Phili Ppine Bank of Communications vs. Commissioner of Internal Revenue, et al.

DECISION

CTA CASE NO. 4309 - 2 - P6,683,124.50 and P7,906,192.76, These were arrived at as follows:

Ret Incoae (Loss)

Tar Due

Prior Year's Bxcess Credit

Quarterly Tax Payaents Kade

Balance of Tax Due

Least

Tax Withheld

At Source

TOTAL AKOUIT DUB (RBFUIDABLB)

1985 (P25,317,228.00)

IlL

5,016,954.00 ( 5,016,954.00) .... l..r .. ~.~ -~ .r .l..! .~ .: .~~ ( ~-~·-'· ·~-~-~-t.! .. 2. .~.J.~ l ............................................. respectively.

1986 (P14,129,602.00)

RIL

6,683,124.50 ( 6,683,124.50) .! .. r .2.}.3.. .r .~~~ .: .. 2..~ I.P. .?.t~Q.~ .t .1_9. .. 2. .~?.~ l

Petitioner

formally requested from the

Bureau

of Internal Revenue (BIR) on August 7, 1987 for the issuance of a

Tax Credit Memo

in the total amount of P7,906,192.76, broken down into P6,683,124.50 for 1985 and P1,223,068.26 for 1986.

(Annex "H", CTA records, pp. 55-56.) On July 25, 1988, petitioner filed a claim for refund of P282,795.50 and P234,077.69 representing cre~itable withholding taxes for 1985 and 1986, respectively. (Annex "I" , CTA records , p. 57.)

Due to inaction by respondent Commissioner of Internal Revenue on its claims, petitioner instituted the instadt petition for review on November 18, 1988. It is prayed that respondent refund or issue tax credit memos to petitioner in the amount of P5,016,954.00, P282,795.50 and P234,077.69.

Respondent

moves for the dismissal of the petition on, among other grounds, that petitioner's claim is pending investigation/verification by the 4o , )

DECISION

CTA CASE HO. 4309 - 3 - BIR, the instant case in not proper subject of a petition for review, the burden of proof is upon the taxpayer to show that the taxes paid were erroneously or illegally collected, taxes are presumed to have been paid or collected in accordance with law, the claim is self-serving, its right to claim the same has prescribed and petitioner has to show first that it has complied with the provisions of Sections 292 and 295 of the 1977 Tax Code.

The case was submitted for decision based on the pleadings and the records by respondent's counsel aft.er the Court has acted on petitioner's "Formal

Offer

of

Evidence"

and respondent's comments thereto.

(CTA

records, p.

152. )

A

memorandum was filed by petitioner but respondent failed to file one in the time given him. Hence, the

Court

considered the case submitted for decision.

(Id., p. 174.)

The issue for the Court to resolve is whether or not petitioner is entitled to its claim for refund or tax credit of alleged overpaid income tax for 1985 and 1986.

At the core of the issue at bar is the

DECISION

CTA CASE NO. 4309 application of Section 292 of the Tax Code (now Section 230) quoted below:

"Section 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 any..penalty claimed to have been collected without authority, or of 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 suit or proceeding shall be begun after the expira 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." (Underscoring supplied. )

It is petitioner’s contention that the case before Us does not fall within the purview of the aforequoted section inasmuch as this does not involve the recovery of tax erroneously or illegally collected. This is allegedly a simple case of overpayment of income tax. Cited as basis 4a

DECISION

CTA CASE NO. 4309 - 5 - by petitioner is Revenue Memorandum Circular No.

7- 85, the pertinent portions of whi c h is r e produced below:

April 1, 1985 REVENUE MEMORANDUM CIRCULAR NO. 7- 85

SUBJECT:

PROCESSING

OF

REFUND

OR

TAX

CREDIT

OF

EXCESS

CORPORATE

INCOME

TAX

RESULTING

FROM

THE

FILING OF

THE FINAL ADJUSTMENT

RETURN

TO:

All Internal Revenue Officers and

Others Concerned

Sections 85 and 8 6 o f the Nati onal Internal Revenue Code provide s:

XXX

XXX

XXX

Tbe

foregoing provisions are implemented by

Section

7 of

Revenue

Regulations Nos. 10-77 which provide:

XXX

x·xx

XXX

It has been observed, however, t ha t because of the excess tax payments , corporations file claims for recovery of overpaid income tax with the Court of Ta x Appeals within the two - year period from the date of payment, in accordance with

Sections

292 and 295 of the Nati onal

Internal Revenue

Code.

