the carry-over option is irrevocable. The SC applied this to UCPB, which marked the TCC option in its 2004 amended ITRs but carried over the excess in its 2005 quarterly ITRs.

• "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." — This is the statutory text of Section 76 quoted by the SC; it supplies the irrevocability clause that barred UCPB's refund/TCC claim after it carried over the excess credits.
• "Contrary to the pronouncement in Rhombus, a reading of the law unmistakably discloses that the irrevocability rule applies exclusively to the carry-over option. If the intention of the lawmakers was to make such option of cash refund or tax credit also irrevocable, then they would have clearly provided so." — This passage clarifies the scope of the irrevocability rule: it covers only the carry-over option, not the refund/TCC option.
• "UCPB's option to be issued a tax credit certificate was negated by its very act of carrying over the excess amount as excess tax credits in its 2005 Quarterly ITRs. And since UCPB used its option to carry-over, it may no longer revert to its original choice due to the irrevocability rule." — This is the SC's application of the doctrine to UCPB, explaining why its earlier TCC option could not be revived after the carry-over.

• Asiaworld Properties Philippine Corporation vs. CIR, 640 Phil. 230 (2010) — Controlling precedent cited by the SC for the rule that once a taxpayer opts to carry over excess income tax, the option is irrevocable for the whole amount and bars a refund for the same excess in succeeding taxable years.
• Rhombus Energy, Inc. vs. CIR, 838 Phil. 69 (2018) — Cited for the controlling-factor rule that once a taxpayer chooses an option, it cannot make another; the SC also declared "contrary to the pronouncement in Rhombus" that the irrevocability rule applies exclusively to the carry-over option.
• University Physicians Services, Inc.-Management, Inc. vs. CIR, 827 Phil. 176 (2018) — Quoted by the SC for the rule that a taxpayer who originally opted for refund/TCC may shift to carry-over, but once it shifts to carry-over, it may no longer revert to its original choice due to the irrevocability rule.

• Section 76, National Internal Revenue Code of 1997 — Governs the final adjustment return and the options for excess quarterly income tax payments: pay the balance of tax still due, carry over the excess credit, or be credited/refunded. The SC applied its last sentence: once the carry-over option is made, it is irrevocable for that taxable period and no cash refund or tax credit certificate shall be allowed. This barred UCPB's claim after it carried over the excess credits in its 2005 quarterly ITRs.