It is obvious that the filing of the case in court is to preserve the judicial right of the corporation to claim the refund or tax credit.

It should be noted, however, that this is not a case of erroneously or illegally paid tax under the provisions of Sections 292 and 295 of the Tax Code. .)

DECISION

CTA CASE NO. 4309 - 6 - In the a bove provisi on of t he Regulations, the corporati on may r eques t for the refund of the ove r paid income t ax or claim for automati c tax c redit . To insure prompt action on c o r porate annua l income tax returns showing refund a bl e amounts arising from overpaid quarte rly income taxes, this Office has promulga t e d Revenue Memorandum Order No. 32 - 76 date d June 11, 1976, containing the procedure in processing said returns. Under the s e procedures, the returns are merely p r e - audited which consist mainly of checking mathematical accuracy of the figures of the return .

After whi c h, the refund or tax credit is granted, and, th i s procedure was adopted to facilitate immediate action on cases like this. In this regard, th e refo r e, there is no need to file petitions for review in

the Court of

Tax Appeals

in order to preserve the right to claim refund or t ax credit within the two - year period. As already stated, actions he reon by t he Bureau are immediate afte r only a curso ry pre-audit of the income tax returns.

Moreover, a taxpayer ma y recover from t he Bureau of Internal Revenue excess income tax paid under the provi sions of Section 86 of the Tax Code within 10 years from the date of payment considering that it is an obligation created by law (Article 1144 of the Civil Code).

XXX

XXX

XXX

TOMAS C. TOLEDO

Acting Commissiner

This case is not one of first of impression. In a similar case, the court ruled that a taxpayer should still file a claim for a refund or tax 4'•) f V

DECISION

CTA CASE NO. 4309 credit and the corresponding petition for review within the two year period prescribed under section 230 in case of overpayment of income tax reflected in its returns otherwise, his right to claim for a refund or tax credit will prescribe. (Citytrust Banking Corporation v. Commissioner of Internal Revenue, CTA Case No. 4099, May 28, 1991.) The discussion of the Court’s decision in the above-mentioned case is presented below: "Although the title of Section 230 of the Tax Code is ‘Recovery of Tax Erroneously or Illegally Collected’, the title alone is not controlling. By the tenor of Sec. 230, the two-year limit applies to actions to recover -

1. any national internal tax revenue erroneously or illegally assesed or collected

2. any penalty claimed to have been collected without authority, or 3% any sum alleged to have been excessive or in any manner wrongfully collected (See Muller & Phipps v. Commissioner of Internal Revenue, 103 Phil. 145, March 20, 1958.)

excessive".

4774

DECISION

CTA CASE NO. 4309 - 8 - Sections 85 and 86 (now Sees. 68 a nd 69) of the

Tax

Code

and

Revenue

Regulations No.

10-77 give the taxpayer the option, in case of a tax overpayment shown in its final adjustment return to ask for a refund or to have the overpayment credited against the estimated quarterly tax liability for the succeeding year .

~.9..~ .. h .. ~ .. ;: .~ .......... J .. ~ ......... ! .. ~ ........... ~ .. ~ .. ~ .. ~ .. ~ .. <::1. ~ .h. .~ .. ;:.~ .. ! .. r.:t ......... ~ .. h.~ .. ~ ........ ~ .h. .~ .. E.~ .......... ! .. ~ ........ !}.2. ...... !9. !}9 .~ .. !: .... ~~.¥ ... ~ .~ .~ .. ~ .!=-.9 .............. (!. .. !. .. ~ .............. ~ ............ P .~. ~J .~ .. ! . ..<:>. .~ .............. ~ .o!; ......... !:.~ .Y .. !. ~~ .. .. .... ... ~.! .. ~ .h. E. ~ .. :::; .. P. .. ~. ~ .. ~ ........ ~.9. ....... ~ .~~h. ..... 9. .Y..~EP .~.Y.~~. f.l:~ . sec .

8 6 of the Tax Code and Sec. 7 of Rev. Reg. 10 - 77 merely give the petitioner the right to signify his intention to opt for a refund or automatic tax credit be cause " the authorization for a kind of set - off of creditable income tax against future tax 1 iabi 1 i ties conferred the corporate taxpayer in no wise lessens or muffles the respondent's power of ascertaining the correctness of any tax return" for "Any entitlement thereof must prove compli~nce with the terms and conditions peremptorily required by law xxx

A

fortiori, respondent must have to examine the returns and determin e the tax xxx (San Carlos Mi 11 ing v.

Commissioner of

Internal

Revenue,

CTA

Case

No.

3811, February 28, 1990.)

Thus the taxpayer is not assured that by signifying his intent to have the overpaid tax credited in the succeeding year by the BIR. More so, if the refundable amount for one year was not fully credited in the succeeding year, the excess uncredited amount can no longer be credited in the following year because the law limits the automatic tax credit to the "succeeding year" only. At the very least then, the automatic tax credit provision acts like a claim for refund for the year of overpayment because it serves the same purpose which is to put the BIR on notice that the collection of the tax is being con t e s ted .

~ .. ~ .. ~ .. t. ....... :::; .. ~ .~ .~ .. !. .~. <::l ........ ! .~ ...... ~ .h. .~ ... E.~. !. .~ .... . !=-h .~ .. ~.

DECISION

CTA CASE NO. 4309 even when a claim for refund or tax credit is pending with the Commissioner, payment is about to elapse | He taxpayer need not await the Ce 230. An administrative interpretation out of harmony or contrary to the express provision of a statute cannot be given weight for to do so would in effect amend the statute (Utah Hotel Co. v. Industrial Com., 151 P 2d 467, 153 ALR 1176 [1944] as cited in footnote no. 4, 2 Am Jur 2d 76). Therefore, the taxpayer should 7 reflected. _in its returns _ otherwise his t_to claim for refund or tax credit . In Chemical Bank NY Trust Co. v. US, (275 F Supp 26 aff’d per curiam 386 F 2d 995), it was held that "¥xXX an overpayment may not he credited against estimated tax for the following year and be deemed to have paid in following year for the purpose of the statute” A.fortiori, the statement in the memorandum circular that "a taxpayer may Vv tax paid under the “provisions . of. “Section 86 within 10 ause this obligation created by law" is Lt The Tax Code, being a special law, its provisions prevail over those 470

DECISION

CTA CASE NO. 4309 - 10 - under the Civil Code.

And since the overpayments arose out of the application of the provisions of the Tax Code, the provisions of the same on prescriptive periods should necessarily govern. As held in Commissioner of Inte r nal Revenue

v. Insular Lumber Co. ( 21 SCRA 1237, Dec.

11, 1967), "Sees. 306 and 309 of th e

National Internal Revenue Code

govern all kinds of refunds of internal revenue taxes those taxes imposed and collected pursuant to the

National

Internal Revenue Code.

Thus, this Court stated that "this provi sion" referrring to Sec.

306 "which is mandatory, and is not subject to qualification, and, hence, it applies regardless of the condi tion s under which payment has been made ( Guagua Electri c Light v.

Collector of Internal Revenue

and

Court

of

Tax

Appeals

L- 14421, April 29, 1961, 59 OG [Supp. 27] 4207, 4210 cited in Gon zales v.

· Court

of

Tax

Appeals

and

Collector

of Inte rna l Revenue, L-14532-33, May 26, 1961).

XXX

XXX

XXX

Moreover, publ ic poli c y dema nds that tax adjustments be made as early and expeditiously as possible.

The re ason is that it is on taxes that the government depends for its operation and that any uncertainty or controversy on those matters will somehow impair the smooth functioning of the governmental machinery . . ~ .. ~ .. ~ .. 9 .. !: .. h .. ~ .. ~ .. !..~ .. 9. .. c ........ !.: .h .~. E.~ ... ~ .. 9. .!:.~ .... 1 ............ 9. .. ~ .......... !.: .l.!.~. 4 '•)

I

•

J

DECISION

CTA CASE NO. 4309 - 11 - P.~ .. :r;-~.C?.. ~ . . C?.~ ... ~.-~!'!.~~~ -~ - ~(?.!:}~ ... C?..J::l .. :r;~ -~. 1:1.1:,1: .9.:

.!.£9.!" .. -~~9 ....... ~9 ........ ~ .~11 ..... Y.. .~ .. ~, :r; .l?. ..... ~<>~ .! . ~ .. ... !.?.~ -~ -~ .. Y. .. ~E~- -~ ---- ~.C?. ...... P. .':li? .~ .. ~ . .C::: ....... P..C?.}J~ ¥. .

XXX

XXX

XXX

More

importantly, as the circular state s the tax credit or refund is granted after a pre-audit which consists only in checking the mathematica l accuracy of the figures in the return. Taxation being vital to the sustenance of government, claims for refund or tax credit require more than a "cursory pre- aud it".

The Bureau of Internal Revenue

has the duty to determine not only the mathematical accuracy of the figures in the return but also the validity of the claimed deductions and correctness of the expenses claimed as well as the amount of income reported.

Pursuant to such duty, it must be noted that under Sees. 235 and 203 of the

Tax

Code, the taxpayer is required to keep his books and records for only 3 years (5 years prior to 1984). The

Commissioner

will then have difficulty in verifying a claim filed after the 3rd year ,if indeed claims for refund were allowed to be filed within ten years.

(Underscoring supplied. )

XXX

XXX

XXX

In the case at bar, petitioner filed an amended final adjusted corporate annual income tax return for calendar year 1985 on April 15, 1987 which is the same date on which it filed its final adjusted corporated annual income tax return for the calendar year 1986.

Counsel for petitioner conveniently did not present or make mention of the -' )

DECISION

CTA CASE NO. 4309 - 12 - original final adjusted corporate income tax return for 1985, specifically as to when the same was filed.

It can reasonably be inferred however, that the 1985 final adjusted ITR was filed on or before the last day of filing on April 15, 1986 since petitioner has always filed its tax returns within the reglementary period based on the various returns offered as evidence. Following the ruling v in the case of Commissioner of Internal Revenue v.

Asia Australia Express LTD

(G.R.

No.

85956 April

10, 1989), the two-year period within which it may claim a refund/tax credit commenced to run, at the earliest, .on ~ .P:J::~ . ! ........... ! .. ~ ... f ............ ! .~ .. ?§ when it filed its original adjusted final tax return for 1985, and would have expired on ~. J?.::r.: .. ~J ......... ! ... ?..c .... ~ . ~ .. ~ -~· The filing of the petition for refund/tax credit with the Court on November ..... ~ .. ~ .. L ........ ! .. ~ .? .? is there fore time barred insofar as taxable year 1985 is concerned. As to taxable year 1986, the adjusted final tax return was filed on ~J?..~ .. ~ .. ! ......... ~ .. ?. . .~.. ....... !. ~ .?.?.. and would have expired on ~J2:J:: .. ~..!. ........ ~ .. ?. ... ~. ......... ! .~ .. ? .~ .. The filing of the petition for refund I tax credit with the Court on ~ .. C?. .. Y. .. ~.~.P~E ....... ..! .. ~ ... t .. 1988 was well within the two-year limitation fixed .)

by Section 230 of the Tax Code.

DECISION

CTA CASE NO. 4309 However, before We dwell any farther on whether petitioner has proven entitlement to the refund/tax credit of the 1986 excess withholding tax. We should note Revenue Regulations No. 10-77 which petitioner cited in its petition and memorandum. It provides that:

tax liabilities for the quarter of the succeeding taxable year by filling up the appropriate box on the corporate tax return (BIR Form No. 1702)”. (Underscoring supplied.)

A cursory examination of the adjusted final corporate annual income tax return for taxable year 1986 (Exhibit "G") which petitioner filed with the BIR would undisputably show that it opted to apply as refundable as indicated therein. Verily, We can rely on petitioner’s own representation that it chose automatic tax credit to the succeeding year

DECISION

CTA CASE HO. 4309 - 14 - since the 1987 annual corporate income tax return was not offered as evidence for purposes of verification.

Since Revenue Regulations No. 10 - 77 provide only for alternative options, petitioner cannot be allowed to claim refund when it has already availed of the automatic tax credit to the succeeding year.

To countenance the same would be akin to petitioner, having its cake and eat it too.

WHEREFORE, petitioner's claim for refund/tax credit of overpaid income tax for 1985 in the amount of P5,299,749.95 is hereby denied for having been filed beyond the reglementary period. The 1986 claim for refund amounting to P234, 077. 69 is likewise denied since petitioner has opted and in all likelihood automatically credited the same to the succeeding year.

The petition for review is dismissed for lack of merit.

Presiding Judge

DECISION

CTA CASE NO. 4309

WE CONCUR:

GRUBA

~/ 'P~J..

0. DE VEo/

Associate Judge

-y C E R T I F I C A T I 0 N

I

hereby certify that this decision was reached after due consultation among the members of· the

Court

of

Tax

Appeals

in accordance with Section 13, Article VIII of the Constitution. (e,.4 .JG:; -e- ~ ERNESTO D. ACOSTA

Presiding Judge

Court of Tax Appeals

. I